The huge 2022 infrastructure budget contains a clause that will force banks and financial institutions to report all transactions over $600 to the IRS (Internal Revenue Service). But, according to the Treasury secretary, it will not violate people’s privacy.
According to Treasury Secretary Janet Yellen, there are billions of dollars owed to the state by taxpayers in tax evasion, and the measure seeks to identify these evaders.
The Democrat budget package includes $78 billion for use over the next ten years to implement these changes. However, Secretary Yellen assured that the IRS could carry it out.
“Right now, on every bank account that earns more than $10 a year in interest, the banks report the interest to the IRS. That’s part of the information base that includes W2s and reports on dividends and other income that taxpayers have earned so collection of information is routine,” Yellen said on “Squawk Box” a CNBC program.
Yellen said they estimate a debt to the state from tax evasion of about $7 trillion to be collected over the next ten years. She emphasized this evasion is not coming from the working middle class not reporting their income, but from more “opaque” places where people can “hide” the information.
“And a simple way for the IRS to get a sense of where that might be is just a few pieces of information about individuals’ bank accounts, nothing at the transaction level that would violate privacy, simply aggregate inflows into the account over the year and aggregate outflows and that would really help the IRS target their auditing resources,” Yellen said.
But some Republicans and people who work in the financial sector disagree that this is the best way to solve evasion. It will create an additional tax burden on people because of its costly implementation.
Last week, the treasury secretary testified on Capitol Hill in front of the Senate Banking, Housing, and Urban Development committee. Speaking for her constituents, Senator Cynthia Lummis (R-Wyo.) questioned the proposal’s secondary effects.
“There are obvious privacy concerns for all Americans here and this represents a dramatic new regulatory burden for community banks and credit unions in Wyoming and elsewhere,” Lummis said according to the New York Post.
“Bank customers are not subjects to the federal government. Banks do not work for the IRS,” the senator added.
Yellen said that banks currently report all gains greater than $10 in interest to the tax collector entity. The proposal does not include the detail of the purchase nor the inflows and outflows of money from the person’s account.
“Well, the $600 threshold is not usually where you’re going to find the massive amount of tax revenue you think Americans are cheating you out of,” Lummis countered.
“But it’s important to have comprehensive information so that individuals can’t game the system and have multiple accounts,” the secretary responded.
Nebraska State Treasurer John Murante said in the statement released last month:
“This could lead to a tremendous invasion of privacy the likes of which our country has never seen. Millions of law-abiding Americans would suddenly have their bank accounts opened to federal investigators for no more reason than buying a refrigerator. This is simply unconscionable. To make matters worse, under this proposal, saving for college could put an American family on the IRS’s radar, costs that most likely will be passed on to the public.”
The CEO of the Florida Bankers Association stated in an interview with Fox News that a more efficient way to detect tax evaders is to hire more auditors instead of going through every American’s bank accounts.
The Democrats’ massive $3.5 trillion budget failed to pass the Senate because Joe Manchin and Kristen Sinema did not agree to sign on.
More recent reports indicate that Manchin (D-Va.) would be willing to sign a $1.5 trillion budget, although it is unclear which items would be excluded from the initial bill.