Democrats attempted to revive a revenue-generating proposal for President Joe Biden’s economic agenda on Tuesday by raising the threshold that would require financial institutions to report bank account information to the IRS.
- Democrats raised to $10,000 from $600 a proposed account threshold for banks to report additional information to the IRS.
- The move comes after Republicans and the finance industry attacked the original plan as government overreach and after the House Ways and Means Committee excluded it from a modified budget plan last month.
- Financial services professionals and Republicans continue to oppose the plan.
Treasury Secretary Janet Yellen said banks and other financial institutions would have to report additional information to the IRS on accounts with annual inflows and outflows totaling at least $10,000, instead of $600 as in the original plan. The new proposal exempts wage and salary earners, whose income is already reported to the IRS, and federal program beneficiaries, such as those receiving Social Security payments.
Banks would have to report the total amount of funds deposited into the account and the total amount withdrawn over the course of a year for accounts above the $10,000 threshold whose owners are not exempt. The goal of the additional reporting is to help the IRS identify wealthy tax cheats and raise more revenue to help pay for Biden’s infrastructure bill.
The Treasury Department argues that “disproportionately wealthy individuals who earn income in ways not visible to the IRS” will be discovered this way and will be less able to evade taxes because the IRS will see how much money is going into their bank accounts.
The increase in the reporting threshold comes after the original proposal was left out of the House Democrats’ modified budget plan last month. Republicans and financial professionals had balked at the $600 reporting requirement, which likely would have affected most Americans. They claimed government overreach and complained of invasion of privacy, massive paperwork burdens for financial institutions, and security issues at the IRS, which would be handling additional sensitive data when it’s overwhelmed already.
Even with the threshold raised to $10,000, the same criticisms remained.
“This proposal still goes too far by forcing financial institutions to share with the IRS private financial data from millions of customers not suspected of cheating on their taxes,” the American Bankers Association said in a statement.
“Not every non-wage worker is a millionaire. How about self-employed hair stylists, convenience store owners and farmers just to name a few? If enacted, this new proposal would still raise the same privacy concerns, increase tax preparation costs for individuals and small businesses, and create significant operational challenges, particularly for community banks,” the statement continued.
But the Treasury Department denied these claims in an FAQ about the plan, saying, “In reality, many financial accounts are already reported on to the IRS, including every bank account that earns at least $10 in interest. And for American workers, much more detailed information reporting exists on wage, salary, and investment income. There is nothing novel about the scope of the information reported to the IRS.”
Banks already have to report some information on customer accounts to the IRS, including certain cash transactions of more than $10,000, to help the government combat money laundering and tax evasion.
Critics of the new proposal say that’s enough. ”It doesn’t matter if the amount is $1, $600, or $10,000, Americans do not want the IRS snooping into their bank accounts,” Republican Congressman Drew Ferguson of Georgia tweeted.
Have a question, comment, or story to share? You can reach Medora at email@example.com.