by Andrew Wilford
Bowing to pressure from banks and taxpayers concerned about a proposal to require financial institutions to report to the IRS gross inflows and outflows for just about every account in the country, Democrats have attempted to quell concerns by raising the threshold. Unfortunately, even the raised threshold is still laughably low to accomplish Democrats’ stated purpose of cracking down on wealthy tax cheats.
The original proposal would have required financial institutions to report on any account (be it a checking account, savings account, stock portfolio, etc.) which handled more than $600 in inflows and outflows in a given year. Obviously, that’s just about every account.
But the new proposal isn’t much better. This time, the threshold would be set at $10,000, and exempt payroll deposits. In other words, if a given taxpayer received $20,000 in payroll deposits, they would only exceed the threshold were other deposits and spending, taken together, to exceed $30,000.
That sounds at first glance like a big difference, but unfortunately it would still affect millions of Americans of modest means. After all, $10,000 a year comes out to just over $830 a month in spending. And while payroll deposits would be exempted, many Americans don’t make their income through traditional biweekly payroll deposits.
Small business owners and the self-employed, for example, often don’t receive a payroll check. With the rise of the gig economy, freelance work has exploded — Gallup research found that 44 million Americans were self-employed at some point during a given week in 2019. Meanwhile, there are well over 30 million small businesses in the United States.
Workers in traditional employment situations can have money to deposit that doesn’t come from a payroll check as well. Tipped cash wages, gifts from family, or proceeds from the sale of assets like a car could all result in deposits that would count against the $10,000 threshold.
While $10,000 sounds like a lot of money, it’s not when considering the amount of money average Americans need to spend just to get by. Federal Reserve Economic Data shows that every income decile, including the bottom 10 percent of American families, spends over $10,000 (over $12,000, in fact), every year on average on housing alone. In total, American households in every income decile spend over $28,000 a year.
And even taxpayers who only receive payroll income could still get caught up in the IRS’s dragnet by saving up for a large purchase. Taxpayers who save for a down payment on a house, or the purchase of a new car, could easily end up spending $10,000 more than they take in in a given year.
In short, you don’t need to be anywhere close to a wealthy billionaire hiding your resources away in secret offshore accounts to be caught up in the IRS’s snooping. Normal spending habits can easily mean that the IRS would be receiving access to your financial data — whether the threshold is set at $600 or $10,000.
Democrats shouldn’t be taken seriously with this counteroffer to “ensure” that their bank monitoring scheme would go after their stated target of wealthy taxpayers only. A $10,000 threshold would still represent a broad-based effort to snoop on the financial affairs of average American taxpayers. Instead of giving the Internal Revenue Service new methods of spying on people, Congress should focus on fixing the agency’s broken systems and processes.
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Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.