WASHINGTON — Banks moved closer to a legislative victory Thursday after more Democrats came out against a plan to require financial institutions to report account activity to the Internal Revenue Service and a draft framework of President Biden's social spending proposal did not include the proposal.
Analysts and industry lobbyists warned that the spending package is still in flux and neither chamber of Congress has voted. But the chances of the IRS reporting plan being included dimmed further after 21 House Democrats told congressional leaders that it was “overly broad and raises significant privacy concerns.”
“We have little information about how the IRS plans to protect or use this massive trove of data,” they wrote in a letter dated Wednesday to House Speaker Nancy Pelosi and House Ways and Means Committee Chair Richard Neal, D-Mass. The lawmakers included Reps. Josh Gotteimer, D-N.J., Luis Correa, D-Calif., Stephanie Murphy, D-Fla., Al Lawson, D-Fla., and Carolyn Bourdeaux, D-Ga.
“Americans expect their bank or credit union to safeguard their financial information," they said. "This proposal would erode trust in financial services providers.”
The Biden administration has been pushing for a bigger IRS budget as well as the plan that would require banks and credit unions to report annual inflows and outflows in customer accounts where such money flows exceeded a certain threshold. The aim of both is to narrow the gap between what wealthy taxpayers owe and actually pay.
A summary of the Build Back Better Act released by the White House Thursday referenced $400 billion in revenue offsets associated with "IRS Investments to Close the Tax Gap," but contained no mention of requiring banks and credit unions to report the money flows. That was a significant decline from last week’s estimate of $700 billion that Treasury officials had predicted under the old plan, which had included the IRS bank reporting provision.
Democrats had proposed requiring reporting on accounts if annual inflow and outflows exceeded $10,000. An alternative plan circulating Wednesday would have required reporting only for households making at least $400,000 in annual earnings.
Some analysts warned that it was still an unknown if the final reconciliation bill will include the IRS reporting plan or not.
"This appeared to be out but could resurface with a higher threshold," said Brian Gardner, an analyst with Stifel, adding that a plan with a higher reporting threshold had been floated. "The package includes increased IRS enforcement, and the account reporting proposals could be stuffed inside 'enforcement.' "
But others noted the surge of public opposition from centrist Democrats. Momentum for the plan had died down significantly earlier this week after Sen. Joe Manchin, D-W.Va., came out in opposition.
“We are at a point where more members of the House and the Senate are opposed than can be lost and keep this in,” said Ed Mills, a policy analyst with Raymond James. “So it is not looking like this provision will be in any final bill.”
But Mills also cautioned that nothing was set in stone and the plan could still reappear in some form or another as negotiations progress in the coming months. “Nothing is dead until everything is written,” he said.
The White House announced on Thursday morning it would pursue a scaled-back legislative package in Congress totaling $1.75 trillion, down from a $3.5 trillion price tag pitched earlier this year.
The new framework said that the administration’s tax compliance efforts would be focused on the country’s top earners.
“Additional enforcement resources will be focused on pursuing those with the highest incomes; not Americans with income less than $400,000,” the White House said.
Industry representatives hailed the apparent exclusion of the IRS reporting provision in the legislative framework.
“Given all the challenges it would have raised, it's the right call to not include the reporting provision in the budget reconciliation bill,” said Scott Talbott, senior vice president of government relations at the Electronic Transactions Association. “The reporting provision was the wrong execution of the right idea.”
