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Opinion: New IRS surveillance power would threaten local banks, small businesses


Within the multi-trillion spending boondoggle being debated in Washington is a provision that will allow the IRS to spy on nearly every bank account in the U.S. Banks would be enlisted to monitor, track, and report on every account with $10,000 or more in annual cash flow. That’s up from the originally proposed threshold of $600.

But the so-called “concession” is of little consequence. In practice, the standard will still ensnare the financial records of nearly every American and small business. Even a retiree collecting a modest monthly social security check will clear the benchmark.

Kalena Bruce

Ignoring the blatant privacy intrusion against individuals, community banks will be recruited as the foot soldiers to pay for and carry out the policy. Significant compliance expenses will be associated with monitoring at least 124 million bank accounts. It could easily require banks to purchase new software or hire more staff. And unlike the big banks of the world, community financial institutions are local small businesses with tight budgets — not dissimilar to the café or dry cleaner down the street.

What happens when a bank lacks a sufficient level of resources to hire new people or install new equipment? The bank would be forced to cut services, downsize, or even shut down. And when a community bank closes, it has an outsized ripple effect.

Not only do staff depend on the banks for employment, but individuals seeking a mortgage or entrepreneurs looking for start-up or expansion investment rely on community banks. In fact, despite accounting for a fraction of total banking assets nationwide, local banks provide nearly half of small business loans. Restricting these critical lines of credit will depress new business ventures and plans to expand existing ones. Considering that small businesses employ nearly half of all workers in Missouri and nationwide, the broader economy will suffer.

The Biden administration’s plan to equip the IRS with more teeth is a strategy to squeeze every dollar out of taxpayers it can. In addition to empowering the IRS with financial surveillance capabilities, the budget reconciliation package includes $80 billion to beef up tax code enforcement efforts.

But will the government’s strategy be effective? Not according to the American Bankers Association and its 51 affiliates in every state plus Puerto Rico. They argue the new information will be of little value when trying to target worthwhile tax dodgers.

Gross cash flows can be misleading. For example, the group noted, “[s]elf-employed contractors who buy materials and install them for customers, will commonly have gross inflows and outflows that far exceed the income they earn.” Therefore, the army of IRS auditors will frequently be tasked to investigate false positives, adding to government waste.

On top of saddling small business lenders with what amounts to an IRS “compliance tax,” the budget bill has a number of other tax hikes on the docket. Proposals include raising taxes on nearly 1 million pass-through small businesses as well as some small businesses that are structured as c-corporations. The package would also walk back the 20 percent small business tax deduction that has fueled job creation, wage growth, and economic expansion since its passage in 2017 leading up to the pandemic.

The proposed IRS data collection process and mountain of new tax hikes included in the budget reconciliation bill amount to a declaration of war on small businesses, including the community banks that support little league teams and provide local students with scholarships. Sensible, moderate lawmakers in Congress should stand up and hold the line on behalf of Main Street.