How Many IRS Employees Are Necessary?; Stocks Look to Avoid Losing Week; DoJ Probe of United Health (UNH) Sends Dow Futures Tumbling

Is it really necessary to have 100,000 people employed at the IRS to collect taxes and process returns from American citizens and corporations?

The answer probably depends on who's being asked. Bean-counters at the tax collection agency would probably argue that they're understaffed. President Trump and Elon Musk's DOGE team think otherwise.

As many as 6,000 probationary employees (those with less than 2 years at their current position) are reportedly being axed this week, a reduction in headcount of 7.5% just as tax filing season gets into full swing.

Deeper cuts are planned for May, after the bulk of filings have been processed. It's probably a safe bet to believe there will be delays and confusion surrounding this year's tax returns. The IRS is notoriously slow, burdened by ancient, legacy computer programs written in COBOL, a language hatched in 1959. Coders with COBOL understanding have become increasingly rare, exacerbating IRS issues processing returns.

The agency has been undergoing "modernization" of its systems since 2019, a six-year plan that should be completed this year, but, like previous IRS promises to upgrade, it's probably been a huge waste of time, effort, and money.

With better systems using modern technology, coupled with a simplified tax code (yes, we're dreaming), headcount could probably be reduced to something in the range of 30-40,000 employees, a reduction of 60-70%, which would save something like $6-7 billion a year, or $60-70 billion over ten years.

Trump has mentioned more than a few times his desire to eliminate the most-hated agency in the federal government, and it appears he's proceeding along that path. According to Commerce Secretary Howard Lutwick, Trump's goal is to replace the income tax with tariffs. Apparently, editors at The New Republic are opposed to freeing Americans from tax slavery. A number of experts believe the federal income tax to be illegal, and the Supreme Court, back in 1892 agreed in a 5-4 ruling.

There is no specific statute that requires Americans to pay income tax and some people believe the 16th amendment, which authorized the income tax and the Federal Reserve System, was never actually ratified.

There are plenty of people who would love to see the IRS defanged and possibly eliminated. Replacement options mentioned include a flat tax, national sales tax, or taxing only businesses and corporations in addition to tariffs.

Using the tried and true 80/20 formula (20% of employees do 80% of the work), there's a solid probability of the IRS being severely downsized over the next few years, if not sooner.

Stocks took a turn south on Thursday, setting up for a big options expiation day Friday. Walmart was the main catalyst for the downturn, the company offering fairly dour guidance.

Block, parent of Square, reported fourth-quarter earnings and revenue well below estimates. Square stock plunged more than 8% Friday in the pre-market.

Rivian was down more than five percent pre-market after the company beat expectations but offered a so-so outlook late Thursday.

Booking (BKNG) rallied nearly 4% in early morning action. MercadoLibre (MELI) is soaring nearly 12%, the company reporting strong earnings and revenue in the fourth quarter.

Dow futures took a huge leg downward as Dow component UnitedHealth (UNH) plunged more than 12% after a reported Department of Justice probe on Medicare billing was reported.

A half hour until the open, Dow futures are down more than 250 points. NASDAQ futures are up 80, while S&P futures are flat-lining.

Bitcoin continues its flirtation with $100,000, a level it has not exceeded since February 4. Being Friday, gold and silver are lower, as expected. For whatever reason, PM riggers always seem to want to send prices down at the end of every week, setting up casual buying opportunities over the weekend for stackers. Well, OK.

WTI crude oil is down early Friday, but seeks its first week to the upside in the past five. It needs to close above $71.06, currently, the price is $72.08.

As of Thursday's close, the Dow is down 359 points on the week, the NASDAQ is down 64, S&P up 3 points.

At the Close, Thursday, February 20, 2025:
Dow: 44,176.65, -450.94 (-1.01%)
NASDAQ: 19,962.36, -93.89 (-0.47%)
S&P 500: 6,117.52, -26.63 (-0.43%)
NYSE Composite: 20,149.85, -78.36 (-0.39%)