Senate Democrats are making a last-minute effort to include a controversial proposal that would force banks to turn over most customers' account information to the Internal Revenue Service in the party's final tax and spending bill after President Biden omitted the measure from a revised framework.
Democrats crafted a plan to require banks and other financial institutions to disclose accounts with $10,000 of annual deposits or outflows to the IRS, a move intended to help the agency crackdown on wealthy tax cheats. Revenue from the plan was intended to pay for Biden's signature economic spending measure, but it faced fierce criticism from banks, industry groups and Republicans.
Biden notably omitted the plan from the latest Build Back Better proposal after opposition from Sen. Joe Manchin, who called it "screwed up."
But lawmakers have not given up hopes that some version of the proposal survives in the climate and family spending plan: Natasha Sarin, deputy assistant secretary for Economic Policy at the Treasury Department, said during a virtual discussion hosted by the Center for American Progress that she was "hopeful" the provision would be included.
"There's a very committed group of senators trying to get this past the finish line," Sarin said, naming Sens. Angus King of Maine, Mark Warner of Virginia, Tom Carper of Delaware, Elizabeth Warren of Massachusetts and Ron Wyden of Oregon (who chairs the Senate Finance Committee).
She added: "I think there are ways that we can get there, and that we're going to be able to provide the IRS with both information and resources that are going to fundamentally overhaul the way tax administration works in this country, all for the better."
Under the original plan, any account with at least $600 of aggregate inflows or outflows had to be reported to the IRS – but it was met with deep distrust by industry groups and lawmakers. The White House agreed to narrow the scope of the plan following a steady lobbying campaign from banking groups and other industry organizations, in addition to pushback from Republican lawmakers who see it as the worst type of government overreach.
Recipients of federal benefits like unemployment and Social Security would be exempt from the policy under the latest proposal, which would also exclude any income received through a paycheck in which federal taxes are automatically deducted.
The White House has repeatedly defended the plan in the face of bank criticism, 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. 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.
Banks are already required to report any individual transaction that exceeds $10,000 to the Financial Crimes Enforcement Network – part of anti-money laundering requirements.
"As former governors, we care deeply about closing the tax gap and making sure everyone is paying their fair share. Misconceptions of what the financial reporting proposal would do should not derail us from this important goal," Carper, Warner and Sen. Angus King, I-Maine, said in a joint statement last week. "We are committed to working with our colleagues to address any concerns with proposals to close the tax gap."