The Biden administration agreed this week to pare back a deeply controversial proposal that would force banks to turn over most customers' account information to the Internal Revenue Service under a barrage of criticism from both industry groups and Republicans – but banks say the measure still goes too far and poses a serious privacy concern.
Under the new plan that Senate Democrats unveiled Tuesday, banks, credit unions and other financial institutions would be required to report annually on accounts with deposits and withdrawals worth more than $10,000, rather than the $600 threshold that President Biden initially proposed.
"Today’s new proposal reflects the administration’s strong belief that we should zero in on those at the top of the income scale who don’t pay the taxes they owe, while protecting American workers by setting the bank account threshold at $10,000 and providing an exemption for wage earners like teachers and firefighters," Treasury Secretary Janet Yellen said in a statement.
The tightening of the plan follows a steady lobbying campaign from banking groups and other industry organizations, in addition to fierce pushback from Republican lawmakers who amounted it to the worst type of government overreach.
Even with the slimmer scope, however, banks and other industry groups have argued the policy presents potential financial privacy risks for customers while increasing compliance costs for banks and adding to the already existing burden the industry faces in turning over information to the government.
"It has become abundantly clear that Americans oppose the IRS obtaining additional information on their financial accounts," NAFCU President and CEO Dan Berger said in a statement. "The updated plan is nothing more than window dressing in an attempt to shore up support for a flawed proposal."
The White House has repeatedly defended the plan, writing in a memo to congressional Democrats that requiring banks and financial institutions to provide a "little bit of high-level information" to the IRS on account flows gives the agency more information about wealthy Americans' earnings from investments and business activity. Recipients of federal benefits like unemployment and Social Security would be exempt from the policy, which would also exclude any income received through a paycheck in which federal taxes are automatically deducted.
"This is a well-reasoned modification: for American workers and retirees, the IRS already has information on wage and salary income and the federal benefits they receive," a Treasury Department fact sheet on the changes said.
Banks are already required to report any transaction that exceeds $10,000 to the Financial Crimes Enforcement Network – part of anti-money laundering requirements.
The Biden team has stressed that banks will not have to report individual transactions to the IRS, but rather "basic, high-level information on account inflows and outflows" and that audit rates for Americans earning less than $400,000 annually would not go up.
But Ryan Donovan, the executive vice president of the Credit Union National Association, argued that increasing the annual minimum reporting threshold to $10,000 from $600 had little discernible effect on minimum-wage workers, who would likely still get swept up by the law.
"Every time this proposal changes, it gets worse," Donovan said. "For the country’s minimum-wage workforce, there is no fundamental difference between a $600 reporting threshold and a $10,000 reporting threshold."