As House Republicans propose funding bills with far steeper cuts than agreed upon, critics argue that Democrats should back out of the deal — which was never committed to paper — and undo a $20 billion clawback in IRS funding.

In a letter to top Senate appropriators Patty Murray (D-Wash.) and Susan Collins (R-Maine), organizations — including Americans for Tax Fairness, Groundwork Action and the Institute on Taxation and Economy Policy — say programs designed to help poorer Americans, like welfare and food stamps, are being degraded.

For that reason, they argue, the agreement to scale back the IRS overhaul is off.

“House Republicans are underfunding the very programs the agreed-upon IRS cuts are designed to protect. Thus, your Committee is no longer obliged to move forward with the IRS cuts in its appropriations and should instead fully fund the IRS at the levels President Biden requested in his [fiscal] 2024 budget,” they wrote in a Wednesday letter.

Why IRS funding is on the line

The IRS was on track to receive $80 billion in additional funding over the next decade through the Inflation Reduction Act — the sweeping health care, climate and tax overhaul signed by President Biden last summer.

Democrats were eager to bolster the IRS with thousands of new employees and technology intended to help the agency clear a backlog of tax returns and improve enforcement.

Even so, Democrats agreed to scrap $20 billion of that funding to help end a standoff over the federal debt limit and keep the U.S. from default.

The bill also ordered the IRS to draw up plans for a free online tax filing system, which the agency is scheduled to launch as a pilot program in 2024.

Republicans want to nix that program, drawing more blowback from progressive critics.

“We urge you to vigorously oppose any harmful legislative riders in this process, especially a House provision that would block the IRS from creating a free simplified tax filing system,” they wrote.

Tensions flare as House GOP pushes cuts

Democratic lawmakers ripped Republicans over the proposal Thursday during a House Appropriations Committee hearing on the Financial Services and General Government funding bill, which includes the IRS.

“The funding and policy riders in this Financial Services and General Government bill put forth by the majority are unacceptable,” top Democratic appropriator Rep. Rosa DeLauro (D-Conn.) said in prepared remarks at a committee markup on Thursday.

“Cuts to the Internal Revenue Service would protect tax cheats over honest, hard-working families,” she added.

Rep. Steny Hoyer (D-Md.). a veteran appropriator, called the IRS clawback “perhaps the most egregious cut in this bill."

"The odds of a millionaire facing an audit in 2010 were around 9 percent," Hoyer said. "Recent estimates from Syracuse University indicate that the odds were as low as 1.1 percent in fiscal year 2022. That’s a reduction in oversight of 88 percent.”

Republicans don’t see any problem with continuing to slash spending in programs they want to minimize. GOP lawmakers insist that they agreed to spending caps, not floors, so the handshake deal is still fully in effect.

“What the Democrats got was the extension of the debt, so nobody’s trying to go back and say let’s undo that,” Rep. Tom Cole (R-Okla.), Appropriations Committee vice chairman, told The Hill in an interview. “From our point of view, those were ceilings. That doesn’t prevent us from continuing to fight to try and lower things."

But Rep. Greg Meeks (D-N.Y.) told The Hill in an interview the current appropriations fight is undermining past agreements.

“It shows that their intent is to undercut the very agreement we just had to make sure that certain programs in fact continue to receive their funding level,” he said.

Growing backlash to big tax prep companies

The Republican proposal to do away with the IRS direct filing system comes amid an uproar about how private tax prep companies have been sharing taxpayer data with big tech firms.

A report from Democratic senators released this week found that big tax prep companies including H&R Block and TaxAct have been “shockingly careless” with taxpayer data, regularly sharing it with big tech platforms to effectively spy on taxpayers for marketing purposes.

“Although the tax prep companies and Big Tech firms claimed that all shared data was anonymous, the [Federal Trade Commission] and experts have indicated that data could easily be used to identify individuals, or to create a dossier on them that could be used for targeted advertising or other purposes,” the report found.

Most Democrats see the IRS direct file system as a no-brainer, but even some Republicans have expressed interest as well.

“For me, the jury is still out,” Rep. Doug Lamborn (R-Colo.) told The Hill in an interview. “[I’ll need to] see how it works out in practice.”

“I’m not stating a preference one way or another, but if that happens then we’ll have something to go by,” he added.

Rep. Vicente Gonzalez (D-Texas) told The Hill the tax filing system in the U.S. needs to be simpler and that he supported the direct file pilot system from the IRS.

“I’m for that idea,” he said. “I’m always for an idea that streamlines government and makes it more efficient and easier for Americans to do whatever it is they’ve got to do.”

The IRS has issued a “last call” for U.S. taxpayers to file for roughly $1.5 billion in unclaimed refunds from the 2019 tax year.

The agency estimates that around 1.5 million people are eligible to claim a combined nearly $1.5 billion in outstanding refunds, with the average median refund estimated at $893.

The deadline to submit a tax return for 2019 and claim the refunds is July 17. 

"Time is running out for people owed a tax refund in 2019,” IRS Commissioner Danny Werfel said in a news release, which stressed that the deadline is "rapidly approaching."

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The IRS chief urged anyone “who may have overlooked filing” during the early stages of the COVID-19 pandemic “to act quickly before they lose their final chance to claim a potentially substantial refund."

Taxpayers had "more time than usual" to claim refunds for the 2019 tax year because of the pandemic, the agency noted, with the deadline extended a few months past the normal three-year filing window to mid-July of this year.

"The 2019 tax returns came due during the pandemic, and many people may have overlooked or forgotten about these refunds. We want taxpayers to claim these refunds, but time is running out," Werfel said in an earlier update.

At least 3,000 people in every state as well as Washington, D.C., are estimated to have an unclaimed refund.

Among the states with the highest number of individuals estimated to be due refunds are California (nearly 145,000), Texas (more than 135,000), Florida (about 90,000) and New York (81,600).