By: Sid Salter
A dozen or so years ago, Congress began systematically cutting the budget of the Internal Revenue Service, the federal government agency that collects taxes.
As the owner of a modest amount of stock in a Mississippi-based bank, I am aware of the role the IRS already plays in getting data from banks. The IRS database already has your filed tax returns, your Form W-2 information on income from your employment, and Form 1099 information from your interest or dividend earning income. If you are of age, the IRS also has database information about your retirement income from the Social Security Administration.
The IRS has information on your Individual Retirement Accounts (IRA) and Form 1099-K details if you receive enough money through PayPal or other digital transactions. If the IRS wants more information, their revenue agents can issue a summons directly to the banks.
Now, in the wake of the realization that the IRS has been crippled to the point that the agency cannot effectively and fully enforce the nation’s tax laws, President Joe Biden’s administration and his congressional allies are advocating requiring the nation’s banks to give the IRS even more data about money moving in or out of people’s bank accounts.
The short-term goal is gaining more money to finance the multi-trillion-dollar government spending proposals backed by Biden – but his allies see it as a path to finance the even larger spending plans advocated by the far-left wing of the Democratic Party.
The $3.5 trillion “Build Back Better” plan touted by Biden already seeks higher taxes on corporations and the wealthy to finance it. At the same time, the Congressional Budget Office has already reported that the IRS would require $20 billion over the next decade to close the tax gap between taxes owed and taxes paid.
So, to make up for a prior decade of budget cuts and staff reductions at the IRS, the Biden administration is advocating a policy that will force the private sector financial industry – not just Wall Street banks but Main Street banks as well – to ramp up their staff and data resources to essentially function as data miners for the IRS. And that’s after the extraordinary amount of data that banks already provide under current rules.
Remember, the IRS can already issue summons to banks for a wide array of data, but that comes after IRS employees examine a taxpayer’s return. This new law seeks to have private sector bank employees perform that function off the federal payroll.
Another concern is the security of the newly mined bank account inflow and outflow information regarding private accounts. The IRS has been the target of hackers who successfully breached an estimated 700,000 Social Security numbers in 2015, with the breach coming to light in 2016 – and later at a higher number than the agency initially reported.
Mississippi State Treasurer David McRae joined 19 of his colleagues around the country in sending a letter protesting the proposed policy to President Biden and Treasury Secretary Janet Yellen, in which the state chief financial officers said:
“The IRS is a constant target of cybercriminals and in recent years has suffered significant breaches. This reporting requirement will consistently put a large amount of sensitive financial data in transit to the IRS and at constant risk of cyber-attack.
“The IRS does not currently have the capability to effectively utilize or protect this data. If passed, this will be one of the largest and most continuous data mining exercises against Americans in our history and will put a constant strain on customer privacy, data security and overall safety of the banking system.”
Another viable concern is the impact on the nation’s banking system that drives doubt between banks and their customers were expressed by McRae and his colleagues in their message to the President:
“Requiring financial institutions to police accounts and constantly report to the government may create a lack of trust, causing many to close financial accounts, increasing the number of unbanked Americans.”
There has to be a wiser, fairer fix to the realities of years of IRS budget cuts than forcing private banks to become part-time IRS agents. Congress should own their decade of IRS budget cuts and craft better solutions.