There are a lot of reasons to question the viability of the federal income tax system during the Trump administration.
President Trump HATES the federal income tax system and suggested he might repeal it during his 2024 Presidential campaign. He would prefer to replace it with “simple” tariffs. But tariffs simply can’t generate as much revenue as the income tax system for funding the federal government. The federal government collects about $2.2 trillion in income taxes. Imports to the U.S. for 2023 were about $3 trillion. When tariffs are imposed, that import number will fall. There isn’t enough scope to raise the same revenue with tariffs. (And, incidentally, tariffs shift the tax burden from high income individuals, who spend less of their income, to the poor and middle class, who spend most of their income.)
Meanwhile, Trump’s speeches have confused many taxpayers about their obligations. While working at a CPA firm this year, I heard some of the clients thought the IRS was being disbanded and they no longer had to file an income tax return.
That simply isn’t true. If you study the budget proposals in Congress, income taxes are still scheduled to provide most of the revenue for federal programs, notably the Department of Defense.
The IRS is one agency that hasn’t been eliminated by the Trump’s Department of Government Efficiency (DOGE), although it has been seriously wounded.
With additional funding enacted by Congress, the IRS grew from about 79,431 employees to 102,309 during the Biden administration. With increased staffing, taxpayers who called the IRS saw a decrease from 28-minute wait times a few years ago to about 3 minutes during the 2025 tax season.
That additional $80 billion funding has since been cut to $40 billion, most of it already spent.
DOGE layoffs plus about 20,000 IRS employees who accepted the administration’s deferred resignation offer will reduce the IRS’s staffing to about 60,000 to 70,000 employees.
Three IRS Commissioners have resigned since the beginning of the year, most recently because of disagreement with the Trump administration’s plan to use IRS records to track undocumented aliens living in the United States for deportation.
When they learned that IRS records were no longer confidential, some undocumented aliens decided not to file a 2024 federal income tax return.
The leadership for modernizing the IRS has also resigned, since funding for their efforts has been eliminated.
Decreased staffing means decreased enforcement. Decreased enforcement leads to decreased compliance and decreased tax collections.
Taxpayers see less risk of not complying with the tax laws.
This year, federal income tax return filings fell by nearly 1 million (about 1.1%) and about 200,000 more taxpayers have filed extension forms, compared to last year. (Natural disasters, including the Los Angeles wildfire, also contributed to the decrease in 2024 income tax returns filed by April 15.)
Decreased staffing also leads to more frustrated taxpayers, who won’t be able to get their IRS questions answered and problems resolved.
On February 19, 2025, President Trump issued Executive Order 14219, Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative, which suspended issuing new regulations by government agencies, including the IRS.
The IRS recently issued Notice 2025-23, withdrawing final regulations issued during January, 2025, making basis-shifting via partnerships “transactions of interest” and requiring special disclosure of these transactions. These transactions are a way to shift the tax basis (cost for sold assets or tax deductions) from non-deductible items, such as corporate stock, to tax deductible items, such as equipment.
The American Institute of Certified Public Accountants complained the regulations were too complicated. Of course, these artful tax-dodging structures are also complicated, generating substantial fees for tax advisors.
Instead of cleaning up the regulations, the IRS is withdrawing them, so these transactions no longer have to be disclosed, and these abusive taxpayers can go on their merry way, avoiding paying income taxes. The Treasury estimated last year that the transactions could potentially cost taxpayers more than $50 billion over a 10-year period.
The withdrawal of these regulations is an indication of a reduced IRS commitment to enforcing our tax laws. In other words, our tax laws might become merely “suggestions”, inviting “aggressive” tax positions and “substantial compliance” for matters such as properly documenting charitable contributions and business expenses.
After all, no one is looking!