Financial Privacy Dodged a Joe Biden Bullet....This Time

Statement

This past May, the Department of Treasury issued their General Explanations of the Administration's Fiscal Year 2022 Revenue Proposals which contained new Biden Administration policy proposals aimed at furthering Biden's tax--spend-inflate agenda. While excessive spending and an ongoing tug-of-war over the tax code has become routine, one Internal Revenue Service reporting proposal was truly jaw-dropping.

Treasury's proposed comprehensive financial account information reporting regime may sound benign, but this proposal would mandate financial institutions report gross inflows and outflows over merely $600 (not a typo) to the IRS. These reports would contain a breakdown of physical cash, transactions with a foreign account, and transfers to and from another account with the same owner. Further, this reporting mandate would apply to all business and personal accounts held at these financial institutions.

Fortunately, Congress did not include this proposal in the Democrats' $3.5 trillion-dollar reconciliation package this week. Thus, the U.S. was able to successfully dodge a bullet--this time. However, it should nonetheless be troubling to anyone who values financial privacy that we have even gotten to this point. It's incredible that a presidential administration would even suggest implementing a regulatory regime that would report any "inflows or outflows" in nearly all bank accounts that would be instantly reported to the federal government.

Such a proposal should never see the light of day.

Nevertheless, Treasury claims that such reporting would close the tax gap with business income, saying that "revenue loss is driven primarily by the lack of comprehensive information reporting and the resulting difficulty identifying noncompliance outside of an audit." Despite the lack of supporting evidence, it appears that Treasury is content with implementing a heavy-handed approach destroying what little is left of financial privacy.

It's ironic that such a proposal would come from an administration that professes a desire to address the unbanked, underbanked, and underserved communities. When one-third of unbanked households (over 2 million households) currently state that their reason for not having a bank account is because they do not trust banks, this further erosion of financial privacy will only make the problem worse. It seems clear that Treasury does not care about Americans' financial privacy nor do they understand a fundamental issue underlying the unbanked epidemic in the U.S.

Are these and other Americans justified in not trusting the IRS with their financial information? Being only six years removed from 700,000 Americans having their taxpayer accounts hacked, and considering there are currently 1.4 billion attempted cyberattacks against the IRS each year, Americans' concerns are more than justified. It would be gross negligence to hand over an abundance of unnecessary personal data to an institution that is both a prime target for hackers, and is inadequately prepared to secure such information.
In addition to consumer-side privacy issues, financial institutions would also be tasked with overburdening and extensive reporting requirements. These very same institutions that proved to be invaluable components of our economy at the onset of COVID-19 would have been strong-armed into ramping up their compliance departments just to hand over more sensitive personal information to the IRS. While technically these are private actors, such a requirement would have made every financial institution a de facto arm of the government. It's already worrying enough that these same financial institutions must comply with the over-intrusive and problematic Bank Secrecy Act. Adding this new layer of tax reporting compliance would have been an unimaginable expansion of the financial surveillance state.

Fortunately, Republicans harmoniously voiced their opposition to this proposal while it was under consideration. This month, prior to the reconciliation text being released, I was happy to join my Republican colleagues in sending a letter directed to Speaker Pelosi, Ways and Means Chairman Neal, IRS Commissioner Rettig, and Treasury Secretary Yellen outlining our concerns about the impact such a reporting requirement would have on Americans and financial institutions. I was glad to see that the proposal was not included in the drafted tax legislation this week, however I suspect that such a proposal will not go away overnight given this Administration's tendency to advocate for an empowered surveillance-state.

It's evident that Biden's agenda has no bounds when it comes on intruding against our personal liberties and hurting our financial institutions. Regardless of one's political affiliation, this is a proposal that should give us pause. Should this surveillance regime had been implemented, what would've been next? Beyond destroying the value of the dollar with runaway inflation, will the federal government continue to consider filtering bank transactions? Or allow credit for only those whose transactions fit with the Administration's priorities?

We can't let it come to that. This isn't China. We need to stop these surveillance proposals and focus on preserving the liberties that have made this country great

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