The IRS would audit more millionaires, corporations under Ro Khanna’s bill

Representative Ro Khanna, a Silicon Valley lawmaker in Congress, on Thursday proposed a bill aimed at increasing the Internal Revenue Service’s enforcement tools and ability to crack down on tax evasion.

The legislation, if passed, would infuse the IRS with $ 70 billion between Prosecutor 2022 and 2031 to help the agency hire additional staff to audit people who earned more than $ 1 million in revenue. Companies with assets of more than $ 20 billion would also be prioritized for audits under the plan.

An additional $ 20 billion is related to expanding services for taxpayers and $ 10 billion is spent on upgrading obsolete tax collector technology to make it more efficient in catching fraud.

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

“We know our tax system is broken and it’s been a long time since we started fixing it,” the California Democrat and the deputy whip of the Progressive Caucus of Congress said in a press release.

Right now, the richest one percent is responsible for about 70 percent of the “tax gap,” the difference between taxes due and taxes paid. It’s time for all Americans to pay their fair share, ”he added.

In an effort to support the IRS’s efforts to learn more about the nation’s top winners, the bill would require those who earn more than $ 400,000 a year and receive income from “previously undisclosed sources.” they announce their income in a new 1099 report.

Khanna’s bill, which her firm estimates will generate $ 1.2 trillion in revenue, is largely supported by 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 titled “Reducing the Tax Gap,” the trio wrote that the federal government loses hundreds of billions of dollars in revenue each year as a result of taxes that are legally due but not paid. . Most of this tax gap is attributed to people who do not report their income on tax returns.

According to them, unpaid taxes add up to more than all individual income taxes paid by the lowest 90% of employees.

“The fact that a minority of taxpayers do not pay what they owe imposes significant burdens on those who fully comply,” Sarin, Summers and Rossotti wrote.

“Our work has previously called for raising annual audit rates to at least 20 percent for people who earn more than a million dollars a year, who tend to have less visible sources of income,” they said. . “A substantial rise in high-yield examinations will require the recruitment and training of more agents capable of complex examinations.”

Despite Khanna’s bill, Congress has for years stopped intervening to curb the inflation-adjusted decline in IRS funding.

In Congress ’2020 fiscal budget passed last year, global IRS funding was $ 11.5 billion, 1.8% more than the previous year. But when inflation is taken into account, the budget represented a reduction and virtually all of the added cash represented a mandatory increase in the remuneration of existing employees.

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

Budget erosion has reduced the amount of money the IRS has to pay auditors and enforcement officers, which means the government is less equipped to collect the taxes it owes. The agency lost more than 33,000 full-time jobs between 2010 and 2020.

Meanwhile, these staff cuts have led to a sharp reduction in the audit capacity of the service. A report released by the IRS in 2020 showed that taxpayers are now half as likely to be audited as they were in 2010, with only 0.45% of returns audited during fiscal 2019.

The timing of Khanna’s announcement was opportune as House lawmakers prepared to grill key figures in one of Wall Street’s most obvious stories of the new year.

The CEOs of the companies directly involved in the frantic business activity that took place in a handful of actions over the past month, including that of the video game retailer, are expected to testify before the House Financial Services Committee on Thursday. GameStop.

Those shares, which were worth $ 4 per share a year ago, had risen more than 8,000% from those levels to $ 347 in January alone, as a coordinated effort among retail investors set an extreme example, though temporary, of what is known on Wall Street as a small compression. .

Dozens of progressive politicians, including Khanna and Sen. Elizabeth Warren of Massachusetts, announced that flash trade is dangerous and additional proof that regulators like the Securities and Exchange Commission must play a more active role in the stock markets.

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

Chief executives of trading platform Robinhood, social networking site Reddit, market maker Citadel and hedge fund Melvin Capital are expected to testify.