One of President Joe Biden’s chief economic policies is to provide the Internal Revenue Service (IRS) with $80 billion to collect more taxes to fund his extravagant agenda. This consists of hiring more enforcement officers and beefing up audits of high-income earners. But the administration has also proposed another method to confirm greater compliance: force financial institutions to turn over clients’ bank account information to the IRS. Not everyone is pleased by this idea, and the banks are pushing back against something they assert would be a “liability” nightmare.
Giving the IRS More Money and Power
The Biden administration recently outlined a plan that would require banks and other financial entities to offer the U.S. government an annual report on customers’ account inflows and outflows of $600 or more to the tax-collecting agency. This measure would apply to banking, investment, and loan accounts, and it is estimated to generate approximately $463 billion in additional revenue over the next decade.
If Congress approves this policy mechanism, the IRS will garner sweeping new powers and information to extract more wealth from taxpayers. However, the banks are not enthusiastic about the plan, arguing that it would increase compliance costs and add more paperwork to an industry that reports millions of $10,000-plus transactions every day to the Financial Crimes Enforcement Network (FCEN).
Forty banks sent a letter to House Speaker Nancy Pelosi (D-CA) and Minority Leader Kevin McCarthy (R-CA), urging lawmakers to reject the president’s idea. The coalition letter, which includes the Consumer Bankers Association (CBA), American Bankers Association (ABA), and the National Federation of Independent Business (NFIB), warned of the “tremendous liability” regarding the collection, storage, protection, and the use of “this enormous trove of personal financial information.” They added:
“This proposal would create significant operational and reputational challenges for financial institutions, increase tax preparation costs for individuals and small businesses, and create serious financial privacy concerns. We urge members to oppose any efforts to advance this ill-advised new reporting regime.
“Privacy concerns are cited as one of the top reasons why individuals choose not to open financial accounts and participate in the financial system. This proposal would almost certainly undermine efforts to reach vulnerable populations and unbanked households.”
But, in a memo to congressional Democrats, White House officials stated this “basic, high-level information” can help the IRS locate “flags” when high-income account holders under-report their income and, thus, “under-pay their obligations.” Treasury Secretary Janet Yellen also recommended the House add the proposal to the broader $3.5 trillion spending package that can help shrink the tax gap and make sure “tax evaders are not able to structure financial accounts to avoid it.”
Citing a House Democrat source, Bloomberg reported that legislators are brokering an agreement that would “not have the $600,” but instead raise the threshold to $10,000. House Ways and Means Chairman Richard Neal (D-MA) told reporters, “You want to make sure it doesn’t hit the unintended. You don’t want to hit people at the lower end.” Senate Finance Committee Chairman Ron Wyden (D-OR) also wants to adjust the plan to concentrate on wealthy Americans.
Finding Tax Revenue
According to the Treasury Department, the public reports less than half of their total income when additional earning sources, such as freelance income or rental earnings, are not confirmed by a third party. So, while the Treasury avers that tax compliance is at 99% for funds that are verified by another entity, there is a chasm of accurate tax reporting. This is concerning for a U.S. government spending between $4 trillion and $5 trillion a year and running a federal deficit of more than $3 trillion. Uncle Sam needs to try to scour through every avenue to create revenue to keep the lights on.
~ Read more from Andrew Moran.