(Jon Miltimore, Foundation for Economic Education) A proposal from the Biden Administration that would require banks to monitor personal accounts and report all financial transactions over $600 to the IRS is under fire.
On Tuesday, Treasury Secretary Janet Yellen defended the proposal on CNBC’s “Squawk Box,” calling the collection of financial information “routine” after some in the banking community criticized it as an unprecedented invasion of privacy.
"There's an enormous tax gap in the U.S. estimated at $7T over the next 10 years in terms of a short fall of tax collections to what we believe are owed," says @SecYellen. "It comes from places where the information on income is opaque and can be hidden." pic.twitter.com/PAF0HgnP8Z— Squawk Box (@SquawkCNBC) October 5, 2021
“It’s just a few pieces of information about individual bank accounts,” the secretary said.
Others disagree with Yellen’s description of the Treasury Department’s proposal, however.
Last month, economist Peter Jacobsen noted the change would give the IRS an “unprecedented look into the finances of many Americans.”
“Even the powerful political will behind the 2002 ‘Patriot Act’ only led to requirements that banks report suspicious transactions of $5,000 or more,” Jacobsen observed.
More recently, a former Kansas City Fed president argued the policy was a dangerous trap that was being laid for the middle class.
“It’s a massive search without a search warrant,” said Thomas Hoenig, who served as president of the Kansas City Fed from 1991 to 2011. “It will be the middle class and the upper middle class who will be caught in this.”
Hoenig also pointed out that, in contrast to wealthier Americans, most in the middle class do not have lawyers and accountants they can rely on to help them navigate matters with the IRS.
“In the collection of the data, there will be false positives,” Hoenig said. “That means individuals will be approached by the government about what they’re doing and they will have to spend additional funds to defend themselves. It’s a really bad idea.”
Hoenig also said the regulation would “cost billions,” since banks will have to collect the data and present it in a usable format for the IRS.