What’s in Your Wallet?

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To help foot the bill for the “Build Back Better” budget reconciliation bill—originally slated to cost $3.5 trillion—the Biden administration proposed an unprecedented measure for collecting revenue: conscripting banks and credit unions to help the IRS set up a financial profile for nearly everyone in America.

In a May list of proposals for raising revenue, the Biden Treasury Department laid out a plan to force financial institutions—including banks, credit unions, brokerages, and payment apps such as Venmo—to calculate and report to the IRS the gross inflows and outflows of every account with annual transactions totaling $600. When this proposal received pushback from banks and credit unions of all sizes and individuals concerned about privacy, the administration and prominent Democrats such as House Speaker Nancy Pelosi (D-CA) and Sen. Elizabeth Warren (D-MA) defended it as a means of targeting the wealthy. In a letter defending the proposal to Congress, Treasury Secretary Janet Yellen wrote,  “For certain income streams that accrue disproportionately to upper-income households, there is no information available to the IRS from third parties presently.”

Given the obvious fact that $600 in a bank account does not make someone wealthy, Democratic leaders sent signals in mid-October that they would modify the threshold to $10,000. But that would still leave the IRS free to financially profile a vast swath of Americans who are not wealthy.

As Reason’s Matt Welch points out:

Ten grand is about how much you make working full-time in New York City on the minimum wage for four months, for eight months at the federal rate. It’s the average annual rent in West Virginia (the least expensive in the country), and less than half the average price paid for used vehicles in 2020. What $10,000—let alone $600—most decidedly is not is the preferred level of annual transactions among the tax-avoidant rich.

And there is no evidence the “tax-avoidant rich” evade taxes by opening small accounts at multiple financial institutions. As my Competitive Enterprise Institute colleague Robert Carter, a former tax attorney and state tax prosecutor, has written, “The 1 percent simply aren’t disguising income by dispersing it through a vast network of accounts with a scant $50 of activity per month.”

The proposal also seems poorly designed to catch criminals, who routinely use pseudonyms and fake Social Security numbers or avoid the banking system altogether. In fact, the only purpose of the proposal seems to be to ease surveillance on generally law-abiding citizens in whom government bureaucrats, for whatever reason, suddenly take an interest. A search of the database that would be created could lead to bank account info at the touch of a button for interested bureaucrats.

Yellen and the proposal’s backers note that it does not require financial institutions to automatically submit transaction-level data on specific purchases. But it’s a fair bet to say that IRS officials having such info at their fingertips will lead to more—and more extensive—searches, and there is nothing in the proposal that would curb the government’s ability to conduct those. Recent data breaches and misuses of sensitive taxpayer information, such as the leak of the files of wealthy Americans to the news site Propublica, do not inspire confidence that the IRS will keep this personal financial data confidential and secure.

What’s more, the mandated calculation and reporting of nearly every depositor’s total inflows and outflows would impose a crushing compliance burden on community banks and small credit unions. The Independent Community Bankers of America (ICBA) states that the proposal “would create a costly and complex new reporting burden for community banks that already carry significant data collection and reporting obligations for the federal government, effectively acting as uncompensated agents of the government.” The ICBA adds that small banks could be penalized “for inadvertent errors” such as account ownership changes from marriage, divorce, and individuals being added to accounts.

Similarly, the Credit Union National Association (CUNA), which represents most of the nation’s credit unions, also warns of a large “new compliance burden.” CUNA President and CEO Jim Nussle writes in a July letter to the Senate:

Smaller credit unions would be especially burdened by this new proposal. From the increased costs of software upgrades to staff training, smaller institutions would perhaps need financial resources and additional time for implementation to meet new requirements.

Bank and credit union officials, along with other critics of the proposal, also warn that it could contribute to the problem of marginalized and low-income Americans not accessing the banking system, because of both new privacy concerns and compliance costs that force banks to raise fees or impose new ones.

Read the full article at Law & Liberty.