(Bloomberg) -- The U.S. Treasury Department accused opponents of a key part of President Joe Biden’s tax plan of spreading “misinformation” as the administration tries to rally support for a proposal that’s found difficulty gaining traction in Congress.
The plan would require financial institutions to report information about some bank accounts to the Internal Revenue Service in an effort to determine if Americans are underreporting their income on their tax forms. It’s become one of the most politically controversial ways that Democrats are contemplating to fund a multitrillion-dollar social spending bill, with criticism from Republicans and an intense lobbying effort from banks to kill the reporting measure.
“Congressional consideration of this proposal has been marred by misinformation, as opponents have elevated the pernicious myth that banks will have to report all individual customers’ transactions to the IRS,” Natasha Sarin, a Treasury deputy assistant secretary for economic policy, said in a blog post Thursday. “This is unequivocally false, and an incorrect representation of the proposals under consideration.”
Read more: Breaking Down the Plan to Report Your Bank Account to the IRS
The Treasury Department has proposed to require banks to report aggregate account inflow and outflows worth at least $600 to the Internal Revenue Service annually.
House Democrats excluded the idea from their version of the tax-and-spending bill they wrote last month, partly because of opposition from members in their own party. However, Democratic leaders continue to work on the plan, which could raise hundreds of billions of dollars to fund an expansion of social programs.
House Ways and Means Chairman Richard Neal and Senate Finance Committee Chairman Ron Wyden have said they are working on scaling back the administration’s plan so that only account flows totaling $10,000 or more would be reported and other carveouts so that only high-income taxpayers would be in the scope of the plan. Lawmakers are looking at ways to exclude some common transactions, such as payroll deposits or mortgage payment withdrawals.
The blog post’s release follows frustration about the issue on the part of Treasury Secretary Janet Yellen, who has been asked repeatedly about the plans in recent weeks, including in congressional hearings.
“This proposal has been seriously mischaracterized,” Yellen said in an interview on CBS Evening News with Norah O’Donnell that aired Tuesday evening.
One trade group, the Independent Community Bankers of America, says the Treasury proposal breaches consumers’ privacy and would require banks to “perform a police function on behalf of the IRS.”
The Treasury Department said this additional information would help them find high-earning taxpayers who earn money from small businesses, rental properties, cryptocurrency transactions and other ways that aren’t already reported to the IRS. The IRS estimates that taxpayers pay 99% of their earnings when there is third-party reporting, like there is for wages and salaries. That figure drops to 45% when there isn’t verification.
Sarin also said there is precedent for this kind of information reporting.
“The proposal would direct banks to report basic, high-level information on aggregate account inflows and outflows,” the blog post said. “Banks would add just a bit of additional data to information that they already supply to taxpayers and the IRS: how much money went into the account over the course of the year, and how much came out.”
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