Treasury Secretary Janet Yellen defended the controversial Biden administration proposal that would require financial institutions to report to the Internal Revenue Service (IRS) information about taxpayers’ personal bank account activities, justifying the spying as “routine” that would assist the corrupt agency catch tax evaders.
In an interview on CNBC’s “Squawk Box” Tuesday, Yellen was asked whether the IRS has the “wherewithal” to actually collect “more information about taxpayers and bank accounts including cash flows,” a proposal widely seen as an unprecedented invasion of privacy.
“Well, of course, they do,” Yellen responded. “Right now, on every bank account that earns more than $10 a year in interest, the banks report the interest or into the IRS, that’s part of the information base that includes W2s and reports on dividends and other income that taxpayers have earned, so collection of information is routine.”
Yellen insisted that the IRS spying on Americans’ bank account would help fill the “enormous tax gap” and blamed the shortfall on “places where the information on income is opaque.”
“But there’s an enormous tax gap in the United States, estimated at $7 trillion over the next ten years in terms of the shortfall of tax collections to what we believe are owed. It comes from places where the information on income is opaque and can be hidden,” Yellen said.
“And a simple way for the IRS to get a sense of where that might be is just a few pieces of information about individuals’ bank accounts, nothing at the transaction level that would violate privacy, simply aggregate inflows into the account over the year and aggregate outflows and that would really help the IRS target their auditing resources which we’ve proposed to greatly expand to do their audits on those usually high-income wealthy individuals that may be concealing their transactions and their income, and these would be helpful indicators of where it would make sense for auditing to occur,” Yellen added.
President Biden’s American Families Plan released in April includes a provision that would require banks to turn over data on their customers’ annual withdrawals and deposits from bank accounts with at least $600 or at least $600 worth of transactions. The Biden administration argued the crackdown on unreported income would generate about $464 billion over a decade that would be used to bankroll parts of Biden’s “Build Back Better” $3.5 trillion social welfare spending bill. However, the congressional Joint Committee on Taxation hasn’t released an analysis or estimate the proposal could raise.
House Ways and Means Committee — the committee in charge of putting together the details of the spending bill omitted the proposal from the Democrats’ list of tax-policy reforms in drawing up the reconciliation package. But, the Senate is currently working on the bank-reporting proposal, focused on a higher threshold than the $600 figure transaction to implement in the spending plan.
However, the House legislation does include Biden’s proposal to expand the IRS in staffing and enforcement, providing $80 billion in funding for the tax agency to collect $700 billion in revenue over a decade. Yellen has been urging Democrats working on constructing the spending plan not to water down the tax plan central proposal piece, arguing a robust “reporting regime that is broad-based” will enable the IRS catch tax evaders who “accrue income in opaque ways.”
The proposal has faced significant pushback by Republicans and the largest U.S. banking lobby groups, including the Independent Community Bankers of America and the American Bankers Association. A coalition of 41 bank industry groups sent a letter to House leaders warning of the “ill-advised new reporting regime,” stating it would “not remotely targeted” to detect major tax avoidance. Meanwhile, nearly two dozen states treasurers, including Florida Chief Financial Officer, Jimmy Patronis are united in opposition to the plan, telling Yellen in a letter her proposal is “one of the largest infringements of data privacy in our nation’s history.”
Over 140 House GOP lawmakers echoed the financial industry sentiment in a letter to Yellen and House Democrats in September, citing the lack of proof that additional reporting would aid the “IRS’s efforts to close the tax gaps.” They also noted the tax agency’s vulnerability in being prone to massive cyberattacks and data breaches.
Last week, during the Senate Banking Committee hearing, Sen. Cynthia Lummis (R-WY) tore into Yellen over her support for the additional IRS powers, asking if the Treasury Secretary if she was aware of “how unnecessary this regulatory burden is?”
“Do you distrust the American people so much that you need to know when they bought a couch?’ Or a cow?” Lummis said. “There are obvious privacy concerns for all Americans here, and this represents a dramatic new regulatory burden for community banks and credit unions in Wyoming and elsewhere. Bank customers are not subjects to the federal government. Banks do not work for the IRS.”
Yellen defended the proposal, claiming the measure won’t “provide detailed transaction-level data by banks to the IRS.”
“Well, the $600 threshold is not usually where you’re going to find the massive amount of tax revenue you think Americans are cheating you out of. I am astounded by what you’re supporting and proposing. I think it’s invasive. I think privacy for individuals is being ignored. And I think that treating the American people like they are subjects of the government is unconscionable,” Lummis fired back.