Proposed IRS reporting requirements threaten taxpayer privacy, burden community financial institutions
Sep 23 2021
Senator John Boozman
Small businesses are the backbone of our economy, and the community financial institutions that serve those businesses are their lifeblood. Unfortunately, President Biden’s reckless spending and tax proposals stand to harm Arkansas small businesses and the institutions that help keep them operating.
Instead of working to create an environment that ensures community banks and credit unions are able to continue serving as trusted lenders and deposit safe havens, the administration is focusing on increasing Internal Revenue Service (IRS) enforcement in order to fund its $3.5 trillion partisan “human infrastructure” plan.
We can all agree the IRS plays an important role in enforcing our tax code and ensuring Americans fulfill our obligations. But the agency has many issues and needs to focus on pursuing reforms that emphasize responsiveness to taxpayer inquiries and needs. Unfortunately, the Biden administration is putting its support behind an idea that will increase risks to taxpayer privacy and burden small, community financial institutions.
In order to fund his progressive wish list, the president has proposed requiring all financial institutions to report to the IRS deposits and withdrawals of $600 or more from business and personal accounts maintained by federally regulated banking services. Currently, the reporting requirement is for transactions $10,000 or higher.
The president’s touting of his proposal as only impacting Wall Street and raising revenue by encouraging tax cheats to voluntarily comply misses the mark. Lowering the reporting threshold would require financial institutions to turn over an enormous amount of sensitive financial data to the IRS, which raises serious privacy concerns.
Given the IRS’s track record on data security, including a 2015 data breach, tasking the agency to secure additional taxpayer information from nearly every American is a complicated and hazardous gamble, and one the federal government isn’t historically capable of winning.
This reporting proposal also raises concerns for community banks and small financial institutions as it would impose additional, unnecessary costs that will get passed onto consumers.
Community financial institutions exist because of long-standing, trusted relationships with their customers, including many small businesses. This proposal would likely cause local banks to divert resources away from providing needed credit to entrepreneurs and job creators, with the possible result of generational clients becoming discouraged from working with these institutions.
As a member of the Senate Financial Services and General Government Appropriations Subcommittee, I understand the importance of protecting consumers and ensuring financial stability through proper oversight. I have been fighting against this overreaching proposal that will compromise taxpayer privacy and burden our smallest community financial institutions.
House Democrats have, thus far, declined to throw their weight behind this flawed policy rewrite. Yet the White House remains committed to it, and Senate Democrats will have to decide whether they want to join the Biden administration in pursuit of this troubling proposition.
Washington should focus on promoting a pro-growth economic agenda, enabling hardworking taxpayers to keep more of their money in their own pockets, making our small businesses more competitive and reducing regulatory burdens.
Unfortunately, by violating taxpayer privacy, incentivizing customers to flee regulated financial systems, and weakening community financial institutions’ ability to safekeep deposits and provide credit, President Biden’s reporting proposal would do just the opposite.
John Boozman is the senior U.S. senator for Arkansas and ranking member of the Senate Committee on Agriculture, Nutrition, and Forestry.
Read the column published in The Hill.