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On April 3 the Trump administration provided a preliminary budget request to Congress that included a $1.4 billion proposed cut to overall IRS funding from current $11.2 billion in the government funding agreement passed in January to $9.8 billion.
The request for fiscal year 2027 is in line with the president's FY26 IRS funding request, which was also $9.8 billion.
For the second year in a row, the Treasury Department did not release its usual collection of revenue proposals known as the “Greenbook.” At a conference in March, Ken Kies, the assistant Treasury secretary for tax policy, said the department would not release the typical list of proposals because Treasury was focused on implementing policies from the One Big Beautiful Bill Act.
Grant Thornton insight:
The president's budget is a request that Congress rarely replicates in its spending bills, regardless of which president is in office or party in control of the chambers of Congress. This was evidenced by the $1.4 billion difference between current IRS funding levels and last year’s budget proposal. While the budget document serves as a negotiating position for the administration, it does not necessarily indicate where IRS funding will end up in this appropriations cycle.
Funding for most of the government expires Sept. 30, but it is a near certainty that none of the FY27 appropriations bills will be enacted by then. We expect that Congress will look to pass a continuing resolution in September until sometime after the Nov. 3 midterm elections.
IRS CEO Frank Bisignano is scheduled to testify before the Senate Finance Committee on April 15 about the IRS budget request and the 2026 filing season.
CBO estimates tax revenue shrank 28% in first half FY26
In its March 2026 report, the Congressional Budget Office, a nonpartisan economic and fiscal analysis agency for Congress, estimated that the federal deficit in the first half of the government’s fiscal year, which started Oct. 1, was $1.2 trillion. That is a decrease from the same time the year before, when the federal government ran a deficit of approximately $1.3 trillion.
This decrease was largely due to tariff revenues, as customs duties collected totaled $167 billion during the first half of the fiscal year — most of which took place before the Supreme Court overturned the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose many of the 2025 tariffs. Customs revenues exceeded corporate taxes collected by the federal government during the first half of FY26 by approximately $50 billion.
The government collected $45 billion less in corporate income taxes in the first half of FY26 — $117 billion — compared to the same period in FY25, when the government brought in $162 billion in corporate income taxes. This 28% decrease likely reflects the broad adoption of the business provisions contained within last year’s tax bill, known as the One Big Beautiful Bill Act (OBBBA).
However, to provide a sense of scale, the $167 billion in customs duties collected during the first half of FY26 also exceeded corporate income tax receipts by $5 billion for the same time in FY25, though personal income tax revenues continue to dwarf both. The CBO estimates that the government collected approximately $1.25 trillion in personal income tax revenue during the first half of FY26, up 9% from the same time the year before, despite additional individual tax breaks passed as part of the OBBBA.
Grant Thornton insight:
Despite the Supreme Court’s Feb. 20 ruling against the Trump administration’s use of IEEPA, the CBO noted that tariff revenues remain elevated from the same time last year, with the government bringing in nearly three times the amount of custom duties that it did in March 2025, though the office did not break out the line item in its report. However, the CBO estimates overall outlays grew more than revenues this past month, when compared to March 2025.
In a separate supplemental document published on March 5, the CBO estimated that if the effective tariff rate stayed the same as it was immediately after the Supreme Court ruling, the debt would grow an additional $2 trillion over 10 years. However, Trump almost immediately imposed a new 10% tariff on a variety of imports, and the administration has since initiated investigations into the trade practices of more than 80 countries, which is expected to result in a return to an effective tariff rate closer to the duties importers paid when the IEEPA tariffs were in place.
CBO did not provide a specific estimate on the impact that court-ordered refunds of IEEPA tariff payments will have on the federal deficit. However, in its March 5 publication after the Supreme Court decision, the CBO estimated that approximately $150 billion in total revenue was collected through IEEPA tariffs, placing the office’s estimate of how much money the government will need to refund at that amount plus interest.
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