Selling of The Tax Gap Fix

To the motivated believers at the bottom of the critical-thought challenged pyramid, there are two abiding beliefs. Tax the rich and get stuff free. The former, because no one deserves to be better off than they are, and the latter because everything they want and need has morphed into an entitlement. People have a right to health care, food, housing, education, child care and wifi.

And to some extent, they’re not entirely wrong, as the top of the wealth pyramid has gone from merely rich to obscenely rich, and the bottom has watched as the incentives to work hard  and succeed appear to have gone out of reach, with too many unable to afford basic services despite playing by the rules and working hard. There are a great many reasons that make these beliefs more true or false under various circumstances, but that doesn’t change the fact that many believe these two things, tax the rich and get stuff free, is the right thing for the Biden Administration to do.

Recognizing opportunity, the Biden administration has promoted the notion that the rich are evading taxes by both legal and illegal means, and those lost taxes can be found, and put to good use giving people free stuff, if only the IRS is allowed to do two little things.

In order to make sure the rich are paying their fair share in taxes, President Joe Biden says the IRS just needs two bits of information: all the money that goes into your bank account, and all the money that comes out.

Perhaps that seems a bit intrusive, but since it’s just the rich, and we hate the rich because they’re rich, who can cry sad tears for their massive loss of privacy to the government.

The plan “will give the IRS the resources it needs to keep up with the lawyers and accountants of the super-wealthy. It would ask just for two pieces of information from the banks of these folks: the amounts that come into their bank accounts and what amounts go out of their bank accounts,” Biden said. Right now, he added, “the IRS can’t see what they’re making, and can’t tell that they’re cheating.”

But the IRS already receives a vast array of financial information, from 1099s to W2s, providing information about income, whether earned or gained, all subject to tax. What is it that this extraordinarily intrusive information will provide that the IRS doesn’t already have? There is, of course, the cash economy, where people pay for stuff in green which never finds its way into a form. There is the birthday gift from Aunt Suzy and grandpa’s helping out with the rent, which will appear on bank statements as money in without any source known to the IRS. But these aren’t the dirty money problems that plague the uber-wealthy who deserve to pay more taxes.

“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,” Reason‘s Matt Welch recently wrote. “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.”

When funds are moved from an account in one country to an account in another, the red light at the local IRS office will start blinking and the SWAT team can swoop in. Certainly the wealthy do that, right? And is it wrong to let the wealthy take advantage of the laws, tax havens, shelters, and deny the poor their right to free wifi just because they have fancy lawyers and accountants?

It is disingenuous to suggest, as Biden did Thursday, that letting the IRS peep at your bank records is about ensuring “that the wealthy can no longer hide what they’re making, and they can finally pay the fair share of what they owe.”

As the details of his proposal make clear, enhanced tax enforcement will mean hoovering up more data from crypto wallets, bank accounts, and third-party payment providers such as PayPal and Venmo. And that comes after Biden already ordered the IRS to give greater scrutiny to transactions in the so-called sharing economy.

The sharing economy isn’t about the wealthy, but about the ordinary. This proposal will throw open all the finance doors that protected the privacy of regular folks from the government knowing your most personal financial details. Does Bill Gates drive Jeff Bezos around in his Porsche Uber in exchange for his free WaPo subscription to beat the IRS out of taxes?

Still not convinced that this is the way Joe is going to stick it to the rich and send you another Covid check? The threshhold proposed for banks, paypal, and others to have to report your financial ins and outs kicks in at $600.

Under the measure, financial institutions would be required to annually report gross inflows and outflows from all business and personal accounts  — including bank, loan and investment accounts — if the inflows and outflows of an account total at least $600 in a year, or if the account has a fair market value of at least $600.

Does this strike you as the amount intended to catch either a Koch or Soros cheating on their taxes? By creating a reporting requirement that starts at $600, the IRS is targeting pretty much everyone, and the less sophisticated a person is, the more exposed they will be to a letter proclaiming a jeopardy assessment with a demand for $297,351 including penalties and interest on the failure to report $12 from your kid’s tips for delivering newspapers.

But Biden is selling it as the way to catch the rich tax cheats, the super-wealthy, the people we all despise for being so much richer than we are, who are hiding it $600 at a time in their venmo accounts. It’s not as if we haven’t heard this sales pitch before. When civil in rem forfeiture took hold, the government swore it was only to “take the profit out of crime” for those nasty drug dealers and mobsters everyone hated. Until it wasn’t.

This is how it starts, with a sales pitch that is calculated to appeal to the unwary by targeting the things they hate and love, the rich and free stuff, until they finally come to the realization that their financial privacy is gone as well, and the IRS has a special letter just for them demanding to know where they got the cash to pay for that iPhone.

28 thoughts on “Selling of The Tax Gap Fix

  1. delurking

    We’ve done this one already. Remember when Obamacare required every business to report to the IRS when it paid $600 or more in a year to any person or business? Yeah, that didn’t last a year.

    1. Charles

      Unfortunately, it doesn’t take any effort by the public to comply with this one. Just a data dump from the banks’ databases.

  2. Charles

    They’re just bypassing the slippery-slope argument by going straight to the bottom. Well, jokes on them. I’ll just open TWO accounts.

  3. Kirk A Taylor

    I was surprised how many of my clients caught on to this and asked me questions about it. Usually the questions are about what the catch is in the free money or how the new law will screw them out of dollars (they are very cynical). A surprising number of people got immediately concerned about this. Now I have to write about it…might be some plagiarism in my lazy future.

    As another aside you might find amusing…none of my clients, no matter how rich they are, think they are rich. There is always somebody richer who should be taxed.

    1. SHG Post author

      One fellow who came from very old money took me to play golf when I first moved into Casa de SJ and taught me an invaluable lesson, that the truly wealthy have nothing to prove to anyone. It’s amazingly freeing to realize that you have no one to impress but yourself.

  4. Paleo

    The left has a problem. Some of them are full on socialist. I don’t know the proportion but I suspect most aren’t. Those that aren’t want us to morph into a Scandinavian-style capitalist system with huge safety nets/transfer payments. Their problem is that tax rates in those systems are very high. Like the marginal rate on $60k per year is a little more than 50 percent. Because the Scandinavians have yielded to math and realized that to pay for it everybody has to pay.

    I make no comment on that system and ultimately if the majority of Americans want that, then fine. But any politician that proposed taxes at that level would have to learn to code.

    So we get bullshit pablum like this. They ALWAYS promise they’re going to tax the other guy and it ALWAYS turns out that all of us are the other guy. Because that’s where the money is. The $600 limit is ridiculous and the fact that they try to minimize attention to it shows that they know it.

    Politicians have the reputation for being dishonest because they are.

    1. Charles

      “Scandinavian style” has multiple flavors. A quick Google search for the income tax rate in Sweden shows it’s about 53%. Denmark’s is about 56%. Yet Norway’s is 22%.

      How is that possible? I presume it’s at least in part due to Norway’s Government Pension Fund Global, also known as the oil fund, that the country started in 1990.

      Per the Guardian from earlier this year, “It has grown into one of the biggest single stores of wealth in the world, and the largest sovereign wealth fund controlled by a country on behalf of its citizens. In 2017 its value surpassed $1tn (£730bn) for the first time. At that point the Economist magazine calculated that the citizens of Norway owned more than 1% of all the world’s shares.”

      “Come to Norway: It’s A-Fjord-Able.”

    2. PseudonymousKid

      I know, right? How do we get rid of everyone not “full on” socialist so that we can stop talking about taxes so much and get to the means of production already? Once we purge the left of capitalists, we can really start talking about taking society to the next level. Good on you for spotting the real problem. There just aren’t enough socialists around.

  5. L. Phillips

    Outside of the drug and sex trades I don’t see large scale barter working very well in the big cities, but out here in the hinterlands there will be a lot of conversations like this. “Well, Ed, you want a new custom rifle and I want a new roof on the barn, you good with that?” Not that anything like that happens now. Just a hypothetical.

  6. Pedantic Grammar Police

    They will go ahead with this. The excuses are only designed to minimize the screaming from the peanut gallery as they implement their “great reset” agenda. If there is enough screaming, they may delay it a bit, or change the way they talk about it, but the steamroller is not going to stop.

    Remember Total Information Awareness? Cancelled because of all the screaming from the proles, right? Or was it?

  7. Hunting Guy

    H. L. Mencken.

    “There has been no organized effort to keep government down since Jefferson’s day. Ever since then the American people have been bolstering up its powers and giving it more and more jurisdiction over their affairs. They pay for that folly in increased taxes and diminished liberties.”

  8. B. McLeod

    Bread and circuses.

    Tax the rich and get stuff free,
    Such enlightened policy.

    Could be the refrain of a new country & western song.

  9. Jardinero1

    Income tax systems have the unique failing of being always more intrusive and more expensive to enforce, the more revenue they try to generate. A one percent income tax, everyone is willing to pay; a fifty percent income tax and it becomes challenging and expensive to collect.

    For capturing large volumes of revenue, broad based sales and excise taxes are much less cumbersome and way cheaper to enforce. Sales and excise tax regimes also have the virtue of maintaining a high degree of privacy for tax payers, if you value that. Problem is that sales and excise tax regimes are highly regressive and the poorest pay proportionately more on groceries, gas and rent, than the rich do on mansions, yachts and private jets.

    The solution is simple; rebate the poor, however you define them, their sales tax. To establish their poor bona fides, the poor simply file a monthly or quarterly return and allow the IRS to view the inflow and outflow to all of their bank accounts. After the bank audit, the IRS deposits the refunded sales tax into their account. Example: say that “poor” is defined as monthly deposits of 3k per month or less and the federal sales tax rate is twenty percent. If the poor person does indeed have less than 3k of inflow, then the IRS refunds that person twenty percent of their outflow. Voila! You can even graduate the refund rate for higher income levels. If you have 4.5k of inflow, then you refund fifteen percent of their outflow. In this case they are receiving 75 percent of their sales tax back. Only those who desire the refund give the feds access to their accounts. Anyone who isn’t poor doesn’t need to file a rebate return.

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