The Treasury Department stated formally Tuesday that Democrats were reducing the scope of a controversial proposal that would require banks and credit unions to provide the IRS with additional account information in order to improve tax compliance.
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| Senate Finance Committee Chairman Ron Wyden (D-Ore.) will conduct a news conference this afternoon to discuss the idea. | Rod Lamkey/Pool via Associated Press |
After discussions between congressional Democrats and the Biden administration, the revised plan establishes a $10,000 barrier and exempts certain income from wages and federal programs such as Social Security.
President Joe Biden's original proposal, aimed at raising funds for his sprawling social spending plan and marketed as a way to combat wealthy tax avoidance, would have required financial institutions to report to the IRS on an annual basis the amount of money flowing into and out of any account with at least $600 in deposits and withdrawals.
However, even some Democrats worried that idea was too concentrated on the wealthy and would disproportionately harm lower-income employees. And Republicans have exploited it to characterize Biden's proposal as an invasion of privacy.
Nonetheless, Sen. Mike Crapo of Idaho, the ranking Republican on the Senate Finance Committee, said the GOP could live with a higher threshold for bank reporting — but he was hesitant to put a number on it.
"It would have to be one that was sufficiently high to keep small firms out of the net. And I'm not sure how to quantify it, but it's going to be millions," Crapo told reporters, adding, "I'm not going to tell you what the threshold is at which I'm OK with it, but there are a lot of people getting drawn into this unnecessarily."
Banks continue to reject the reporting requirement: The financial industry, which is opposed to the reporting requirement, remained unconvinced by the Democrats' revised proposal.
"Even with the changes announced today, this proposal continues to go too far by requiring financial institutions to share private financial data with the IRS on millions of customers who are not suspected of tax evasion," said Rob Nichols, president and CEO of the American Bankers Association, in a statement.
"If enacted, this new proposal will continue to raise privacy issues, increase the cost of tax preparation for people and small companies, and cause severe operational challenges for community banks," he added.
Treasury Secretary Janet Yellen stated in a statement that the proposal "reflects the Administration's strong belief that we should focus our efforts on those at the top of the income scale who do not pay their taxes, while protecting American workers by setting the bank account threshold at $10,000 and exempting wage earners such as teachers and firefighters."
Senate Finance Committee Chairman Ron Wyden (D-Ore.), who will conduct a news conference this afternoon to discuss the idea, will add that it will also contain an exception for major purchases, such as a down payment on a house.
Is it going to make the cut: House Ways and Means Committee Chairman Richard Neal (D-Mass.) disclosed the broad contours of the new plan last month during his committee's markup of tax increases, indicating that several Democratic members were uneasy with the proposal's initial contents.
For months, the banking industry has been organizing against the proposed IRS reporting rules, emphasizing that financial businesses oppose the concept regardless of how many accounts are exempt.
Republicans are increasingly attacking the Democrats' plan as well, claiming that it is an unnecessary interference into average people's financial conditions.
Treasury officials and other key Democrats have argued that the plan addresses a critical inequity in the tax system: that it is far easier for higher-earners to avoid taxes, particularly by underreporting or omitting private business income, than it is for workers whose wages are reported on W-2 forms.
And, despite corporate opposition and reservations among their own lawmakers, top Democrats have made it plain that they want the reporting mandate included in the social spending package they are attempting to pass.
"The IRS would have no way of knowing what any taxpayer purchases," Wyden plans to say today in rebuttal to both GOP opponents and bankers. "The notion that adding two items to a form already submitted to the IRS will bring western civilisation to an end simply does not hold water."
Republican legislators were never likely to support this type of plan. They have cited a recent spate of ProPublica pieces outlining how the super-rich reduce their tax bills — all of which are based on sensitive IRS information — to claim that the tax collector cannot be trusted to preserve taxpayer privacy.
Conservatives believe Democrats may be forced to scale back the proposed reporting requirement — just as they were forced to do with a proposal to tax unrealized capital gains at death when it became too divisive — especially if the Democrats continue to have to reduce the size of their tax-and-spend package.
This report was contributed by Zach Warmbrodt.
News source: Politico
