The GameStop Corp. logo on a laptop and Robinhood application on a smartphone.
Tiffany Hagler-Geard | Bloomberg | Getty Images
Rep. Ro Khanna, the Silicon Valley lawmaker in Congress, on Thursday proposed a bill aimed at expanding the tools for enforcing the Internal Revenue Service and the ability to curb 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 audit individuals earning more than $ 1 million in total revenue. Corporations with more than $ 20 billion in assets will also be given preference for audits under the plan.
A further $ 20 billion has been linked to expanded taxpayer services and $ 10 billion has been earmarked for upgrading the taxpayer’s outdated technology in an effort to make it more effective at catching fraud.
In announcing the legislation, Khanna’s office referred to the dramatic price volatility in a handful of shares 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 coming to fix it,” the California Democrat and deputy whip of the Congressional Progressive Caucus said in a news release.
“Right now, the richest percent is responsible for about 70 percent of the ‘tax gap’ – the difference between taxes owed and taxes paid. It’s time for every American to pay their fair share,” he adds.
California Democratic Representative Ro Khanna speaks at a press conference following a vote in the U.S. House on the termination of 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 more about the country’s top earners, the bill would further require those earning more than $ 400,000 a year and income from “sources not previously disclosed” not “received, their revenue on a new 1099 report must disclose.
Khanna’s bill, which he said would generate $ 1.2 billion 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, titled “Reducing the Tax Gap,” the trio writes that the federal government misses out on hundreds of billions of dollars in revenue each year due to taxes that are legally due but unpaid. The bulk of the tax gap can be attributed to individuals reporting their income as tax returns.
According to them, unpaid taxes amount to more than all the individual income taxes paid by the lowest 90% of the earners.
“The failure of a minority of taxpayers to pay what they owe places a great burden on those who fully comply,” Sarin, Summers and Rossotti wrote.
“Our work has previously called for an increase in annual audit rates to at least 20 percent for individuals earning more than $ 1 million annually, who tend to have less visible income,” they said. ” A significant increase in the investigation of high-income returns requires more agents to be hired and trained to conduct complex investigations. ”
Despite Khanna’s bill, Congress has for years neglected to halt the inflation-adjusted decline in IRS funding.
In the fiscal year 2020 budget passed by Congress last year, total funding to the IRS was $ 11.5 billion, which was 1.8% higher than the previous year. But when inflation is considered, the budget represented a reduction, and almost all the added cash was a mandate to increase the salary for existing staff members.
In total, IRS funding has declined by more than 20% since 2010, taking inflation into account.
The budget erosion has reduced the amount the IRS has to pay to auditors and enforcement officials, which means the government is less equipped to collect the taxes it owes. The agency lost more than 33,000 full-time jobs between fiscal 2010 and 2020.
Meanwhile, staff cuts have led to a sharp 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 as in 2010 – with only 0.45% of the revenue audited in fiscal 2019.
The timing of Khanna’s announcement was appropriate when lawmakers from the House were prepared to roster key figures in one of Wall Street’s most striking stories of the new year.
The CEOs of companies directly involved in the insane trading activity that has taken place in a handful of shares over the past month have, among other things, been scheduled to testify before the House Financial Services Committee.
The stock, which was worth $ 4 a share a year ago, has risen more than 8,000% from these levels to $ 347 as recently as January, as a coordinated effort among retail investors set an extreme, albeit temporary, example that on Wall Street is known as a short print. .
Dozens of thriving politicians, including Khanna and Senator Elizabeth Warren, D-Mass., Hailed the striking trade as dangerous and further evidence that regulators such as the Securities and Exchange Commission should play a more active role in the security markets.
GameStop shares have lost more than 75% of their value since those highs.
The CEOs of trading platform Robinhood, social media site Reddit, market maker Citadel and hedge fund Melvin Capital are expected to testify.