Backlash could force Democrats to rethink IRS 'snooping' provision
C ongressional Democrats, concerned over lukewarm public enthusiasm for their massive social welfare spending package, may be forced to modify a tax-raising provision that has prompted significant backlash.
A plan to provide the IRS with access to individual bank accounts with balances as low as $600 may end up significantly modified or even dropped altogether amid opposition from lawmakers and trade groups who say it would infringe on privacy and create significant liability for financial institutions as well as add new costs for consumers.
Speaker Nancy Pelosi, a California Democrat, brushed off concerns about the provision when reporters asked about it on Tuesday but acknowledged the terms could change.
“Yes, there are concerns that some people have,” Pelosi said. “But if people are breaking the law and not paying their taxes, one way to track them is through the banking measure.”
As for the $600 threshold, she added, “that's a negotiation that will go on, as to what the amount is.”
The provision could backfire for Democrats who are struggling to increase public approval of the Build Back Better plan.
The massive social welfare package Democrats hope to jam through the House and Senate this year would create a broad array of new government programs, paid for with tax increases.
Democrats say the tax hikes would be aimed only at corporations and wealthy individuals, who President Joe Biden has long promised would not include families with incomes less than $400,000.
But the IRS provision would target just about anyone with a bank account, requiring financial institutions “to track and submit to the IRS information on the inflows and outflows of every account above ... $600 during the year, including breakdowns for cash,” the American Bankers Association said.
In a letter sent earlier this month to House leaders, the ABA joined 40 business groups in urging lawmakers to drop the proposal. The group attacked the claim by Biden administration officials and Democrats that it would be aimed solely at catching rich tax cheats.
“While the stated goal of this vast data collection is to uncover tax dodging by the wealthy, this proposal is not remotely targeted to that purpose or that population,” business groups, including the Consumer Bankers Association and the National Association of Realtors, wrote to House leaders in both parties. “This proposal would almost certainly undermine efforts to reach vulnerable populations and unbanked households.”
House Ways and Means Committee Chairman Richard Neal, a Massachusetts Democrat, is considering a plan to increase the threshold for IRS access to bank accounts with a balance minimum of $10,000.
The average household bank account balance in 2019 was about $40,000, according to a Federal Reserve Board survey, which means the new threshold could still snag many bank accounts of individuals who do not consider themselves wealthy.
Democrats have been reluctant to kill the provision because they intend for the stepped-up IRS enforcement to pay for more than 20% of their social welfare spending package.
In a CBS News interview this week, Treasury Secretary Janet Yellen called the IRS provision targeting $600 accounts “terribly misunderstood” and insisted it would not be used to analyze individual transactions but would instead be utilized to capture wealthy tax cheats “whose income is uncertain and the IRS does not have information about it.”
Yellen has been warning Congress the government would fail to collect $7 trillion in taxes over the next decade due to cheating and underreporting.
Democrats hoped to raise more than $450 billion over the next decade through the IRS oversight provision.
The party is struggling to reach an agreement among liberal and centrist Democrats over the size of the spending package as well as the tax hikes intended to pay for it.
Polling shows the gridlock is making it difficult for Democrats to win broad public approval for the Build Back Better plan.
A CBS survey released this week found only 10% of people knew much about the proposal, while a majority of respondents knew nothing at all about it.
Internal GOP polling leaked to the media found the Build Back Better plan won mixed reviews in key swing districts in New Jersey, Iowa, and Virginia. A majority of voters in those districts said they opposed the plan overall, and most voters staunchly disapproved of paying for the bill by increasing taxes “on the majority of small businesses in the country.”
Republicans in the House and Senate, who unanimously oppose the spending package, are hitting vulnerable Democrats hard on the IRS enforcement provision.
“Democrats don’t want Americans to know that they want to enact the largest tax hike since 1968 to pay for their wasteful spending,” the Senate’s GOP fundraising arm declared in an email blast targeting Democratic Sens. Mark Kelly of Arizona, Ralph Warnock of Georgia, and Maggie Hassan of New Hampshire. “Another proposal that Democrats are desperately trying to hide is their plan to expand the IRS so they can spy on Americans’ bank accounts. Not surprisingly, Americans aren’t happy about this.”
Senate Minority Leader Mitch McConnell, a Kentucky Republican eyeing a return to the majority in 2022, railed against the plan, which he characterized as “snooping on transactions as small as $600.”
The bill would target the middle class, not the wealthy, McConnell said.
“They want to finance their spending spree by effectively treating every ordinary American as if they were under IRS audit,” McConnell said. “I must have forgotten when the president campaigned on giving everybody their own audit.”
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