Joe Biden’s plan to increase tax revenues for the government is very simple. He believes that taxpayers cheat on their tax returns, so he proposes to provide $80 billion in additional funding for the IRS to double their staff of auditors. The administration thinks they can increase tax collections by $700 billion.
According to a Wall Street Journal report by Richard Rubin updated April 27, 2021.— “The Treasury Department’s career staff estimate that more than half of the $700 billion in additional revenue would come from changes to how businesses’ and individuals’ income is reported to the government. Under the plan, banks and other payment providers would be required to tell the IRS how much money came into and out of individuals’ and businesses’ accounts each year, going far beyond the existing reporting of interest income.”
Whoa! The government will require your bank to report to the IRS every transaction of $600 or more both in your checking account and savings account? And the IRS will double their staff of auditors? Actually, the legislation includes “Financial Institutions” in addition to banks and savings accounts, so your brokerage and retirement accounts will probably be included in the reporting requirement.
So what can we expect from this new tax plan. Remember the luxury yacht tax in 1990 that taxed all yacht sales of over $100,000? People quit buying yachts and many US yacht manufacturers and marinas declared bankruptcy. The tax was quickly repealed after the US paid out more in unemployment benefits than they collected from the tax.
Biden seems to think that the rich do not pay taxes, but the top one-percent of American earners pay almost forty-percent of all taxes. The bottom 50 percent of Americans pay just three percent of federal taxes. And Wisconsin Representative Paul Ryan, in a 2011 television interview, observed that a 100 percent tax on millionaires would only fund the government for four months.
Financial institutions would have to report the gross inflows and outflows on all business and personal accounts. So-called payment settlement entities, like PayPal, foreign financial institutions and cryptocurrency exchanges would also be subject to additional reporting requirements. Businesses would have to alert the IRS to cryptocurrency transactions worth more than $10,000.
It is pretty easy to predict the outcome on Biden’s tax plan. The IRS will hire 50,000 additional bureaucrats, but tax revenues will fall as businesses and financial institution absorb the cost of the additional reporting. A Politico story, 5-20-21, predicts that cryptocurrency transactions are likely to rise in importance in the next decade as people avoid banks,
I think we can label Biden’s tax plan as another failure. Since many in Congress seems to be a multi-millionaires, getting Congress to vote for a plan to tax the rich will be difficult.