The IRS Gets Window Dressed

A higher threshold for collecting bank data would change nothing

WSJ editorial.

"Despite their growing aversion to private business, House Democrats grasp the concept of “sticker shock.” Many Americans reeled when they learned that the Internal Revenue Service plans to track bank accounts with yearly cash flow as small as $600. Legislators may now raise that number to $10,000, but don’t buy it—the effect of the policy would hardly change.

The controversy surrounds a provision Democrats have announced for their $5 trillion spending bill. The rule would require banks to report annual deposit and spending totals for ordinary account holders. Treasury Secretary Janet Yellen has championed the change, telling CNBC on Tuesday that it “would really help the IRS target their auditing resources.”

That’s an odd use of “target.” As originally conceived, the rule would collect information on every bank account with more than $600 of gross annual cash flow. The Biden Administration hopes the records would reveal cases of suspiciously high spending and spur taxpayers to report income more accurately. But to achieve that goal they’re raking in data on every working American.

House Democrats heard the criticism and are eager for a whitewash. Rep. Richard Neal, the House Ways and Means Chairman, told Bloomberg last month that “we’ve reached an agreement to not have the $600.” The White House has said it’s open to lifting the threshold to $10,000, and Senate Democrats will likely run with that number in the next version of the bill.

This is no cause for relief. Sure, $10,000 sounds less intrusive than $600, but the data dive would still apply to nearly every active checking account. A retiree collecting $1,200 a month in Social Security would clear the bar easily, as would a student splitting rent in a cheap city apartment. To catch the tax cheats, the IRS says it needs to check these folks’ spending figures, and yours too.

The policy isn’t likely to spot tax dodgers in any event. In a letter to congressional leaders last month, the American Bankers Association and all 50 state bank groups described how hard it will be to draw a useful conclusion from spending figures. “Self-employed contractors who buy materials and install them for customers will commonly have gross inflows and outflows that far exceed the income they earn.” Unleashing auditors on these businesses would turn up countless false positives, in addition to the harassment costs.

The banks have plenty to dread from the reporting rule. They would bear the cost of reporting each of more than 124 million U.S. accounts, which might require new software and additional staff. Customers could count on these costs showing up in higher user fees.

Collecting bank account data is only one part of Democrats’ broader plan to bulk up the IRS, including $80 billion in new funding to hire an army of new auditors, like multiplying Agent Smiths in “The Matrix.” The Democrats are desperate for revenue to offset trillions in planned spending. But using the tax agency to screen and target ordinary Americans might be the least popular, and least effective, way they could do it."