87k IRS Agents? That's Not The Half Of It!
You've undoubtedly heard that next year's Federal Budget would include a provision for 87k new IRS Agents. While that's true, it's only part of a much large vision by the Internal Revenue Service. They aim to close the "tax gap" (quote/unquote)—the difference between taxes owed and paid.
Notice how out of the box, the assumption is that Americans are not compliant in paying their rightful due to Washington. It is a pervasive attitude I find throughout these federal tax documents.
But I digress.
IRS believes they do an excellent job of collecting wages and W-2 earnings. The IRS estimates that they collect better than 99% of all taxes from employment.
However, the IRS is equally convinced that many of us out here are skipping out on paying some of our taxes.
Next comes Financial institutions: Banks, Brokers, and Mutual Funds, which deal with savings and investments. Here the IRS doesn't feel they have achieved the same level of compliance as the workers.
Finally, we come to the "non-labor" sources of income. Here, the Treasury, who wrote the study, makes some specious conclusions. First, they claim that cash income is mainly for the rich. Cash that exchanges hands under the table. Such as, I suppose, wagers down at the country club or the baccarat table. And second. This cash comes not from working but from "non-labor."
Clever. It is a way to make what would otherwise seem incredibly draconian acceptable to many simply because it is only for the "rich."
But of course, is cash compensation only for the rich? Ask any waiter, waitress, gardener, or anyone who provides a personal service. We like to tip them all. And up until now, that's been a tax-free transaction.
Over half of those types of remuneration are not taxed. And, of course, that drives the IRS bonkers. It's that "tax gap" again.
IRS estimates that they can collect an additional, or better said, you and I can pay an additional $700 billion over the next ten years if they can manage that "tax gap."
Today we read the headline: IRS to Hire 87K New Agents. I might add, to gain an additional $80 billion to their Budget. Note that both staffing and Budget are 10-year projections.
Still, in rough numbers, this new Budget will double the IRS both in the number of personnel and in spending. And it is the projected spending for the Agency where the real story lies.
So there's the basic outline of the IRS Business Plan over the next decade. Let's connect some dots, shall we?
$80 billion additional Budget is far more than what IRS will need to compensate those new agents. It's even more money than they need to decorate the Director's new office. (Just kidding!)
I believe most of those funds will be earmarked for a new, state-of-the-art data processing system. New computers to put the IRS in the same league as the current advanced financial technology (fintech) operations.
If Treasury estimates that over half of the cash-based transactions avoid taxes, imagine what fintech does to them? There are billions upon billions slipping through those IRS fingers each day. Bitcoin can do in an afternoon what all the waitpeople, personal trainers, and gardeners can do in a lifetime.
The IRS is looking for enhanced revenue from fintech and all the lost taxes from the Underground economy. Drugs, prostitution, and other hidden transactions are all off the radar. And out of the IRS' grasp.
For years economists have estimated that this economic sector continues to grow as people have realized the magic of a "tax-free" lifestyle.
Finally, let me add another dimension to our discussion: the new Digital Dollar. It is coming. And as we talked about a couple of weeks ago, we know that Jerome Powell and the folks over at the Federal Reserve are busy working on just how the new Digital Currency will look.
And a new digital currency will, of course, need an all-new IRS. An IRS that will bring that "tax gap" down to zero. That can collect each digital dime owed to our government.
It's a much bigger plan than just a bunch of new hires. It's an all-new way of doing business.
It's the All-New Digital IRS.
Today will be a "read beyond the headlines day" as we get the July reading for the Consumer Price Index. If Wall Street is correct, and I think they will be, the headline CPI number will ease to below 9% on this reading. This lower CPI will be due almost entirely to the price of gasoline. And here's where it gets eye-popping. The current measure of gasoline inflation is "only" 44%, far below the unbelievable 60% annual gasoline inflation rate last month. Now, if you do the calculation, overall inflation is cooling somewhat. But we can all see how this entire bout of inflation rose because of the sky-rocketing cost of energy, gasoline specifically. And higher gas prices can be laid directly at this Administration's feet.
While we're talking about inflation, several countries are reporting various measures of inflation this morning. And except for China, it appears that inflation is cooling worldwide. China is the odd man out here, with inflation in China rising two ticks. But only to a very modest 2.7%.
Two European countries, Germany and Italy, reported slight reductions in their basic inflation rate. At the same time, Japan is reporting lower inflation at the Producer or Wholesale level.
So far this morning, we have had a sharp jump in the Mortgage Bankers Refinance Index, meaning it is more expensive to refi your home. However, the MBA Purchase Index was marginally lower.
So, stand by for that CPI report scheduled to be released in just a few minutes.
In earnings so far today, positive results coming from Honda Motor and Cyber-Ark Software, but not so positive from Wendy's the hamburger people. Then later today, after the market closes, we will get results from the Walt Disney Company, Manulife, and Fox Class A and B, the television and media divisions.