‘Surveillance state’: GOP sees government overreach in Biden IRS $600 disclosure plan

A proposal to give the IRS access to all financial transactions above $600 is raising concerns among congressional Republicans about government overreach.

Democrats are pushing new regulations within President Biden’s $3.5 trillion, 10-year social welfare bill that would require banks to annually report on the “inflows and outflows” of personal and business accounts. The reporting requirement would cover any transaction above $600 or bank accounts with deposits totaling that sum. Some Democrats are also pushing the new rules to cover mobile money transfer systems, like PayPal and Venmo.

Republican critics say the low reporting threshold would essentially give the IRS unfettered access to how ordinary Americans spend their money. Some GOP lawmakers even say the expansion of federal powers would amount to a “surveillance state.”

“It feels a lot like Communist China surveillance, doesn’t it?” said Sen. Bill Hagerty, Tennessee Republican and former ambassador to Japan. “They’re going to insert themselves in every aspect of American lives. People don’t want this.”

Biden administration officials defend the provision, saying it will help crack down on wealthy tax scofflaws and businesses that don’t report taxable income. They point to the “tax gap,” the difference between what is owed to the federal government annually and the amount actually paid, as proof of the need for more financial reporting.

“There’s an enormous tax gap in the U.S., estimated at $7 trillion over the next 10 years,” Treasury Secretary Janet Yellen said earlier this week. “And that’s not coming from people failing to report wage income or dividend income where there’s good information. It comes from places where the information on income is opaque and can be hidden.”

Along with the new reporting requirements, Democrats also want to use Mr. Biden’s social spending bill to beef up IRS tax enforcement, as one way to help pay for the other programs in the bill. Overall, lawmakers are proposing to invest an additional $79 billion in the agency to pursue tax cheats.

GOP lawmakers say the expanded enforcement, along with the $600 bank reporting requirement, are likely to fall hardest on average Americans, who cannot afford to wage expensive legal fights with the IRS the way wealthy citizens can.

“Democrats want to spend $80 billion so that federal tax authorities can expand their reach into the financial habits of average Americans snooping on transactions as small as $600,” said Sen. Minority Leader Mitch McConnell, Kentucky Republican. “They want to finance their [$3.5 trillion] spending spree by effectively treating every ordinary American as if they were under an IRS audit.”

Democrats say such fears are overblown and average citizens will have nothing to fear from the $600 reporting requirement and a beefed-up IRS.

“It’s just a few pieces of information about individual bank accounts, nothing at the transaction level that would violate privacy,” said Ms. Yellen.

Private-sector banking interests disagree with that assessment, however.

“This new proposal would result in banks and credit unions turning over to the IRS sensitive account details that in and of themselves do not constitute taxable events,” the Credit Union National Association wrote in a letter to lawmakers this week. “This would leave the IRS with a massive trove of personal financial data that would be used in a manner that is not detailed in the proposal. This is risky and unnecessary,”

There are also logistical questions over how the new reporting requirements would work, according to the American Bankers Association and other financial industry groups.

“Despite assertions by some that a new reporting regime would be simple to execute and represent a low or even no-cost mechanism to help narrow the tax gap, designing system capabilities to capture account inflows and outflows and other information is complex, expensive, and will take years,” said ABA President Rob Nichols. “Having the raw data somewhere in a bank system does not mean it is easily compiled or produced to government specifications.”

The push to adopt the new requirements comes as Democrats struggle to find a way to pay for their social spending bill, which is being whittled down from its original $3.5 trillion, 10-year price tag as party moderates and liberals battle.

Dubbed “human infrastructure,” the $3.5 trillion package is being pitched as the most “consequential” expansion of the federal government since the New Deal. Democratic leaders say the $3.5 trillion package complements the companion bipartisan infrastructure bill, which focuses on roads, bridges, railways and airports.

The larger bill amounts to a comprehensive wish list of liberal priorities such as proposals for climate change, tuition-free community college and expanded health care programs.