A Biden administration proposal that would allow tax officials to scrutinize all transfers of money over $600 in value has led to significant backlash and criticism, despite assurances that the policy targets tax-evaders among the wealthy as opposed to ordinary Americans.
The Internal Revenue Service (IRS) is currently alerted to transactions worth $10,000 or more.
That requirement, according to senior correspondent Damon Linker of The Week, already “sometimes results in hassles (audits, investigations, and even civil asset forfeiture) for individuals and small business owners.”
Lowering the threshold to $600 would burden individuals, small business owners, and banks even further, Linker argued in an Oct. 12 opinion piece.
According to a report by The New York Times, the proposal came as the Biden administration brainstormed ways to pay for an upcoming multi-trillion-dollar infrastructure bill — and eyed the estimated $7 trillion in unpaid taxes.
The White House estimates that lowering the reporting threshold to $600 would help earn the government an extra $460 billion in tax revenue over the next decade.
“It’s hard to imagine the IRS effectively processing the tsunami of data this rule would require banks to send their way. But it’s even harder to believe banking customers will be content to go along,” Linker wrote.
Currently, banks submit information about their customers’ interest gains. Under the new rule, banks would also have to give up account balance information. This would allow the IRS to check for discrepancies between declared income and assets present in the accounts of businesses and individuals.
The New York Times piece, published Oct. 11, observes that “banks from Denver to Philadelphia say they are being deluged with calls, emails and in-person complaints from both savers and small-business owners worried about the proposal.”
More than 100 million Americans would be affected by the regulation, the Times wrote, as well as millions of businesses.
Biden’s Treasury Secretary Janet Yellen rebuffed criticism of the proposal, claiming that the IRS checking for and possibly auditing discrepancies found among transactions in the $600 to $10,000 range would be aimed at “very high-net worth, high-income individuals and businesses.”
“There’s a lot of tax fraud and cheating that’s going on,” she told Norah O’Donnell of CBS News in a televised interview.
O’Donnell questioned the need for the IRS to focus on transactions under $10,000, given Yellen’s statements that the policy targeted the rich and their “opaque” sources of income.
“I think this proposal has been seriously mischaracterized. The proposal involves no reporting of individual transactions of any individual,” Yellen responded, before saying that the IRS lacked sufficient information on certain “individuals.”
“Namely, a shortfall in the amount that the IRS is collecting due to a failure of individuals to report the income that they have earned,” she said.
O’Donnell responded, “But that’s among billionaires. Is that among people who are transferring $600?”
In September, Sen. Cynthia Lummis (R-Wyo.), criticized the proposal at a hearing, telling Yellen that 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.”
Yellen defended the threshold, saying, “ it’s important to have comprehensive information so that individuals can’t game the system and have multiple accounts.”