"Senior couple at home checking finance on credit card from above" by Nenad Stojkovic is licensed under CC BY 2.0. https://www.flickr.com/photos/nenadstojkovic/51420858639/in/photolist-2mkTkNg-2kQPCj7-J6XXcn-ahtNwe-gTPEJZ-6H5UmZ-Dkew3C-2m7YLoD-2kQkVHF-6ggbxX-2j3uoq7-2jYYSzt-2j3qpL5-2j3nGMx-2dHCzC8-2j39S7W-6jCNY3-3oxca-2jG4nd9-2j3s32b-2j3pHdM-a1vKe3-yHiVN-2jG3yp8-bF4wk

The Biden administration’s proposal to have the IRS snoop on bank accounts would hit an estimated 87 million Americans earning less than $400,000 per year and could hit up to 134 million Americans earning less than $400,000, according to an analysis by the Joint Committee on Taxation (JCT) requested by House Budget Committee Ranking Member Jason Smith (R-Mo.).

JCT notes there is significant uncertainty with their analysis because Democrats have said called for exempting wage and salary earners from the regime. As a result, they find it would find it would hit greater than 40 million taxpayers and less than 134 million taxpayers, with an average estimated range of 87 million. As the JCT report states:

“Given the terms of the proposal and the uncertainty with respect to the efficacy of the exclusion, we estimate the number of taxpayers reporting less than $400,000 who would have their account information reported to be greater than 40 million (27 percent) and less than 134 million (90 percent). The average of this estimated range is 87 million (59 percent) and represents a reasonable point estimate.” 

JCT found that the wage and salary exclusion would reduce the number of taxpayers being hit by the proposal to 40 million filers. However, because the exclusion would be difficult to enforce, a significantly greater number of taxpayers would be impacted:

“To estimate how much less, as a proxy, we subtract income reported on Form 1040, lines 1 (wages, salaries, tips, etc.) and 5b (taxable social security benefits), from AGI. We project that approximately 40 million taxpayers would be above this threshold and below $400,000 in reported AGI. However, the ability of banks to identify these payments is unclear. Banks might be able to identify wages and salaries paid by certain large payroll processors.” 

President Biden’s budget proposed tracking any bank account, credit union account,  exceeding gross inflows and outflows of $600. More recently, Senate Democrats have suggested a threshold of $10,000. Lawmakers suggested providing an exclusion for “wage and salary earners and federal program beneficiaries.” A $10,000 threshold is little more than $200 in total inflows or outflows per week or $800 per month, amounts that many Americans could easily hit. 

The wealthy and large corporations already have armies of lawyers and accountants that ensure they legally take advantage of the plethora of credits and deductions offered by the tax code. Further, the IRS already audits the largest corporations at high rates. 

The IRS will go after easier targets to squeeze funds from: businesses and individuals without legal teams and accountants. This reporting regime, especially given its low threshold, is certainly another tool for the IRS to use against low- and middle-income taxpayers and small businesses.