The administration of President Biden has outlined a plan to go after wealthy tax evaders. This plan would enable new power and oversight of the Internal Revenue Service over the personal and private bank accounts of most American citizens.
The proposal is already very controversial. Supporters of the plan argue that billions of dollars in potential tax revenue are being missed out on right now, and that the government could use that revenue to provide services to the American population without raising taxes. Critics of the bill worry about privacy concerns and government overreach.
In this proposal, financial institutions, including credit unions and banks, would have to file annual reports to the IRS for any customer account withdrawals or deposits in of $600 or higher. The individual transactions themselves wouldn’t be listed, but summaries would be generated and provided to the government.
Biden’s administration wants this policy to apply to not just bank accounts but also investment and loan accounts. The White House estimates than almost half a trillion dollars of revenue would be generated in the coming 10 years.
Critics of the proposed policy worry that middle-class citizens would wind up being subjected to more audits. The Treasury Department states that this would not happen, and the White House itself made a promise to avoid increased audits for anyone making under $400,000 a year.
Janet Yellen, the current Treasure Secretary, stated in a recent interview that this proposal involves no reporting of any individual transactions for anyone. Her example was that of a person who has $3 million go through their checking account but they only report income of $10,000. Such individuals might be someone the IRS should audit.
Banks have been among the backlash against this proposal. They argue that it would increase the compliance costs they already face in doing business in an industry heavily burdened with turning information over to the federal government in great detail and magnitude.
Over 40 banks wrote a joint letter to leaders of the House of Representatives, including Speaker Nancy Pelosi and Kevin McCarthy, the Minority Leader. In this letter, the banks strongly recommended lawmakers to cast votes against this proposal. They argued that as currently written the proposal would require massive amounts of financial information collection impacting most American citizens while also being devoid of sufficient explanation as to how the IRS would store, use, and protect so much personal data.
The letter went on to argue how costs would go up for many parts of the economy, from preparing tax returns for individual citizens to operational costs for businesses. Privacy concerns could also be paramount for both citizens and businesses.
Given the letter spearheading the backlash, Democrats struck a deal that altered the proposal. Rather than the initial $600 threshold the White House proposed, a new threshold would be higher. These discussions are primarily taking place in the Ways and Means committee of the House.
One rumor out of the Democratic side of negotiations reported the threshold might be $10,000, instead. However, as talks progress, the actual level is fluid and could change. Banks already report many transactions every day over $10,000 given requirements to combat money laundering. Such reports go to the Financial Crimes Enforcement Network.
The draft version of the overall tax bill didn’t include this proposed policy since lawmakers were still trying to reach a deal on it. There is a concentrated effort on making sure it doesn’t wind up hitting unintended targets, such as people making less money than most other Americans and aren’t likely hiding income they don’t even have.
The White House is still adamant about the proposal in some shape, form, or fashion. They remind lawmakers routinely that billions of uncollected tax dollars are out there and could be used to finance the party’s legislative agenda without anyone’s taxes going up. On the other hand, critics point to a financial industry already burdened with logistical requirements, concerns over the financial privacy of citizens, and the possibility of this legislation unintentionally impacting low-income workers not likely to be a significant part of the tax aversion assumed to be happening.