IRS would audit more millionaires, corporations under the Ro Khanna bill

Congressman Ro Khanna, a Silicon Valley legislator in Congress, on Thursday proposed a bill that aims to strengthen the Federal Revenue Service’s enforcement tools and the ability to repress tax evasion.

The legislation, if passed, would inject $ 70 billion into the IRS between fiscal years 2022 and 2031 to help the agency hire additional staff to audit individuals who earn more than $ 1 million in total revenue. Corporations with more than $ 20 billion in assets would also be prioritized for audits under the plan.

Another US $ 20 billion is linked to the expansion of taxpayer services and US $ 10 billion is used to update outdated tax collector technology in an effort to make it more efficient in combating fraud.

In announcing the legislation, Khanna’s office referred to the dramatic price volatility of a handful of stocks last month, including that of video game retailer GameStop.

“We know that our tax system is broken and it is time to start fixing it,” said the California Democrat and vice president of Congressional Progressive Caucus in a press release.

“At the moment, the richest 1% is responsible for about 70% of the ‘tax gap’ – the difference between taxes due and taxes paid. It’s time for every American to pay their fair share,” he added.

In an effort to support the IRS ‘efforts to learn more about the country’s biggest winners, the project would also require those who earn more than $ 400,000 a year and receive income from “previously unpublished sources” to announce their income in a new report 1099.

Khanna’s bill, which his office estimates would generate $ 1.2 trillion in revenue, relies heavily on a study published by Professor Natasha Sarin of the University of Pennsylvania, former Treasury Secretary Larry Summers and former – IRS commissioner Charles Rossotti.

In a 2020 report entitled “Bridging the Tax Gap”, the trio writes that the federal government loses hundreds of billions of dollars in revenue each year as a result of taxes that were legally owed but not paid. Most of this tax gap is attributable to individuals who have insufficiently reported their income on tax returns.

Unpaid taxes, they claim, total more than all individual income taxes paid by the poorest 90% of wage earners.

“The failure of a minority of taxpayers to pay what they owe imposes a significant burden on those who fully comply with obligations,” wrote Sarin, Summers and Rossotti.

“Previously, our work required raising annual audit fees to at least 20% for individuals who earn more than $ 1 million annually, who tend to have less visible sources of revenue,” they said. “A substantial increase in high-income return exams will require hiring and training more agents capable of complex exams.”

Despite Khanna’s bill, Congress for years neglected intervention to stem the inflation-adjusted decline in IRS financing.

In the 2020 fiscal budget approved by Congress last year, overall funding for the IRS was $ 11.5 billion, an increase of 1.8% over the previous year. But when inflation is considered, the budget represented a reduction and almost all the money added represented a mandatory increase in salaries for existing employees.

In total, IRS financing has decreased by more than 20% since 2010, taking inflation into account.

The erosion of the budget has reduced the amount of money the IRS has to pay auditors and tax officials, which means that the government is less equipped to collect taxes due. The agency lost more than 33,000 full-time positions between fiscal 2010 and 2020.

Meanwhile, these staff cuts have led to a marked reduction in the service’s audit capacity. A report published by the IRS in 2020 showed that taxpayers are now half as likely to be audited compared to 2010 – with only 0.45% of audited statements in fiscal year 2019.

The timing of Khanna’s announcement was timely, as House legislators were preparing to interrogate key figures in one of the most conspicuous Wall Street stories of the new year.

CEOs of companies directly involved in the frenzied business activity that took place in a handful of stocks last month, including video game retailer GameStop, are scheduled to testify before the House Financial Services Committee on Thursday.

That action, worth $ 4 a share a year ago, had shot more than 8,000% of those levels to $ 347 in January, when a coordinated effort among retail investors set an extreme, albeit temporary, example of what is known on Wall Street like a little squeeze.

Dozens of progressive politicians, including Khanna and Sen. Elizabeth Warren, D-Mass., Have announced the startling trade as dangerous and further evidence that regulators like the Securities and Exchange Commission need to play a more active role in the bond markets.

GameStop’s shares have lost more than 75% of their value since those highs.

The chief executives of the Robinhood trading platform, the social media site Reddit, the market maker Citadel and the hedge fund Melvin Capital are expected to testify.