US Treasury Secretary Janet Yellen is defending a Biden administration proposal that would require banks to report data to the Internal Revenue Service on transactions over US$600, calling the collection of information “routine,” after taking heat for the idea that is widely seen as an unprecedented invasion of privacy.
During an interview on CNBC’s “Squawk Box” on Tuesday, Yellen was pressed on whether the IRS has the “wherewithal” to collect more information about taxpayers and bank accounts including cash flows, something many Republicans have called invasive.
“Well, of course they do,” Yellen said.
“Right now, on every bank account that earns more than US$10 a year in interest, the banks report the interest earned to the IRS. That’s part of the information base that includes W2’s and reports on dividends in other income that taxpayers earned. So collection of information is routine.”
Yellen cited the “enormous tax gap” in the US as the reason behind the proposed tax hikes and information collecting, blaming the gap on places where information on income “can be hidden.”
“It’s just a few pieces of information about individual bank accounts, nothing at the transaction level that would violate privacy,” the secretary said.
The collected information would ostensibly help the Treasury Department determine which high-income wealthy individuals may be concealing transactions and income, and “these would be helpful indicators of where it would make sense for auditing to occur,” she added.
“So, it is not reporting of individual transactions or anything of the like. And it would be a simple thing for banks and other payment providers to provide along with the other information they’re already providing.”
Under the proposal, banks would be required to turn over aggregate inflow and outflow numbers annually to the IRS and would cover bank accounts with at least US$600 or at least $600 worth of transactions, according to the Wall Street Journal.
The proposal has been slammed by Republicans as an invasion of privacy. Last week, Sen. Cynthia Lummis (R-Wyo.) slammed the Treasury secretary during a Senate Banking, Housing, and Urban Development Committee hearing, asking if she was aware of “how unnecessary this regulatory burden is?”
“Do you distrust the American people so much that you need to know when they bought a couch? Or a cow?” the Republican senator asked.
“There are obvious privacy concerns for all Americans here and this represents a dramatic new regulatory burden for community banks and credit unions in Wyoming and elsewhere,” Lummis added.
“Bank customers are not subjects to the federal government. Banks do not work for the IRS.”
Yellen defended the plan, telling the senator, “Banks already report directly to the IRS the interest that they pay on accounts when it exceeds US$10, and this is not a proposal to provide detailed transaction-level data by banks to the IRS.”
“Well, US$600 threshold is not usually where you’re going to find the massive amount of tax revenue you think Americans are cheating you out of,” Lummis fired back.
“That’s correct,” Yellen admitted, “but it’s important to have comprehensive information so that individuals can’t game the system and have multiple accounts.”
Several states have also expressed concern over the proposal, including Nebraska, which slammed the information collection as a violation of Americans’ constitutional right to privacy and said the costs associated with banks, credit companies and other financial institutions complying with the requirement would be passed on to consumers.
“This could lead to a tremendous invasion of privacy the likes of which our country has never seen. Millions of law-abiding Americans would suddenly have their bank accounts opened to federal investigators for no more reason than buying a refrigerator. This is simply unconscionable. To make matters worse, under this proposal, saving for college could put an American family on the IRS’s radar, costs that most likely will be passed on to the public,” Nebraska state Treasurer John Murante said in the statement released last month. – Wires.