The administrative proposals in Senator Baucus's staff documents may seem dry reading, but there is a potential time bomb buried deep in the weeds. One sincerely hopes it is not the first step toward a wealth taxA wealth tax is imposed on an individual’s net wealth, or the market value of their total owned assets minus liabilities. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary. on bank deposits. It is certainly a step toward less financial privacy.
Pay close attention to the Senate Committee on Finance Chairman's staff discussion draft of TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Administration Provisions, Section C – Closing the Tax GapThe tax gap is the difference between taxes legally owed and taxes collected. The gross tax gap in the U.S. accounts for at least 1 billion in lost revenue each year, according to the latest estimate by the IRS (2011 to 2013), suggesting a voluntary taxpayer compliance rate of 83.6 percent. The net tax gap is calculated by subtracting late tax collections from the gross tax gap: from 2011 to 2013, the average net gap was around 1 billion. . Its first provision requires banks to issue reporting statements (1099 forms) for all bank accounts, even those that pay no interest. Currently, the statements must be issued only if the interest exceeds $10 in a year. The 1099 forms are sent to the taxpayer and to the IRS.
Under the new provision, the $10 minimum would be replaced by $0, a minor change in the legal language, but a big change in practice and reporting costs. There is a big difference between replacing the current $10 de minimus rule with $1 or even $0.01, and replacing it with $0. If an account is non-interest bearing, why is the IRS interested in it? Accounts that pay no interest presumably have no associated tax. So what is the Chairman's staff's intent here?
Apparently, the IRS wants to have more information about accounts through which people may transfer funds. Perhaps some of the funds are being transferred abroad, where they may earn interest that the IRS currently has difficulty finding. But this has supposedly been dealt with already by stringent new requirements for individuals to report their foreign account information (with stiff fines for non-compliance) and by requirements for foreign banks to report account information on clients whom they suspect might be U.S. taxpayers even if they claim not to be.
This requirement on foreign banks to report anyone who might be an American is backed by such stiff penalties that it is already making it hard for Americans who live and work abroad to open bank or brokerage accounts abroad. Foreign banks are hanging out signs saying "No Americans need apply." Even people with foreign spouses may have difficulty opening accounts in their countries of residence.
So why does the IRS need this additional "metadata?” It would be needed as a first step in gathering data on the assets of Americans, as would be needed if we ever had an annual wealth tax (as in France and Spain for example). (That would be a wealth tax in addition to the once-after-a-lifetime death tax already on the books!) Let us hope that the full Senate pays attention to this proposed enormous expansion of government financial intelligence gathering before it is too late.
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