Democrats plan to revise President Joe Biden’s proposal that all bank transactions of more than $600 be reported to the IRS as banks and privacy advocates come out against the plan.
The initial proposal was for banks to report all account inflows and outflows of over $600 to the IRA in an effort to crack down on tax cheats and raise revenue for Democrats’ multitrillion-dollar infrastructure and social spending package. Now, House Ways and Means Chairman Richard Neal says Democrats have agreed to raise that threshold.
“We’ve reached an agreement to not have the $600,” Neal said Thursday, according to Bloomberg.
While Democrats are still working to work out the details, they are reportedly targeting a $10,000 threshold. That is similar to the amount the federal government already monitors through the Treasury Department.
Banks are currently mandated to file currency transaction reports on all deposits of over $10,000 to the Financial Crimes Enforcement Network, a division of the Treasury Department. The FinCEN prevents money laundering and crime but doesn’t monitor the reports for tax purposes.
However, banks and credit unions fear the Biden proposal to report all transactions over $600 to the IRS would be overly burdensome, taking up crucial time and money.
“From a bank perspective, the administrative challenges and complexities of having a $600 annual threshold may not achieve the policy goals of reducing tax avoidance,” said Scott Talbott , senior vice president of government relations at the Electronic Transactions Association. “At $600, the squeeze may not be worth the juice.”
There are also privacy concerns, particularly given that a threshold as low as the proposed $600 would target nearly everyone. More than 140 Republican lawmakers sent letters to Neal, House Speaker Nancy Pelosi, Treasury Secretary Janet Yellen, and IRS Commissioner Charles Rettig pushing back on the notion.
“Not only would such an overly comprehensive IRS database require significant resources to build, maintain, and protect, but it would make the personal financial data of millions of Americans vulnerable to attack,” they said in the letter .
Part of Democrats’ plan to fund their spending package is to infuse the IRS with billions of dollars to increase tax enforcement and work to close the massive tax gap in the country, which is the aggregate amount of taxes owed versus what is actually collected.
Republicans have balked at giving the IRS more power and funding, particularly in light of the ProPublica tax leaks earlier this year when thousands of pages of classified tax documents tied to the country’s wealthiest people were released to the media. Despite an investigation, nobody has been charged for the massive leak.
Biden’s $600 threshold proposal was anticipated to raise nearly $500 billion in revenue over the next decade, although it’s unclear what the revenue prospects of the revised proposal is expected to net.
Democrats are threading the needle with the spending package, which will be passed through a budgetary reconciliation process that avoids a Republican filibuster and only needs a simple majority vote to pass. Democrats can’t afford to lose a single vote in the Senate and can only do without a few votes in the House, meaning centrists in the party have outsize power in the negotiations.
Other measures Biden has proposed have already been pared down from their initial levels. Biden’s 28% corporate tax pitch now sits at 26.5%, and a plan to nearly double the capital gains rate for the highest earners also came in lower than proposed .