A handful of Congressional Democrats attempted to kill a controversial IRS proposal to track the inflows and outflows of private bank accounts. However, despite their best efforts, the latest Build Back Better plan with a new whittled down price tag of $1.75 – $1.85 trillion still keeps this revenue raiser as a way to find pennies under the government cushion.
21 House Democrats, led by Rep. Cindy Axne (D-IA), urged House Speaker Nancy Pelosi (D-CA) and Ways and Means Chairman Richard Neal to nix the “improvising tax enforcement” provision from reconciliation talks. This proposal originally stemmed from Treasury Secretary Janet Yellen’s May 2021 American Families Tax Plan Compliance Agenda plan.
“We write today to express our concern about the new tax information reporting regime proposed by the Department of Treasury under consideration for inclusion in the reconciliation package. This proposal would require information on the gross annual inflows and outflows of all types of financial accounts in the United States (e.g., savings accounts, checking accounts, loans, investments) to be submitted to the Internal Revenue Service (IRS) annually. We respectfully request that this proposal be withdrawn from further consideration in favor of a more targeted approach,” the letter began. “While the intent of this proposal is to ensure all taxpayers meet their obligations—a goal we strongly share—the data that would be turned over to the IRS is overly broad and raises significant privacy concerns. We have little information about how the IRS plans to protect or use this massive trove of data. Americans expect their bank or credit union to safeguard their financial information. This proposal would erode trust in financial services providers.”
The letter continued and didn’t mince words:
We continue to hear from constituents that while these modifications somewhat decrease the level of reporting, a significant number of taxpayers will continue to meet the reporting criteria. Most of these taxpayers are not the wealthy tax evaders who are the stated targets of this proposal…Given the privacy concerns this raises in addition to the significant burden that would be imposed on a broad range of businesses and financial institutions, we respectfully request that this proposal not be included in the Build Back Better package.”
American Banker reported, “Banks moved closer to a legislative victory Thursday after more Democrats came out against a plan to require financial institutions to report account activity to the Internal Revenue Service and a draft framework of President Biden’s social spending proposal did not include the proposal.”
Senator Joe Manchin (D-WV) expressed opposition to the revised IRS proposal during remarks he delivered at the Economic Club of Washington.
“I said, ‘Mr. President, I don’t know what happened. This cannot happen. This is screwed up,’” the Democratic senator said.
Manchin added, “No one should be in anyone’s bank account.”
Over 100 financial and business trade associations denounced both interactions of the Treasury Department’s “improving tax enforcement” proposal, writing, “Lawmakers must fully understand the breadth of taxpayers who would be receiving a new form from their financial institution – almost every American who has a bank or credit union account and has gross inflow and outflow of at least $600. While recent proposals suggest that increasing the de minimis threshold to $10,000 is less objectionable, this is a flawed assumption and will not significantly reduce the scale of this new IRS program.”
The American Banking Association (ABA) applauded the proposal’s omission.
“Americans should honor their tax obligations, but forcing financial institutions to share private financial data from millions of customers with the IRS was the wrong way to reduce the tax gap,” said ABA President and CEO Rob Nichols. “We want to thank the many lawmakers in both parties who understood the significant privacy concerns with the proposal and fought to keep it out of the reconciliation bill. We will continue to stay vigilant and educate members on this flawed proposal as the bill proceeds through the House and Senate.”
As IWF Senior Policy Analyst Carrie Sheffield noted, the revised reconciliation bill may not include this IRS provision but it’s loaded with other problematic components: more costly entitlement spending programs, tax hikes, and clean energy subsidies.