Democrats walked into a political ditch with their plan to let the Internal Revenue Service snoop on American banks accounts, and so far they’re doing a lousy job of scrambling to get out.
This week Senate Democrats backed by the Biden Treasury released a revised proposal that raises the threshold for financial institutions to report to the IRS on individual accounts to $10,000 from the previously mooted $600. The proposal also tries to dodge the charge of snooping on Everyman by exempting wage income from “certain payroll companies” and Social Security checks.
The details are murky, but most Americans could still get ensnared in this dragnet unless they pay bills and buy goods in cash. Democrats say banks will only have to report total annual inflows and outflows, not discrete transactions. But nearly all Americans spend more than $10,000 a year.
The real political goal here is to create a mechanism for triggering audits—probably through an algorithm—so the IRS can rifle through all of a taxpayer’s business and other financial records.
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Treasury cites the case of a taxpayer with income of $10,000 and bank cash flow of $10 million: “Having this summary information will help flag for the IRS when high-income people under-report their income (and under-pay their tax obligations).” But such a case would be exceedingly rare and possibly signal criminal behavior. Banks are already required to report suspicious currency transactions over $10,000 that might signal money laundering, tax evasion or other crimes.
Treasury also says audit rates won’t increase for Americans with less than $400,000 in income. That’s disingenuous. Democrats know the IRS audit trigger would by necessity have to sweep in tens of millions of Americans who report less than $400,000 in income to catch the many tax cheats they claim are under-reporting income.
“The Administration has been clear that audit rates will not rise relative to recent years for those with under $400,000 in actual income” (our emphasis), wrote Treasury deputy assistant secretary
Natasha Sarin
last month. But there’s no way for the IRS to know a taxpayer’s actual income unless it completes an audit. The whole purpose of this exercise is to pursue people who say they earn less than $400,000 but might be earning more.
Treasury’s main targets are small businesses whose income is less visible than wages, dividends, capital gains and interest, which already must be reported by third parties. There’s little third-party reporting of business income. “The wealthy business owners are on the honor system,”
Oregon Sen. Ron Wyden
says.
Ms. Sarin says proprietorships, partnerships and…
Read More: The $10,000 IRS Tax Dragnet