WASHINGTON — A Biden administration plan that would force banks to report customer account flows to the Internal Revenue Service appeared to lose steam Wednesday, one day after Sen. Joe Manchin, D-W.Va., signaled opposition, but industry representatives said they were not ready to declare victory.
After Manchin's
The plan is seen as a key way to crack down on tax cheats and raise revenue to pay for President Biden's social spending package making its way through Congress. But banks, many lawmakers and other critics say it would be a compliance nightmare and allow the government to snoop on citizens' private finances.
“The fact is nothing is ‘dead’ until the Senate votes on the final tax ‘pay-for’ package included in the budget reconciliation bill,” said Paul Merski, executive vice president of congressional relations and strategy for the Independent Community Bankers of America.
Democrats have pursued a plan since the spring that would have the nation’s banks report the inflows and outflows of accounts in which such flows exceeded a certain threshold. They originally proposed a $600 cutoff but then bumped it up to $10,000 with exemptions for wage earnings and federal benefits.
Manchin, a key swing vote in getting the social spending package through Congress, said Tuesday that he did not believe the IRS reporting plan would be included in the reconciliation bill.
“I think that one is going to be gone,” he said, adding that he had criticized the plan in a conversation with Biden. "I said, 'Do you understand how messed up that is?' To think that Uncle Sam’s going to be watching, and what it does for bankers and this and that? I told him, I said, Mr. President, 'I don’t know what happened. This cannot happen.' ”
Brad Thaler, vice president of legislative affairs at the National Association of Federally-Insured Credit Unions, praised Manchin in a statement for "recogniz[ing] how bad of an idea this provision is," but he emphasized that the fight was not yet over. "We’re hopeful that this means the provision will be dropped, but we will remain engaged until the reconciliation package is finalized,” Thaler said.
CNBC reported early Wednesday that the IRS reporting plan had been removed from the Democrats' social spending package. But speculation grew later that Treasury was trying to repackage the plan by restricting the bank account reporting to households with at least $400,000 in annual earnings. The new plan was first reported by Bloomberg News.
“Today made two things clear: This proposal is on life support as Democrats have resorted to making changes by the hour," said Richard Hunt, the president and CEO the Consumer Bankers Association. "No one can explain what this proposal would actually do and who it would affect because they haven’t had one full committee hearing and haven’t conducted a single study.”
Still, Democratic lawmakers who support the IRS reporting plan indicated they were not giving up their attempts to include it in the bill.
The plan grew out of efforts to close what is known as the "tax gap" between what wealthier taxpayers pay and actually owe because of underreported income. While the IRS reporting plan has been heavily criticized, many say opponents have spread misinformation by suggesting it would reveal specific transaction data instead of general inflow and outflow amounts. The idea is to help the IRS coordinate audits.
“As former governors, we care deeply about closing the tax gap and making sure everyone is paying their fair share," said Sens. Tom Carper, D-Del., Mark Warner, D-Va., and Angus King, I-Maine. "Misconceptions of what the financial reporting proposal would do should not derail us from this important goal. We are committed to working with our colleagues to address any concerns with proposals to close the tax gap and to make sure that wealthy taxpayers and corporations pay the taxes that they have the ability to pay and legally owe.”
But the industry has not let up in criticizing the plan.
Insiders say opposition by banks and some lawmakers in recent days has had a material impact on congressional deliberations over the plan.
A financial services lobbyist said there was a 95% chance the IRS proposal was off the table, though the person cautioned that some form of the plan could still appear when an initial draft of the budget reconciliation package is released. (There has yet to be any legislative text.)
“I worked in the U.S. Senate for five years,” Merski said. “These proposals can resurface in a new format at any time in this process.”
