Debate rages over Biden’s proposed $600 IRS reporting requirement for bank accounts
R Street Institute policy director Jerry Theodorou said it’s a laudable goal to hold all people accountable for paying their taxes. But he argued that this reporting requirement is poorly crafted, too broad and would do more harm than good.
“If it’s aggregate activity of over $600, that’s every bank across the country,” he said, noting that the policy would affect far more people than just the top 1% or 5%.
Theodorou also said that despite what proponents of the requirement may say, smaller banks and credit unions do believe the new requirement would create “systems issues” and they’ve been “pretty loud” about that.
“They serve 100 million Americans and what the credit unions would have to do is invest in software and consultants to change their systems, and they would pass their costs onto policyholders,” Theodorou said. He noted that anyone subject to the requirement would be subject to the risk of a data breach, and that banks might increase fees to cover the cost of complying with the requirement.
Theodorou also eschewed the idea that sole proprietorships and farms could move the needle for the IRS’ shortfall. He instead recommended that the IRS focus its efforts on making sure the uber-rich are paying their tax obligations, because that is the group that has the most money.
“Having every bank account in the country reported the IRS, the aggregate activity, doesn’t – it’s not going to give you the answer. It’s not going to tell you where to look,” he said. “I would recommend putting the resources in the higher-end evaders. Because… you’ve got individuals that are evading tens of billions of dollars verses your contractor that is under-reporting by [$40,000 or $50,000]… that’s where the action is.”
“If you do the numbers it’s staggering in terms of the misallocation of resources,” Theodorou said, comparing trying to recoup tax money from small business to “putting your finger in the dike” when contrasted with the upside of going after major offenders.
If Democrats do manage to pass the reconciliation bill, then the reporting requirement may be changed slightly from its current $600 level. Bloomberg News reported that Democrats were considering raising the threshold to $10,000.
Theodorou said how quick Democrats were to change the threshold reflects how unserious their proposal is.
“It makes me laugh because it just… tells me that the number is meaningless if you’re going to go from hundreds to 10,000,” he said. “Just an ordinary teacher, or you know, Post Office worker is going to have [$50,000-$60,000] moving in and out of their account every year because of their rent or school payments or food or whatever.”
Fundamentally, Theodorou said, the reporting requirement simply “misses the mark” and based on his analysis of arguments from Treasury Secretary Janet Yellen, “seems to be political.”
“It’s buried in a three-and-a-half trillion dollar package there. So if it’s not standing on its own, then you’ve got to look at it and say, ‘Why is it in there?’” he said. “This one doesn’t pass the sniff test to me.”
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