What if every one of your noncash financial transactions was automatically reported to a beefed-up, audit-hungry IRS?
MATT WELCH | FROM THE OCTOBER 2021 ISSUE
(Illustration: Joanna Andreasson)
Imagine living in a world where every one of your noncash financial transactions—a restaurant meal, a Venmo transfer to a friend, maybe some bitcoin bought on the dips—was automatically reported to a beefed-up, audit-hungry IRS.
That dystopia will become a reality if President Joe Biden gets his way. Biden, Treasury Secretary Janet Yellen, and key Capitol Hill allies such as Sen. Elizabeth Warren (D–Mass.) are pushing a vast, intrusive financial surveillance system in the name of closing the “tax gap.”null
But don’t worry: There’s no need to fear if you’ve got nothing to hide.
“For already compliant taxpayers, the only effect of this regime is to provide easy access to summary information on financial accounts and to decrease the likelihood of costly ‘no fault’ examinations,” the Treasury Department said this May in a nakedly authoritarian document called “The American Families Plan Tax Compliance Agenda.” But “for noncompliant taxpayers,” the department continues, “this regime would encourage voluntary compliance as evaders realize that the risk of evasion being detected has risen noticeably.”
The administration’s proposed “comprehensive financial account reporting regime” would dramatically increase the types of financial institutions and transactions exposed to the feds’ prying eyes. “All business and personal accounts from financial institutions, including bank, loan, and investment accounts,” would be forced to “report gross inflows and outflows” to the IRS. And not just bank accounts: The dragnet would now include PayPal, settlement companies, and “crypto asset exchanges,” for starters.
The new domestic surveillance program, which requires congressional approval, is one prong of a tripartite strategy for transforming the entire global financial system into a harmonious, haven-free collection funnel to the IRS. The second part, which has taken up the bulk of Biden’s multilateral diplomacy thus far, is getting the industrialized world to agree on a global minimum corporate tax of 15 percent, while setting up a system to prevent multinational companies from registering their profits in the lowest-tax jurisdictions.null
Cutting corporate taxes is “a self-defeating competition,” Yellen said in April, “and neither President Biden nor I are interested in participating in it anymore. We want to change the game.”
In July, representatives from 130 countries, including finance ministers from the G-20 representing the world’s richest democracies, agreed in principle to a worldwide minimum corporate tax. “We have a chance now to build a global and domestic tax system,” Yellen crowed. “The race to the bottom is one step closer to coming to an end.”
The agreement still has a significant obstacle to overcome—namely, the legislatures of 130 countries, including the U.S. Congress. But Yellen has some cause to be cocky, because the third prong of Washington’s strategy has already been constructed.
In 2009, President Barack Obama promised to generate $210 billion in new tax revenue over 10 years by cracking down on “overseas tax loopholes.” While the corporate-tax element of the plan was quickly killed by lobbyists, the individual component remained in the form of the 2010 Foreign Account Tax Compliance Act (FATCA). Built on a foundation of American exceptionalism (the U.S. is one of only two countries that tax citizens living abroad), FATCA imposed onerous new annual reporting requirements on Americans with more than $10,000 in overseas financial institutions. The law brazenly threatened international banks if they didn’t rat out their U.S. clients to the IRS.