Don’t Believe the Banks or Their Shills: Biden’s Proposed IRS Reporting Reform Is a Great Idea

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— from Daily Kos

A lot of rich people have gotten very good at not paying their taxes. Hell, The Man Who Lost An Election And Tried To Steal It bragged about avoiding taxes, and thought it was a selling point for his candidacy. President Joe Biden, on the other hand, wants to put a stop to this kind of behavior.

The Democratic proposals on that front include some pretty complicated mechanisms, and it’s easy to scare folks about them. It doesn’t help when The New York Times covers one of the proposals in a way that privileges the arguments of the opposition. Gotta love that liberal media.

Tax avoidance, especially by the wealthiest Americans, is out of control. You know the Build Back Better package that Democrats are arguing about on Capitol Hill right now? The president and most Democrats want it to total $3.5 trillion over 10 years (paid for by raising taxes on the rich and large corporations). The gap between the amount of taxes that are supposed to be paid and what is actually being paid—the so-called “tax gap”—is estimated by the Treasury Department to come in at twice that amount over the same period.

Most of that money lost comes from taxes not being paid by those at the top. The top 1% are responsible for more than a quarter of the tax gap (28%), and we can thank the top 5% for over half of it (53%). We’re talking $307 billion a year, according to the folks at Treasury—that’s enough money to pay for two years of preschool for every child in America, increase the maximum Pell Grant award by $1,400 a year, as well as provide 12 weeks of paid family and medical leave to American workers. And that might well underestimate just how bad the behavior of the wealthiest has been: “Ongoing work by IRS researchers and outside academics suggest the concentration of the tax gap is even more skewed toward the top of the income distribution.”

The president proposed a number of measures to ensure that the richest pay their fair share, which are laid out in a Treasury document published in May called The American Families Plan Tax Compliance Agenda. It’s not exactly a page-turner, but here’s a summary of the main elements:

  1. Provide the IRS the resources it needs to address sophisticated tax evasion.
  2. Provide the IRS with more complete information.
  3. Overhaul outdated technology to help the IRS identify tax evasion and serve customers.
  4. Regulate paid tax preparers and increase penalties for those who commit or abet evasion.

The plan calls for increasing funding to allow the IRS to “make investments with large fixed costs—like modernizing information technology, improving data analytic approaches, and hiring and training agents dedicated to complex enforcement activities.” These measures would also improve the security of data collected and held by the IRS.

Such an increase is necessary because of what GQ rightly described as “years of conservative-led efforts to successfully defund, defang, and delegitimize the IRS.” Please note that the Treasury Department estimates increasing funding by a proposed $80 billion over a decade will pay for itself four times over. Not a bad return on investment.

Overall, the tax compliance plan Biden proposed expects to raise $700 billion in increased tax revenues in the first ten years, plus an additional $1.6 trillion in the ten after that, without increasing taxes on anyone earning less than $400,000 per year, or increasing the rate at which those Americans are audited. Congressional Democrats are still debating the specifics, and will likely not pass exactly what Biden proposed, to be sure. Nevertheless, his proposals served as a starting point for discussion and certainly helped frame the terms of the debate.

The biggest problem feeding the skew in the tax gap is that auditing those with high incomes and/or wealth is much more complicated and costly than auditing those who earn less. Thus, in recent years poor people are equally or—if one claims the Earned Income Tax Credit—more likely than someone in the top 1% to face an audit. If you’re a millionaire, you were 80% less likely to face an audit by 2018 than you had been seven years earlier thanks to cuts in IRS funding. That this is true because it’s “cheaper and easier to audit the poor”—as a ProPublica headline put it—is as infuriating as it is unjust. It’s also exactly the way Republicans—i.e., the lackeys of that very same 1%—want it.

The main reason for this is not the amount of income earned—yes, even the outdated IRS computers can handle numbers with more digits just as easily as those with fewer digits—it’s about the type of income, and whether the IRS already receives information about it from a third party. As most of us who earn a salary know, our wages are directly reported to the IRS by our employer. That’s the law. For such wage earners, there’s really no way around paying taxes on that income, and their rate of compliance comes in at 99%.

But—there had to be a but coming—other kinds of income are not directly reported to the IRS right from the source of payment in some or all cases. Would it surprise you to learn that those were exactly the kinds of income that flow to those lucky duckies at the summit of the economic ladder? Probably not.

We’re talking about money from S Corporations, proprietorships, and partnerships—so-called “Pass-Through” corporations—Trump’s 2017 Rich Man’s Tax Cut showered money on the owners of these—along with money from rental properties (doesn’t the twice-impeached former president have some of those?). As the Treasury Department noted, on these more “opaque income sources that accrue disproportionately to higher earners” compliance rates come in at a paltry 45%.

This particular inequality is the reason behind the specific reform (No. 2 in the compliance plan mentioned above) that would require banks to provide the IRS with additional information about their customers’ accounts to the IRS. This is where people start to get nervous—especially when provoked by pro-corporate propaganda—so let’s be very clear about what this change would and would not mean. Its goal is to enable the IRS to catch more of the cheating being carried out by those who receive huge incomes from sources other than wages.

Those cheaters have the advantage right now because it’s hard to find the money they make—it’s not reported by an employer. But they still presumably have to put it somewhere. They have to cash their checks sooner or later (unless they are being paid in bitcoin, which hopefully will be regulated soon, or, I don’t know, Galleons—although I suspect there will be major pushback from the goblins if proposals to regulate Gringotts emerge). That’s where Biden’s plan comes in.

In short, the new proposal would mandate that banks deliver two, and only two, pieces of information: the total amount of money going into an account (“inflow”) and the total going out (“outflow”) in a given year. Why do this? Because let’s say someone had $40 million in total going into their bank account, but only reported income of, say, $1 million on that year’s tax return. Where’d the rest of the money come from? That kind of a red flag could trigger an audit on someone who might otherwise have evaded paying millions of dollars in taxes that our government needs to fund things like health care and education.

Nothing about individual transactions will be reported—despite what right-wing liars like Candace Owens, as well as the banks themselves, who we’ll get back to down below, have been claiming (and thanks to PolitiFact for debunking these fearmongers). Furthermore, individual bank customers wouldn’t have to do anything new, as the banks will be doing the reporting. Bear in mind that banks are already reporting information (Form 1099-INT) about any interest earned over $10 a year.

As the Treasury Department emphasized, this change is “not about using new financial account information reports to increase enforcement scrutiny on lower-income taxpayers … these proposals are about targeting enforcement actions where they belong: on higher earners who do not fully report their tax liabilities.” Or, as Treasury spokesperson Alexandra LaManna put it, “This is about making sure the top 1 percent can’t evade $160 billion per year in taxes.”

Initially, the Biden plan proposed to implement this requirement on accounts where the sum of annual withdrawals or deposits exceeds $600 a year. However, Democrats have now agreed on changes that would a) increase the minimum annual threshold to $10,000, and b) exclude from that amount wages paid by an employer and funds received from government programs like Social Security.

The Center for American Progress published a deep dive into the proposal, which explores why it is such an important element of the broader plan to fund necessary investments in the American people and bring about greater tax fairness. One point the CAP makes is that the Biden bank reporting plan would have a major impact on racial equity.

Recent trends in tax enforcement have worsened racial inequities. By slashing the IRS’ budget, Congress has eviscerated the agency’s ability to go up against wealthy individuals, who are disproportionately white, and large corporations, whose executives and shareholders are disproportionately white. As tax scholar Dorothy Brown writes, “[R]ich white Americans tend to get tax rules designed for their benefit. Quashing the funding that could have helped the IRS more aggressively pursue elite tax fraud is yet another example.” Without the resources to pursue “elite” tax fraud, the IRS has focused an increased share of its audits on low-wage workers claiming the EITC, who are disproportionately people of color.

Additionally, a coalition of groups who “advocate for the health, well-being, and economic security of Black, Latinx, Asian, Indigenous, and other communities of color,” wrote to top congressional Democrats. They likewise urged the passage of legislation that would “provide more resources to the IRS to increase enforcement against wealthy tax cheats who evade paying what they owe, a group that’s mostly white,” and continued: “President Biden’s tax reforms will increase racial equity in the tax code and raise the revenues we need to support an equitable recovery.”

As for the Republicans, they aren’t too keen on the idea of changing the IRS reporting requirements. Neither are the banks. They don’t want to be bothered, and claim their costs will go up. In fact, those banks have engaged in a widespread, highly organized lobbying campaign to pressure Democrats to drop the whole thing.

That lobbying campaign has received attention in the mainstream media, some of which has been, in a word, caca. Both Bloomberg and The New York Times covered the banks’ efforts, with one producing far more truthful journalism than the other.

Bloomberg’s headline (behind a paywall) was “Banks Enlist Customers to Kill Biden’s Account Data Reporting Plan.” The NYT article, on the other hand, has this headline: “Biden’s Proposal to Empower I.R.S. Rattles Banks and Their Customers.” See the difference? In the NYT’s telling, the customers have simply, and perhaps even spontaneously, been rattled by the proposal, whereas Bloomberg makes clear right from the headline that the banks are the ones bringing their customers into the effort, and the reporting in both articles bears that out. The NYT’s headline, however, doesn’t tell the story accurately. Strike one. Oh, and don’t forget that studies show plenty of people read the headline of an article and nothing else, so that first strike is probably the most important one.

The Bloomberg article’s first sentence echoes the headline: “Financial institutions are recruiting their customers to help stop a measure under consideration in Congress that would require banks to hand over some account information to the Internal Revenue Service.” The banks are drumming up support for their position. Exactly right.

On the Times website, here’s the blurb just below the article’s headline: “To help fund its new initiatives, the Biden administration wants banks to report more customer information. Account holders aren’t happy.” Again, no mention of the banks doing anything to shape anyone’s opinion. People are—organically it would seem—just not happy. Strike two.

Throughout the rest of the Bloomberg piece, readers are presented with the banking industry’s efforts, including various examples of their statements on Facebook or Twitter, or in emails to account holders, all aimed at generating outrage. The article also summarizes the proposal itself, quotes Treasury Secretary Janet Yellen, and summarizes comments from other Democrats.

Crucially, Bloomberg’s article also quotes at length from a non-political source, namely Committee for a Responsible Federal Budget senior vice president Marc Goldwein, who explained why the proposal should not be controversial to anyone looking at the issue honestly: “To the extent that people think that the government should not have access to financial data, that ship has already sailed.” He added: “we already report all sorts of information to the IRS. This is not giving the FBI every one of your transactions so that they can scrutinize it.” Here, along with presenting the opinion of the banks, we have a source refuting their bullshit, someone who is not an elected Democrat or a member of the Biden White House. For most readers, Republicans and Democrats cancel each other out, so it matters that Bloomberg brought in Goldwein to counter the banks.

How about the NYT piece? After quoting the bankers, it offers comments from Yellen and another Treasury official, and an elected Democrat (Sen. Elizabeth Warren), all fine and dandy, pretty similar to what Bloomberg readers found. Then we get something different. The first is a quotation from an advertising executive, who wrote the following in an email to the Times: “I wouldn’t allow my husband or my parents to monitor my bank account activity. There’s no way I would be OK with the government monitoring it.”

Then we hear from another regular-type person, although his opinion is given to readers through his banker. One “small-business owner,” chatting over coffee, asked the CEO of his Denver bank: “‘I pay my taxes, so why would you be sending additional information to the I.R.S.?” (Side question: How many lower-income people have coffee with the CEO of their bank, I wonder?) Readers are told, by the CEO, that “concerns about the potential provisions have bubbled up frequently.” They just bubbled up, all spontaneous-like. Uh-huh.

For balance, did the NYT present any regular people, or any non-political people at all for that matter, speaking in favor of the proposal the way the post at Bloomberg did? Although the Times told its readers about the effort by the conservative media to amplify the banks’ message, that doesn’t change the fundamental difference in the way the two articles presented the opinions of bank account holders. Strike three.

Bloomberg made clear that the banks solicited and shaped those opinions, and that was the truth. The NYT, maybe in the name of some kind of objectivity, so as not to look too “liberal” (even though reality has a well-known liberal bias, to quote Stephen Colbert), doesn’t tell the truth in the same direct way. In the name of balance, couldn’t the famed Gray Lady at least have found and quoted one bank customer who hadn’t been brainwashed by the banks’ propaganda, and then let readers decide about the Biden proposal’s merits for Pete’s sake? They had such people, thanks to a Facebook post the NYT put up a week before the article ran which explained the Biden proposal and asked those who read it to react by emailing a reporter, the same reporter who ended up writing the article analyzed above.

In the Facebook post, the NYTs language asked what readers thought of the proposal by talking about what would happen to “you” if “you” had an account, and what “your bank” would have to report in order to help the IRS. This language personalizes the effect of the proposal in a way guaranteed to disproportionately generate opposition, even beyond the reality that social media posts are far more likely to bring out negative than positive comments in general. Furthermore, the post didn’t mention anything about high-income individuals avoiding taxes, or any of the broader context behind the Biden proposal described above. The right-wing Daily Caller gloried in the NYT post’s Facebook comments, a strong majority of which unsurprisingly opposed the proposal.

Let’s get one thing clear: I don’t believe The New York Times consciously, in this article, set out to help the banks or the Republicans defeat this Biden proposal, or his broader agenda on taxes or social spending. If you want to see that level of bias in action, check out this example (one of countless) of Fox News nakedly doing the bidding of the Republican Party, all the while pretending to practice journalism. Unlike the partisan hacks at Fox, where this sort of stuff is corporate policy, the pro-corporate bias of the NYT, as seen in the article under discussion here, likely doesn’t result from a direct order coming down from the executive suite. Still, if Bloomberg got it right, there’s really no excuse.

The Biden plan to make big money folks and large corporations pay their fair share of taxes is highly popular, as poll after poll has shown. Helping ensure that the IRS has the information it needs to make that change a reality, simply by more effectively enforcing existing laws, is a vital part of that plan. Democrats must make sure that the American people don’t only hear arguments coming from the banks and their Republican shills, or the narratives privileged in pro-corporate “news” articles coming from some in the mainstream media.

Otherwise, America will squander another opportunity to make our economy and tax code into something fairer and more just, something every one of us can truly participate in. Who knows if it’s the last one we’ll get.






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