synopsis

Deputy Treasury Secretary Michael Faulkender was chosen as the acting commissioner for the IRS last week, replacing Gary Shapley who was named to the role only three days ago.

Economist Larry Summers does not like recent developments at the Internal Revenue Service (IRS), the federal agency responsible for collecting federal taxes.

President Donald Trump announced last week that Deputy Treasury Secretary Michael Faulkender would be the acting commissioner for the IRS, replacing Gary Shapley, who was named to the role only three days ago. It is rumored that Treasury Secretary Scott Bessent had opposed Shapley's appointment.

Incidentally, in early April, Melanie Krause, who was running the IRS, quit after the agency and the immigration department signed a data-sharing agreement.

The developments have come amid the peak tax-filing season and as the Trump administration mulls radical tax reforms.

In an interview with Bloomberg on Tuesday, Summers, who has also served as Treasury Secretary, slammed Trump's "authoritarian tendency," calling it a major risk.

The economist called out Trump's "raw incompetence," noting that an acting commissioner was appointed by the president but terminated the very next day after the Treasury Secretary had been given a chance to weigh in on the appointment.

Summers also said the consequences of tens of thousands of IRS "most competent" IRS personnel will be felt. 

He sees a threat to the basis of the  tax system, which is based on voluntary compliance. 

"If we have a president
.. who's taking away the capacity of the IRS to process tax returns
.I think we'll see many more people take cash payments and not report them," he said.

Summers sees many more people engaging in dubious transactions with their cronies to misvalue assets, avoid paying taxes, or abusive tax shelters. 

"I'd be surprised if we're not on a path to sacrificing more than a trillion dollars of revenue over the next decade because of this misguided wanton attack on the IRS," the economist said.

He feels this will worsen the fiscal problem and lead to "damaging" tax increases.

Last week, Trump told Fox TV that revenue from his reciprocal tariffs could replace federal income tax, an idea he originally floated during his presidential campaign in June 2024.

In Wednesday's early premarket session, the SPDR S&P 500 ETF (SPY) exchange-traded fund (ETF) climbed 2.04% to $538.03, and the Invesco QQQ Trust (QQQ) ETF jumped 2.46% at $455.26.

For the year-to-date period, the SPY and QQQ are now down over 9.8% and 13%, respectively.

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