The Washington PostDemocracy Dies in Darkness

Opinion Democrats want to crack down on tax cheats. Republicans balk.

The Internal Revenue Service building in Washington on March 22, 2013. (Susan Walsh/AP)
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The parties are starkly divided on the Democrats’ plans to boost social programs and climate initiatives, including on how to pay for the new spending. But one thing to which Republicans should not object is cracking down on tax cheats. The more the government collects from those who already owe it money, the less it will have to raise in new levies on honest taxpayers.

Unfortunately, Republicans and bank lobbyists have instead attacked a key piece of Democrats’ plans to enable the IRS to cut the “tax gap” — that is, the difference between what the government is owed and what it collects. If they defeat the plan, the winners would be lawbreakers who benefit from the government services for which everyone else pays their share.

Senior Democrats want to better track the flow of money, enabling IRS officials to compare how much income people say they made against how much money went into their bank accounts in a given year. Large discrepancies might indicate tax evasion. At the least, anomalous-seeming numbers would warrant an extra look. This sort of information might not lead to more audits, but it would result in better-targeted ones.

The Democrats’ plan originally called for requiring reports on accounts into which or out of which $600 flowed in a given year. Critics charged that Democrats sought to spy on everyday Americans’ small-time transactions. So the Democrats announced Tuesday that the new reporting requirements would apply only to accounts that see $10,000 of inflows or outflows in a given year, and they excluded wage income from the calculation. These amendments underscore that the plan is not meant to target ordinary workers.

In fact, the IRS already collects detailed information on wage earners’ paychecks, while Americans who rely on other types of income — such as many wealthy Americans — have far less information about their cash flow routinely reported. The new requirements would put all types of income on a more equal footing in terms of the government’s ability to track it, shedding more light on opaque sources of income among those who do not earn paychecks.

Republicans accuse Democrats of a Marxist plot to track the minute details of Americans’ financial lives. In fact, the proposal would not require reporting of individual transactions — just totals in and out at the end of the year. Banks complain that reporting requirements might be burdensome to financial institutions and taxpayers. Actually, banks already must file a report on any account that earns more than $10 in interest in a year; adding a couple of lines for aggregate inflow and outflow numbers is hardly outrageous. As for taxpayers, the only ones who have anything to fear are those who cheat. The same can be said of businesses that work off the books.

Bank lobbyists argue that enhanced IRS funding alone would enable the government to reduce the tax gap. Certainly, more funding would help. But without better information on who might be cheating, a lot of that money will be wasted. Democrats should press on — and Republicans should drop the demagoguery.