Three key agencies are getting about a billion dollars less than they need to do their work on behalf of taxpayers under the new spending compromise set to pass Congress this week, jeopardizing both Wall Street reform efforts and the Internal Revenue Service’s (IRS) big crackdown on tax evasion.
The Securities and Exchange Commission (SEC) is getting just a 1.8 percent increase to its budget, and $324 million less than what the Obama administration requested for the key regulatory body. The Commodity Futures Trading Commission (CFTC) is getting a 9.3 percent bump over last year’s budget, but $100 million less than the administration sought. Both agencies have substantially larger responsibilities under the Dodd-Frank Wall Street reform package passed three years ago.
“The only reason not to fully fund the CFTC and the SEC is to protect Wall Street profits, bonuses and reckless trading,” reform advocate Dennis Kelleher told The Hill. The CFTC is in charge of implementing new rules on high-frequency trading practices that carry huge risks for the economy. The agency has already made numerous compromises that critics say give too much ground to Wall Street lobbyists who want Dodd-Frank rules softened. Now they will have fewer resources than they say they need to enforce even those watered-down rules. The SEC also has new Dodd-Frank responsibilities to fulfill. On top of those new demands, the agency could likely use more resources given its poor track record on financial crisis-related casework.
While the two Wall Street regulators got smaller-than-desired increases to their budgets, the IRS is being forced to absorb a large outright cut. The agency will get $503 million less than it did for the previous fiscal year, representing a roughly 4 percent cut from 2013 funding levels. The bulk of that cut — $309 million — comes from the service’s enforcement division, which will get $5.022 billion in the coming year rather than the $5.331 billion from 2013. The enforcement cuts reportedly come from Republican outrage over last spring’s manufactured scandal involving the IRS’ oversight of political non-profit groups, which documents ultimately showed was not in fact targeted at Tea Party organizations.
Cutting tax enforcement will end up costing taxpayers far more than it saves. Thanks to the sheer size of the pile of money that companies and individuals try to hide from the government every year, the IRS enforcement division boasts some eye-popping multiplier effects. Each dollar spent on international business tax compliance brings in $8.80 to the Treasury. The enforcement division is also responsible for certifying that professional tax preparers are competent and above-board, something that yields $2.30 in revenue for every dollar invested.
For every dollar the enforcement division spends combating tax evasion done with offshore accounts, the agency brings in $6.40. This year is supposed to be a big one for the IRS’ ongoing crackdown on offshore tax havens, with agreements coming into effect with the notoriously secretive banking systems in Switzerland and the Cayman Islands. By one estimate, tax evasion costs the government $300 billion each year, and much of that white-collar thievery comes from individuals rather than corporate accountants. The cuts in the omnibus bill threaten to undermine the agency’s ability to claw back some of that money.