Squeeze Until the Taxpayer Cries Uncle

Before President Biden left for a trip to Europe on Thursday, which will include climate talks and a meeting with Pope Francis, he was negotiating a new tax and spend plan with members of his own party in Washington.  Apparently, Iowans weren't the only ones opposed to his $3.5 trillion Build Back Better plan, as the President was trying to build Congressional support for a scaled-down version of tax hikes and spending increases.  Of course, “scaled-down” is only a relative term for an economic plan that is estimated to cost $1.75 trillion.

It is reported that Speaker Pelosi had begged her caucus not to embarrass the President as they considered his infrastructure plan alongside the junior Build Back Better plan he is now backing.  As of Friday, President Biden will still have to face his European counterparts without his own party’s approval of his legislative priorities.  We won’t try to understand the mental gymnastics that some in Congress and the Senate are putting themselves through while they decide what they will and won’t support.  In fact, since these negotiations are fluid and possibly hinging on the whims and motivations of only a handful of lawmakers, we also don’t want to spend too much time providing analysis on all of the policy changes that remain in play.  The one area we will focus on, however, is the increased big brother role the President wants the IRS to play.

In the initial Build Back Better plan, there was a requirement for banks to report transactions of $600 and above to the federal government.  Forcing banks to serve this information up to the feds on a silver platter is ostensibly meant to find “the rich” dodging federal tax bills, and alert the IRS to the need of an audit.  In the President’s newest proposal that he is trying to muster support for, that threshold has been increased to an annual total of $10,000.  Lots of households and individual taxpayers will have $10,000 flowing through their bank accounts over the course of the year and most of them wouldn’t be considered rich, nor would those transactions have anything to do with dodging taxes.

The best analysis we’ve read on a bulked-up IRS comes from Kyle Wingfield of the Georgia Public Policy Foundation, and we encourage you to go check it out.  While the White House is still clinging to the notion that nobody who earns less than $400,000 a year would see their taxes raised, that seems hard to believe. We don’t think international CEOs and captains of industry are staying ahead of the IRS $10,000 at a time.  Instead, this additional IRS pressure will likely be felt by the rest of us.  Let’s have Mr. Wingfield take it from here:

That seems to be the real idea here: Conduct more audits, poke around until some mistake is found, and squeeze until the taxpayer cries uncle. The charade here is the notion that this proposal is about taxing “the rich.”

As Sen. Mike Crapo, R-Wyoming, noted at a recent press conference, Congress’ own data indicate only “4 to 9 percent of expected (tax) recoveries” would come from those earning over $500,000. The rest would come from people under that threshold – half from people earning less than $50,000.

Even if there’s more money out there the authorities simply don’t know about, that doesn’t erase the likelihood people under that income level will also be targeted – again, for transactions that may well have had nothing to do with unreported income.

Despite earlier claims that his plan will cost zero dollars, it is clear that what President Biden has in mind will require lots and lots of dollars.  But most of us here in the real world already realized that.  The surprise for many, though, could come when the IRS shows up at the door to start collecting.