The new proposal, which would need financial institutions to annually report customers’ account deposits and withdrawals at $600 or more, provides the IRS more leverage over those making less than $25,000 because they are more prone to have irregular income. Over the next decade, the reporting on over 140 million bank accounts would raise an approximated $700 billion in tax revenue, covering social spending in the Reconciliation Bill.
Discussion of raising the threshold to $10,000 has not eased any tension. Over 40 banks pressed lawmakers to vote against such a proposal in a letter directed to House Speaker Nancy Pelosi and Minority Leader Kevin McCarthy. The banks warned against the mandatory collection of most Americans’ financial information “without proper explanation of how the IRS will store, protect, and use this enormous trove of personal financial information” could result in a “tremendous liability”
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“With all due respect, the plural of anecdote is not data,” Pelosi announced. “Yes, there are concerns that some people have. But if people are breaking the law and not paying their taxes, one way to track them is through the banking measure.”
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As of now, financial regulations already have banks and all financial institutions report interest, dividends, and investment income to the IRS. If suspicion is raised and leads to an audit, the IRS can get all personal bank information in that manner.
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Furthermore, in a letter sent to President Biden and Treasury Secretary Janet Allen, Kansas Attorney General Derek Schmidt and 20 further attorneys general voiced concern over the proposal, stating it is illegal overreach by the federal government and could cause unintended consequences.
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Democrats look to pass the bill before the end of October, though if negotiations proceed, the bill could be overrun by the concern of the expiration of government funding on Dec. 3 with a debt default following.
Furthermore, the IRS already requires information regarding every employee or contractor and about anyone who pays or receives interest or makes capital gains. So what is the underlying reason for this extension of reporting? The next move could be to tap into the Automated Clearing House system, which has the image and the data for every check — physical or electronic — and covers routing numbers, accounts, amounts paid, and the payee. All the bank needs to do is to transfer a copy of whatever it sends to the ACH service to the IRS. The temptation for the government could be to use the more accurate data on patterns of expenditure to interfere in people’s private affairs. Such big data is always valuable for private companies as well.
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