The GameStop Corp. logo on a laptop and the Robinhood application on a smartphone.
Tiffany Hagler-Geard | Bloomberg | Getty Images
Rep. Ro Khanna, the Silicon Valley lawmaker in Congress, introduced a bill on Thursday to increase the Internal Revenue Service’s enforcement tools and its ability to tackle tax evasion.
The legislation, if passed, would provide the IRS with $ 70 billion between fiscal 2022 and 2031 to help the agency hire additional staff to monitor individuals earning more than $ 1 million in total revenue. Companies with more than $ 20 billion in assets would also be prioritized for audits under the plan.
An additional $ 20 billion is tied to comprehensive taxpayer services, and $ 10 billion is dedicated to upgrading the tax collector’s outdated technology in an effort to make it more efficient in fraud detection.
In announcing the legislation, Khanna’s office referred to the dramatic price volatility in a handful of stocks over the past month, including those of video game retailer GameStop.
“We know our tax system is broken, and it’s been a long time since we’re going to fix it,” said the California Democrat and deputy whip of the Congressional Progressive Caucus in a press release.
“Right now, the richest percent are responsible for about 70 percent of the ‘tax gap’ – the difference between taxes due and taxes paid. It is time for every American to pay a fair share,” he added.
U.S. Representative Ro Khanna, Democrat of California, speaks at a press conference following a vote in the U.S. House on ending U.S. military involvement in the war in Yemen, on Capitol Hill in Washington, DC, April 4, 2019.
Saul Loeb | AFP | Getty Images
In an effort to support the IRS’s efforts to learn about the country’s highest earners, the bill would further require those who earn more than $ 400,000 per year and receive income from “sources not previously known. disclosed “should announce their income in a new 1099 report.
Khanna’s bill, which his agency estimates would bring in $ 1.2 trillion in revenue, relies heavily on a study published by University of Pennsylvania professor Natasha Sarin, former Treasury Secretary Larry Summers and former IRS commissioner Charles Rossotti.
In a 2020 report entitled “Shrinking the Tax Gap,” the trio writes that the federal government forfeits hundreds of billions of dollars in revenue every year as a result of taxes that were legally due but not paid. Most of that tax gap is due to individuals underreporting their income on tax returns.
Unpaid taxes, they claim, are in total more than any individual income taxes paid by the lowest 90% of earners.
“The failure of a minority of taxpayers to pay what they owe places significant burdens on those who fully comply with the rules,” wrote Sarin, Summers and Rossotti.
“Our work previously called for increasing annual audit rates to at least 20 percent for individuals who earn more than $ 1 million per year and typically have less visible sources of income,” they said. “A substantial increase in the number of high-income returns will require hiring and training more agents capable of complex investigations.”
Despite Khanna’s bill, Congress has failed for years to step in to stop the inflation-adjusted decline in IRS funding.
In the fiscal 2020 budget passed by Congress last year, total funding to the IRS was $ 11.5 billion, an increase of 1.8% from the previous year. But when we take inflation into account, the budget represented a cut and almost all the money added represented a mandatory pay increase for existing staff.
In total, IRS funding has declined more than 20% since 2010, taking inflation into account.
The budget erosion has reduced the amount the IRS has to pay to pay auditors and enforcers, making the government less equipped to collect the taxes it owes. The agency lost more than 33,000 full-time jobs between fiscal year 2010 and 2020.
Meanwhile, these staff reductions have led to a significant reduction in the audit capability of the service. A report published by the IRS in 2020 showed that taxpayers are now half as likely to be audited than they were in 2010 – with only 0.45% of returns audited in fiscal 2019.
The timing of Khanna’s announcement was propitious, as House lawmakers prepared to grill key figures in one of Wall Street’s most notable stories of the New Year.
Scheduled to testify before the House Financial Services Committee later on Thursday are the CEOs of companies directly involved in the insane trading activity that took place in a handful of stocks over the past month, including that of video game retailer GameStop.
That stock, worth $ 4 a share a year ago, had risen more than 8,000% from that level to $ 347 in January as a coordinated effort by private investors led to an extreme, if temporary, example of what was on Wall. Street is known as a short squeeze. .
Dozens of progressive politicians, including Khanna and Sen. Elizabeth Warren, D-Mass., Heralded the dazzling trade as dangerous and further evidence that regulators like the Securities and Exchange Commission need to take a more active role in the securities markets.
GameStop stocks have lost more than 75% of their value since those highs.
Chief executives from trading platform Robinhood, social media site Reddit, market maker Citadel and hedge fund Melvin Capital will all testify.