Democrats on Tuesday narrowed the scope of a proposal to increase the amount of information the IRS receives about bank accounts, amid a massive lobbying effort against the proposal from banks and Republicans that threatens to jeopardize its prospects.
Democrats are seeking to blunt the attacks, stressing that the proposal is aimed at strengthening the IRS’s ability to enforce tax laws against wealthy tax cheats.
“Despite what opponents say, what President Biden and Democrats have proposed is focused on rooting out tax cheating at the top,” Senate Finance Committee Chairman Ron Wyden (D-Ore.) said Tuesday on a call with reporters.
But their proposed changes aren’t stopping the lobbying campaign against the proposal, with Republicans separately holding an event Tuesday to bash the provision.
“This is a breathtakingly terrible idea,” said Sen. Pat Toomey (Pa.), the top Republican on the Senate Banking Committee.
The Biden administration initially proposed in the spring requiring financial institutions to report more information about bank accounts on annual IRS forms if the accounts had more than $600 in deposits or withdrawals in a year.
Senate Democrats on Tuesday said they are proposing to raise that threshold to $10,000. They also said that wage income or income from Social Security would not be counted toward that threshold.
In cases where an individual spends significant savings on a major purchase, there would be no additional reporting as long as the amount of money that came into the account doesn’t exceed the amount of wages plus $10,000, Wyden said.
The proposal is designed to raise revenue that could be used to help offset the cost of spending and tax cuts in Democrats’ massive social safety net package.
The Treasury Department estimated that the administration’s initial proposal would raise $460 billion over 10 years. Wyden did not provide a specific revenue estimate of the revised proposal but said it could raise hundreds of billions of dollars.
The modified IRS-reporting proposal was formally announced following weeks of discussions between Democratic lawmakers and the White House. The Biden administration backs the changes made by Democratic lawmakers.
“Today’s new proposal reflects the Administration’s strong belief that we should zero in on those at the top of the income scale who don’t pay the taxes they owe, while protecting American workers by setting the bank account threshold at $10,000 and providing an exemption for wage earners like teachers and firefighters,” Treasury Secretary Janet Yellen said in a statement.
Treasury also promoted the narrowed proposal by issuing a fact sheet about it. The department called the exemption for wage earners and federal benefits recipients a “well-reasoned modification.”
“For American workers and retirees, the IRS already has information on wage and salary income and the federal benefits they receive,” Treasury wrote.
Democrats’ announcement of changes to the IRS proposal also comes amid repeated attacks from banks and Republicans over the idea. Banks and credit unions have been encouraging their customers to contact lawmakers with concerns about the proposal.
Critics have raised concerns about taxpayers’ privacy and the ability for the IRS to keep any additional information it receives secure.
Democrats have been responding by emphasizing that the IRS would not receive information about specific purchases or payments. Instead, Democrats noted, it would require banks to report the total amount of money that came into an account during a year, and the total amount that came out of the account.
“I’ll put my privacy-hawk credentials up against anybody in the United States Senate,” Wyden said.
Democrats also argued that by attacking the proposal, Republicans and banks are defending people who are not paying the taxes they owe.
“Banks and their wealthy clients are outright lying about this proposal … and many Republicans are backing them up to satisfy their corporate and wealthy donors,” said Sen. Elizabeth Warren (D-Mass.). “It’s no surprise that those who have billions in unpaid taxes on the line would gladly spend millions of dollars lobbying against this proposal because it would help unrig the tax system just a little bit.”
However, financial groups and Republicans say Democrats’ changes do little to address their concerns with the proposal.
“The updated plan is nothing more than window dressing in an attempt to shore up support for a flawed proposal,” Dan Berger, president and CEO of the National Association of Federally-Insured Credit Unions, said in a statement. “Instead of creating financial privacy risks for consumers and adding compliance costs for our nation’s community financial institutions, Treasury and the IRS should focus its attention on the data it already has to increase tax compliance.”
Richard Hunt, president and CEO of the Consumer Bankers Association, said in a statement that if lawmakers’ goal is to go after wealthy people who aren’t paying their taxes, “Democrats should add a couple zeros to their threshold.”
Senate Republicans also argued that many Americans would still be affected by the proposal with a $10,000 threshold.
“If they raise it to $10,000, it will still capture everybody and every small business,” Toomey said.
Republicans said they have been hearing from many of their constituents about the proposal. They also expressed skepticism that the IRS would focus enforcement efforts related to the proposal on taxpayers making over $400,000, as the administration has indicated.
“Why don’t they just put a ban in there that bans the IRS from snooping in the accounts of people who make less than $400,000?” said Sen. Mike Crapo (Idaho), the top Republican on the Senate Finance Committee.
The IRS reporting proposal isn’t the only way that Democrats want to pay for their social-spending package. Democrats are also proposing to provide the IRS with $80 billion over a decade for enforcement and modernization of its technology. Additionally, Democrats are calling for tax increases on high-income individuals and corporations.
Republicans broadly dislike Democrats’ tax proposals, but say the bank-reporting proposal is particularly egregious.
“This is one of many really bad ideas in the Democrat proposal, but this one in particular needs to be killed,“ said Sen. John Thune (S.D.), the No. 2 Senate Republican.