Rather than give the IRS new powers, lower rates and simplify the tax code
The Biden administration’s plan to give the IRS the right to know how much money goes into and out of your bank account is still on the table. As we’ve noted before, this is a bad idea built on several shaky assumptions – not the least of which is that Americans are a bunch of tax dodgers worthy of government surveillance.
But as Dan Mitchell writes, this is hogwash. Not only will the Biden plan not discover hidden piles of cash, it will also make life miserable for small business owners:
Simply stated, rich people are very clever about legal tax avoidance. They do things like invest in tax-free municipal bonds (which is not good for the economy, but it’s a very effective way of escaping tax).
Or they rely on building wealth with investments, since only the most crazy leftists (like Elizabeth Warren) would support taxes on unrealized capital gains.
So who would be targeted if Congress approves this plan to let the IRS snoop on bank accounts?
Primarily owners of small businesses. The IRS basically adopts the view that all entrepreneurs under report cash income and deduct personal expenses on their business tax returns.
Some of that actually happens, of course, but the best way to improve compliance is lower tax rates, not a massive expansion of the surveillance state.
Lower rates are part of a solution. A simplified tax code is also essential. Strip out the government meddling, the special pleading, and the byzantine jargon. Lobbyists and corporate welfare peddlers may not like such changes, but the average taxpayer will.
In the meantime, Congress is already backing away from the initial Biden $600 threshold for IRS snooping. The new idea is a $10,000 threshold. But even that may be way to low:
“I don’t know why they thought $600 would be a good number. $10,000 is definitely an improvement,” said John Koskinen, who served as commissioner of the IRS under both President Barack Obama and President Donald Trump. Koskinen said the threshold should be raised even higher to a number like $50,000. “The vast majority of people won’t be affected, but it will pick up more than just the idle rich.”
The more people swept up in the surveillance dragnet, the more targets there are to squeeze for cash. That’s always been the goal.