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WASHINGTON, DC - OCTOBER 19: Senator Ron Wyden, D-OR, speaks during the Senate Finance Committee hearing on the nomination of Chris Magnus to be the next US Customs and Border Protection commissioner in the Dirksen Senate Office Building on Capitol Hill October 19, 2021 in Washington, DC. The hearing for Magnus’s confirmation comes after it was delayed for several months by Chairman Sen. Ron Wyden (D-OR) who called on the Department of Homeland Security to release documents related the involvement of DHS in the street protests in Portland, Oregon.
The Treasury Department on Tuesday announced that it was peeling back and narrowing the scope of its controversial bank reporting proposal that would require banks and credit unions to disclose sensitive account information to the IRS to boost tax compliance.
The newest revision to the proposal sets the threshold at $10,000 and results from discussions between congressional Democrats and the Biden administration. The recent changes would also include exemptions of certain income from wages or federal programs, including Social Security.
Bank Reporting Proposal
In United States President Joe Biden's original proposal, officials designed the requirement to raise money for the Democrat's social spending plan. The lawmaker touted the program as a way to reduce tax dodging conducted by wealthy individuals. It would require financial institutions to give the IRS an annual figure for cash flow in and out of any account with at least $600 worth of deposits and withdrawals.
However, some Democrats believed the proposal was not prioritizing the rich enough and focused too much on workers who had much smaller incomes. Additionally, many Republicans used the proposal to criticize Biden's plan and considered it an invasion of privacy, Politico reported.
The change was announced by Sens. Ron Wyden of Oregon, the head of the Finance Committee, and Elizabeth Warren of Massachusetts. The announcement was made just hours after Treasury Secretary Janet Yellen endorsed the proposal.
In a statement, Yellen said that the new proposal was made with the Biden administration's firm belief that they should double down on people who are on top of the income scale and do not pay sufficient taxes. The official added that the proposal aimed to protect American workers by having a threshold of $10,000 and including an exemption for wage earners such as teachers and firefighters.
During a call with reporters, Wyden said that IRS commissioner Charles Rettig testified that the country's tax gap could be as high as $1 trillion annually. The senator argued that the information received from the reporting proposal would help alleviate the issue. Wyden noted that the proposal was made to focus on the wealthiest people who avoided paying tax, Yahoo News reported.
Adverse Effects
While Biden's plan was based on his pledge to go after corporations and wealthy individuals who dodged taxes, many experts say the proposal could have the opposite effect. Critics argued that the Democrat's plan would disproportionately impact small businesses and the very individuals that the proposed plans to protect.
If Congress votes to approve the proposal, banks will be required to monitor personal and business accounts that have more than $600 of activity. They would then submit a yearly report of the accounts and send it to the IRS. The Treasury Department said the reports would provide crucial information to allow auditors to identify discrepancies. They would then be able to investigate any irregularities.
"I think the net will catch a lot of small fish and not the big fish that Biden purports to target. It seems to me, a bait and switch. They purport to go after the one-percenters but in the crosshairs will be small businesses," said senior fellow at the Urban-Brookings Tax Policy Center Steven Rosenthal, Komo News reported.
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