Weeks after proposing a plan to require banks to report on accounts with inflows and outflows of $600 a year over reported income to the Internal Revenue Service, Congress has raised the proposed reporting threshold to $10,000 and added several exceptions for certain groups.

As reported by the Journal, the initial proposal by Congress drew sharp criticism from banking leaders in Spokane as an invasion of privacy and government overreach.

Despite an increase in the proposed threshold, most banking industry executives remain opposed to the measure. 

Gregory Deckard, the national treasurer for the Independent Community Bankers of America and CEO and chairman of Spokane Valley-based State Bank Northwest, has been vocal in opposition to the proposal since it was first announced.

“Above all concerns, is the invasion of privacy of pretty much all tax players. Whether it’s $600 or $10,000 limit, most Americans are going to be affected by this data collection,” he says.

U.S. Senate Finance Committee Chairman Ron Wyden says that the new reporting threshold was proposed because it is the level often used in other bank reporting requirements. That includes cash deposits of $10,000 that are flagged in order to combat money laundering and terrorism financing.

Natasha Sarin, deputy assistant at the U.S. Department of the Treasury, reported in September that the goal of the proposed legislation is to close the tax gap—the difference between taxes owed to the government and taxes actually paid—by collecting taxes from rich individuals and businesses on income that is earned, but not reported.

In a fact sheet published on Oct. 19, the Treasury Department asserted that “only those accruing other forms of income in opaque ways are part of the reporting scheme.”

“Imagine a taxpayer that reports $10,000 of income but has $10 million of flows in and out of their bank account. Having this summary information will help flag for the IRS when high-income people underreport their income, (and underpay their tax obligations),” the Treasury fact sheet further explains.

Steve Scranton, chief investment officer and economist for Washington Trust Bank, says he worries that even if Congress raises the limit to $10,000, those who are “dishonest by nature” will figure out ways to go around that mandate. “No matter where you set that number, whoever is going to be subject to that will find ways to try to work around it,” he says, suggesting that people could open several bank accounts to evade the ruling.

Deckard says one of the major concerns of ICBA is that the proposal would likely drive existing bank clients into other venues to avoid tax reporting.

At an ICBA conference in late October, many of the organization’s banking leaders shared stories of bank members withdrawing their entire cash balances. Others have said that if the legislation passes, they will turn to cash only, or cryptocurrency, he says

“And these are not tax cheats or the 1% or corporate tax cheats. They are everyday Americans,” Deckard says.

For the past 10 years, there has been a push from both sides of the aisle for financial institutions to reach the unbanked. This proposal goes in opposition to that public policy goal of making sure everybody has equal access to financial services, he contends.

The original plan was projected by the Treasury Department to raise $700 billion over a decade. The capital raised is proposed to be used to help fund social policy and climate change programs and fund the IRS enforcement targeting high-income individuals and corporations. Now, the Treasury estimates that the new proposal will raise between $200 billion and $250 billion within the same period, but that it is a conservative projection not accounting for “deterrent effects” of the policies that could still generate the original $700 billion.

Scranton says, “I don’t see this proposal as a positive economic benefit, or even a negative economic outcome. It’s negative for financial institutions.”

He contends that banks would be required to incur expenses of building out the reporting infrastructure, hiring compliance staff, and updating data-collecting software.

“Anytime a regulation gets introduced and causes a business to spend on building new infrastructure, there’s always the risk that that money could have gone to something that benefited customers and had more of an economic impact than catching people who are not accurately reporting taxes,” Scranton adds.

The new proposal would not apply to payroll deposits, beneficiaries of federal programs such as Social Security, or to teachers and firefighters.

“One side would say a very effective lobbying group, but that’s pure speculation,” says Scranton of the carved-out groups of teachers and firefighters.

Deckard claims that point indicates how flawed the proposal is.

“All of a sudden we’re going to have special interests in picking and choosing specific industries that lobby for an exemption?” Deckard asks. “When I think of the ultrarich and corporate tax cheats, I don’t think of teachers and firefighters, so why is the Treasury having to carve out particularly for them?”

In testimony given during the unveiling of the new proposal, Deputy Treasury Secretary Wally Adeyemo stated that the wealthiest 1% of taxpayers will fail to pay over $2 trillion in taxes owed over the next decade.

“I have to believe that there are better and more efficient ways for the IRS to trigger an audit of the true 1% and wealthiest of corporations that are believed to not pay their fair share, than to lump every financial institution and every American into a massive data collecting scheme,” says Deckard.

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