IRS Audit Revenue Plunges Under Trump

Speaker Mike Johnson got some help from Democrats today.
Reuters
By Yuval Rosenberg and Michael Rainey

Happy Tuesday! Congress has averted the threat of a politically risky government shutdown at the end of the month, after the House voted overwhelmingly today to pass a stopgap bill funding federal agencies into December. Yet even as that risk has been defused, an ongoing bond market selloff, which has been pushing up interest rates on government debt, continues to raise concerns. Here's your evening update, including a new report about the effects of the Trump administration's cuts at the IRS.

Congress Averts Pre-Election Shutdown, but Not Without Some Drama

The House on Tuesday easily passed a bill to prevent a potential government shutdown just weeks before the November elections.

The measure, called a continuing resolution, provides funding for the federal government from the beginning of the new fiscal year on October 1 through December 11, postponing a spending fight until after voters have determined who will control Congress for the final two years of President Trump's term.

House lawmakers approved the bill in a broadly bipartisan vote, 370 to 48. The Senate had approved it last month, so the House action sends the continuing resolution to Trump's desk well ahead of a funding deadline at the end of the month.

"Today's vote is the culmination of House Republicans moving proactively, decisively, and strategically earlier this summer," Rep. Tom Cole, the Oklahoma Republican who chairs the House Appropriations Committee, said after the vote. "The action we took paved the way for the Senate to promptly engage in the process, and I am proud to say we are now sending this funding extension to President Trump without waiting for the clock to run out."

Hard-line Republicans threaten again: Yet, as has so often been the case with this Congress, the House vote wasn't without drama. A handful of GOP rebels threatened to oppose a procedural vote setting up legislative action for the rest of the week on four measures, including a GOP resolution condemning socialism. If that rule vote failed, it would once again embarrass Republican leaders and leave lawmakers with little to do in the near term.

Some Republican holdouts objected to the process used to pass the funding bill, which was considered under suspension of the rules and thus required a two-thirds majority to pass. Some objected to elements of the funding bill itself, most notably a White House-backed delay of a federal ban on the sale of intoxicating hemp products.

Democrats also insisted that the bill not include additional funding for the Trump administration's immigration crackdown, which they have opposed, and temporarily blocked a Trump administration proposal to give political appointees power over the federal grant-making process.

Two Democrats help save GOP bills: In the end, five Republicans voted no: Reps. Andy Harris of Maryland, Clay Higgins of Louisiana, Ralph Norman of South Carolina and Chip Roy and Pete Sessions of Texas. That would have been enough to have the vote fail, but two Democrats - Reps. Jared Golden of Maine and Marie Gluesenkamp Perez of Washington - joined with the remaining Republicans and one independent (who caucuses with Republicans) to narrowly approve the rule by a margin of 210 to 208. The votes by Golden and Gluesenkamp Perez were highly unusual, given that lawmakers in the minority party typically vote as a bloc against the majority party's rules, even if they back the underlying legislation.

Instead of Speaker Mike Johnson suffering a stinging defeat, it was House Democratic leaders trying to explain how they got blindsided by two of their own members.

"I didn't get a heads up. You'll have to talk to Katherine," Democratic Leader Hakeem Jeffries told reporters, referring to Katherine Clark, the House minority whip.

"That came as a surprise," Clark reportedly said after the vote.

Former Democratic Speaker Nancy Pelosi told reporters that she was disappointed by the vote. "Voting for the rule is something that I, as Speaker, we never - we didn't even consider that anybody would do that," she said. "We never had that problem. So I'm disappointed that they did that."

The bottom line: There won't be a government shutdown in October, and the fight over full-year funding for fiscal year 2027 has been postponed until after the elections, when both parties hope to secure more leverage to push their priorities.

Chart of the Day: Government Bonds Under Pressure

The yield on the 10-year U.S. Treasury note rose more than 3 basis points Tuesday to 4.79%. Driven higher by concerns over the latest flare-up in the war against Iran and its effects on fuel costs and inflation, the yield touched its highest level since January 2025 in trading during the day.

The continuing bond selloff has driven up government borrowing costs around the world. Eshe Nelson of The New York Times noted today that Japan is seeing 10-year yields above 3% for the first time in 30 years and Germany now has the highest 10-year rates since 2011 (see the Times's chart below).

"A combination of factors are prompting investors to demand higher returns to hold government debt: a flood of borrowing by the world's richest nations, expanding budget deficits, persistent inflation and few signs that countries are able or willing to take steps to improve these conditions," Nelson wrote.

Ulrike Hoffmann-Burchardi, chief investment officer of the Americas at UBS, said she expects to continue to see heightened volatility in the bond market. "With no clear path to reopening the Strait after six months of war, inflation worries remain elevated," she said in a note, per CNBC. "Uncertainty over the Federal Reserve's policy outlook, fiscal concerns, and rising AI-related debt issuance have all kept bonds under pressure."

Ed Al-Hussainy, a portfolio manager at Columbia Threadneedle, told the Times that it's difficult to "disentangle" the causes of the rate surge. "The only thing we can say right now is that they're all pointing in the same direction," he said, "and that's in the direction of higher rates, and they're doing it globally."

Chart of the Day: Government Bonds Under Pressure

IRS Audit Revenue Drops 35% Following Trump's Staffing Cuts

The IRS saw a significant decrease in revenues generated by audits in fiscal year 2025, according to a report released last week by the Treasury Inspector General for Tax Administration (TIGTA), and the decline appears to be driven by the Trump administration's effort to slash staffing at the nation's tax agency.

The drop came despite a record level of overall tax collections in fiscal year 2025, totaling $5.3 trillion. Despite the record collections, revenues from enforcement efforts fell, declining from $98.7 billion in fiscal year 2024 to $93.8 billion in fiscal year 2025.

Much of the decline in enforcement revenues was related to a decrease in examination- or audit-related revenues. For fiscal year 2024, IRS audits brought in roughly $10 billion. For fiscal year 2025, that tally dropped to $6.5 billion, a 35% decline.

"Although the IRS hired a substantial number of employees in FYs [fiscal years] 2023 and 2024, in FY 2025 the federal government began efforts to reduce the size of government," the report says. "As a result, the IRS lost approximately 27 percent of its Examination and Collection staff from FY 2024 to FY 2025."

The IRS initiated about 30% fewer audits of individuals in fiscal year 2025, TIGTA found. In the Small Business and Self-Employed Division, which typically accounts for the largest share of enforcement-related revenue, new examinations were put on hold from March 2025 through the end of the fiscal year in September "due to uncertainty around the availability of resources," TIGTA said.

The bottom line: Efforts by Republicans to slash staffing the IRS appear to be reducing revenues from labor-intensive audits. TIGTA warns that revenue reductions may continue and possibly become more pronounced: "While the workforce reductions influenced metrics in FY 2025, the downstream effects of these reductions are likely to become more apparent over time."

Fiscal News Roundup

Views and Analysis