“I don’t think there’s any Republican who doesn’t think the IRS should be able to identify tax evaders and taxes that are being evaded. The question is, do you need to create a mechanism where the people of America have to give up their privacy on all of their financial transactions in order to do so? There’s got to be some ground in the middle.”

⁠ — Sen. Mike Crapo (R-Idaho), in a news conference, Oct. 19, 2021

“Whether it’s $600 or $10,000, under this proposal, the intimate financial details of everyone in this room, at a minimum of every American who has a job, will be turned over on a daily basis to the IRS. What could possibly go wrong?”

— Sen. John Neely Kennedy (R-La.), at the same news conference, Oct. 19, 2021

President Biden wants the IRS to gather more information from individual bank accounts to discourage tax-dodging and round up more money for his agenda.

After Democrats watered down his proposal in response to Republican concerns, GOP senators nonetheless took turns describing it as an unprecedented invasion of privacy.

Republicans said the plan would scoop up all of Americans’ “intimate financial details” and hand them over to “spies” working for the IRS.

Nope. The Democrats’ proposal was never that intrusive and now is much more limited. No intimate details about any transactions would be reported.

The Facts

Biden is proposing to bulk up enforcement at the IRS by adding agents and expanding some reporting requirements. This would bring in an estimated $320 billion over 10 years, according to the administration, that Biden would use to fund other items on his to-do list. Some nonpartisan tax experts have questioned whether the plan would really raise that much money.

Academic researchers have estimated that the tax gap — or the difference between taxes owed and collected — is around $600 billion a year. The top 1 percent of earners accounts for more than $160 billion, according to the Treasury Department.

A worker reporting salary and benefits on a W-2 form has very little chance of evading federal taxes. The IRS has access to those income figures independently from third-party reporting. Stockbrokers already report their customers’ dividends and capital gains to the IRS. Banks already report to the agency on any account that earns at least $10 of interest.

But the IRS has little visibility into more-obscure income sources that are not tracked by third-party reporting, so these tax collections work pretty much on an honor system.

“What do we know? That raising the chance of getting caught high enough deters evasion is incontrovertible, as evidenced for example by the difference between the U.S. noncompliance rate of 63 percent for income not covered by third-party information reports (or withholding) compared to 1 percent for wages and salaries, covered by both,” according to a 2018 study on tax compliance and enforcement by the National Bureau of Economic Research.

The initial version of the Democrats’ proposal would have required financial institutions to provide the IRS with two new figures every year: the total inflows and outflows for any bank account with more than $600 in annual deposits or withdrawals, “with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account with the same owner.” The requirement would apply to all business and personal accounts at financial institutions.

After Republicans raised concerns that the $600 minimum would sweep up almost all Americans, Democrats raised the proposed threshold to $10,000. In addition, they proposed that all wages and federal benefits such as Social Security be exempted from the threshold. (To combat money laundering, the IRS already requires entities or individuals “in a trade or business” who receive more than $10,000 of cash in a single transaction or in related transactions to file what’s known as Form 8300.)

The Treasury posted a fact sheet Tuesday before the Senate Republicans’ news conference, noting that the proposed reporting requirements would help pinpoint unusual circumstances, such as “a taxpayer who reports $10,000 of income, but has $10 million of flows in and out of their bank account.”

“To be clear: The financial reporting proposal does not include reporting on individual transactions of any amount,” the fact sheet says. “Instead, banks would add two additional data points to the information that is already supplied to the IRS: how much money went into the account over the course of the year, and how much came out.”

Crapo, the ranking Republican on the Senate Finance Committee, said at the news conference that a large number of Americans still would get swept up by the IRS “dragnet.” “The average American runs over $61,000 through their account, on housing ($20,000), transportation ($9,000), personal insurance and etc. ($7,000), the list goes on,” he said, citing Bureau of Labor Statistics data.

He was not the only senator to make some version of the claim that the IRS would be snooping on bank accounts. Kennedy, who once served as secretary of the Louisiana Department of Revenue, repeatedly said Americans’ “intimate financial details” would be collected, and he called it a “squid-brained idea.” (Scientists say squids and octopuses are the smartest invertebrates.)

“We’re going to give all kinds of personal, private information about American citizens to the same IRS that famously discriminated against conservative organizations seeking tax-exempt charters?” said Sen. Patrick J. Toomey (Pa.), the ranking Republican on the Senate Banking Committee.

“We are talking about some of the most private of information being shared, turning bank presidents, bankers, community bankers, credit-union lenders and clerk tellers into spies for the IRS,” said Sen. Kevin Cramer (R-N.D.).

But this level of scrutiny does not appear anywhere in the Democrats’ proposal.

Samantha Jacoby, a senior tax legal analyst at the left-leaning Center for Budget and Policy Priorities, called these GOP claims “complete fabrications.”

“The IRS would have no way to monitor individuals’ transactions,” she said in an email. “Moreover, the modified proposal from Senate Democrats would exempt W-2 wages and federal benefits from the $10,000 threshold. (So for example, an account holder with $50,000 in wages but less than $10,000 in other types of deposits would not be covered.)”

Garrett Watson, a senior policy analyst at the right-leaning Tax Foundation, said the new reporting requirements could lead to audits but declined to endorse the senators’ statements.

“The IRS reporting proposal would share aggregate inflow and outflow information on a subset of bank accounts based on the $10,000 threshold (potentially excluding certain income sources, such as wage income through direct deposit),” Watson said in an email. “It’s worth noting, however, that this information may trigger audits in certain situations, which would then potentially include a more detailed examination of bank account activity that otherwise would not happen. The Treasury Department has noted that the audit focus would be on those earning over $400,000, but it’s not clear how this would be measured as a counterfactual or how this would play into IRS auditing decisions.”

A spokeswoman for Crapo, Amanda Critchfield, said in response to our questions that the Biden administration’s “green book,” a report detailing revenue proposals for fiscal 2022, says the Treasury Department would have “broad authority” to write the nitty-gritty details of federal regulations codifying the new financial reporting requirements.

“We have not seen any language that would prevent the IRS from requesting, without subpoenas, from financial institutions and payment providers on transaction-level data at any point in the process,” Critchfield said in an email. “All we have is Treasury’s sketch of its financial reporting dragnet in the so-called Green Book of Biden Administration tax proposals, which states: ‘The [Treasury] Secretary would be given broad authority to issue regulations necessary to implement this proposal.’ ”

A spokeswoman for Kennedy did not respond to our questions on the record. He not only claimed the IRS would be collecting “intimate financial details,” he said it would be done daily under the Democrats’ proposal. But banks would report once a year.

The Pinocchio Test

Republican senators including Crapo and Kennedy claimed that under the Democrats’ tax enforcement plan, the IRS would be snooping on the sensitive financial details contained in Americans’ bank records.

The burden of proof is on the speaker, as we like to remind our readers, but in this case, no proof was supplied.

In reality, the proposal is to monitor the total amount of money going in and out of any bank account with more than $10,000 of transactions in a given year, not the blow-by-blow of where and when people spend their money.

And just before this GOP news conference, Democrats had curtailed their proposal to cover fewer Americans and to exempt all wages and federal benefits from the new requirements.

These claims earn Three Pinocchios.

Three Pinocchios

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