Here’s why, in fact, the IRS’s $ 600 bank report proposal is quite reasonable


Over the past few days, we’ve seen the Outrage Machine in action on a new Treasury proposal to require banks to report new U.S. bank account information to the IRS, in addition to the existing reporting of bank payments. ‘interests. This proposal, as described on CBS News (among, of course, many other sites) would require banks to report gross annual inflows and outflows on bank accounts, apparently to catch high-income fraudsters. Since the reporting threshold has been set at $ 600, skeptics are, well, skeptical of the claim that this change would only affect, as the Biden administration claims, those who earn more than $ 400. $ 000 per year.

At the Heritage Foundation, a commentary claims the change “would infringe your privacy and further endanger your financial data,” citing past leaks and the politicization of the IRS. A group of 40 banking / credit organizations also objected that Americans’ financial privacy was at risk and claimed the new requirement would deter unbanked households from opening accounts. And other politicians, fact-quoted, distorting the proposal, claim that the result would be the IRS looking into the details of every $ 600 transaction. That the very low threshold indicates that the administration is being dishonest in claiming that its aim is only to catch the wealthy tax evaders when they are in fact setting the stage for a wider prosecution, or whether it is rather to ‘fail to think about the implications of such a low threshold, who can tell.

But at the same time, the other day, on my way home, I listened to a fairly generic conservative radio talk show host angry at this proposal. He wasn’t mad at privacy concerns, and certainly not at dissuading marginalized people from opening bank accounts, or the cost for banks to comply with the new regulations. No, what he feared was that Americans would be forced to pay taxes on their moonlighting self-employment income.

So here’s the plain reality: Americans owe FICA tax on all of their income up to the cap, and are required to report all of their income in calculating their income tax. There is no legal, moral or ethical right to underreport just because your income is from any source other than “real work”. A babysitter, an Ebay dealer, someone who lands handyman jobs next door – all of these people have an obligation to report their income. (As a parent and mom of the band, I personally learn the ropes here, as our group navigates sending 1099 forms to local students and musicians who are hired periodically.)

And – without wishing to address the entirely separate issue of high income tax evasion – the “underground economy” in the United States is substantial. Estimates are hard to come by, but one estimate is that the underground economy accounted for 11-12% of US GDP in 2018. A 2012 survey found that 91% of nannies reported being paid illegally. Among all domestic workers, another estimate found rates between 74% and 97%, depending on the methodology. And of course, the undeclared workforce extends far beyond domestic workers, although it is more difficult to quantify when we talk about other types of self-employed workers not declaring their income, or of small employers paying illegally. (A brief reddit read suggests that’s not unusual for restaurants.)

But consider this: some time ago I spoke of a book, Descent from here by Katherine S. Newman, who lamented flaws in the pension system, such as the insolvencies of multi-employer pension plans and Detroit retirees, whose pensions were modestly reduced with the city’s bankruptcy. I did not give too much credit to her arguments, lamenting as she did, for example, that the city of Detroit did not, in fact, sell art from the Detroit Institute of Arts to preserve the full benefits for retirees.

But in addition to these stories, she featured profiles of Americans who were working well beyond the traditional retirement age, including Leslie, who ran a “nothing-at-home daycare,” and Marissa, who was mostly paid. moonlighting for housework and also had no significant social security benefits. Just in case, Newman implies that it is an unfair design issue of the social security scheme that these women have no / few benefits rather than acknowledging that it was a decision intentionally not to declare their income.

Likewise, there are sympathetic periodic reports of women formerly employed as nannies or housekeepers who have become unemployed as a result of the pandemic – but it does not occur to these reporters that in Since these women were employed, rather than self-employed, they should have been entitled to unemployment benefits, or would have been if they had been paid off the books. And, of course, again, people who are employed, rather than self-employed, lose access to workers’ compensation if they are injured.

Yes, it’s unpopular to talk about it. It is assumed that people who moonlight are poor, so it would be unfair to impose the obligation to pay taxes. Granted, many of these workers would have incomes low enough that they would not have to pay income taxes, although payroll taxes / FICA apply to all income. But for others, it is a secondary activity, and in still other cases, they are truly employee, not independent, and have an employer who takes advantage of the possibility of avoiding tax on part of his payroll.

And it’s not just a question of lost taxes or social security benefits. There is something more fundamental that is lost in our society when we view participation in tax and social insurance systems as somehow optional.

As always, you are welcome to comment at!


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