At least the government has already gone after the big fish and common loopholes that corporations and the ultra-wealthy perpetually exploit to maintain single digits tax liabilities. Oh, wait....
A few big fish is nothing compared to a net of every small fish independent contractor, small business and dude with a side gig who doesn't report that income.
The cynical take is that it's not about the money, it's about having the power of arbitrary enforcement coupled with the longstanding ability to freeze accounts and seize assets in response to tax evasion. Imagine if the feds has an "off switch" for most small businesses and self employed individuals they could use to enforce compliance.
Yes, but is it more effective to catch and eat a 10lb trout, of which there are plenty and they're easy to identify using established laws and technologies (tip: they hang around Jackson Hole), or try to dip net and fillet 300 creek chubs scattered all over the place?
You are right in that it isn't only about the money. It has to be the surveillance aspect with the revenue generation as an added bonus. If something like this doesn't succeed now, then next time will it be for national security or the safety of the children?
We love to enforce the laws against the poor. This just seems like another avenue by which to do so. Look at how frequently crimes like robbery are mentioned in the news-- but what about much more endemic crimes typically perpetuated by the ownership class, like wage theft (https://i.redd.it/grnr8kxbl6zz.jpg), and how little you hear about them.
In this case it's as easy as sending automated threatening letters "we see you've done X Y and Z transactions, we think these are taxable, please provide payment amount A or appeal it by doing B"
The rich people and rich companies (10lb trout in your example, since it may not be clear to everyone that 10lb is no small trout) have big enough dollar amounts at stake to be worth fighting for and will fight but the cost of running that process will be just a formality compared to all the $100-500 checks they'll receive.
I don't think it's about the surveillance aspect or the money except as a means to the end of having more power to control who gets economically marginalized.
Look at the difficulty the government had enforcing executive policy and controlling the narrative during the pandemic (compare with the first few years of the war on terror for example). They don't want to get caught with their pants down the next time around.
The tax situation will likely become unbearable, gov preparing to attack those who refuse to (or can't) pay. We will live interesting times when the IRS goes after millions who can't find the spare money to fill public funds.
Result will be like we see in Russia: deals between US businesses will become deals between their offshores, and just enough money to pay salaries, will be moved into the country.
Unlikely. Most American small businesses and individuals can't set up offshore structures willy nilly (it's too expensive and complex), and FACTA makes it a lot harder for them to even if they want to. Lots of financial institutions hate working with Americans and will avoid it if possible in some places because of FACTA.
Keeping money offshore doesn't make sense for the little guy. You're required to report it with significant penalties for non-compliance, and the anti-tax-deferral rules for controlled foreign corporations basically make repatriating just enough money to pay salaries a pointless exercise.
There are companies in Russia that specialize in providing shell companies to businesses. You can get a "reused" local company, an unique one, a company represented by a real person (no idea if that person is literally a fall guy, or just a legal fiction), probably off-shores too. Sounds like this might become a great startup idea in the US too ;)
Shell companies don't change anything. You can buy an aged shell, appoint nominee directors, etc. and it doesn't change the law. If anything, these things will only go to prove your intent to launder money and avoid tax if and when you're caught.
While that's not to say that aged shells, nominee directors, etc. don't serve a purpose for certain people in certain situations, a lot of this stuff is just designed to enrich the service providers through fees and provides very little meaningful value in terms of privacy and protection.
A lot of Russians use offshore structures to protect their assets from the state. Also, Russia has a territorial tax system under which nonresidents are taxed only on their Russian-source income. Many wealthy Russians live overseas, so if you make your money abroad and live abroad, there's nothing inherently illegal about keeping your money abroad if you're a Russian.
Basically, the reasons a Russian would go offshore are a bit different from the reasons an average American would.
Finally, in cases where a Russian was offshore for shady business, you should recognize that the long arm of the Russian authorities isn't that long. The US, on the other hand, can functionally knee-cap financial institutions anywhere in the world for refusing to do what it wants.
As evidence of this, consider that even Chinese banks will comply with US sanctions if they feel there's a risk to their US dollar operations:
The comment was that for the small guy, it's too expensive and complicated to set up these companies. Imagine if there was a cheap service that would allow the small guy to structure his business "just like the big boys".
Big companies use complex international structures to dodge taxes and regulations legally. Currently, there are no reasons to do that for a random small business; if there is, there may be demand. Kinda like people register their companies in Delaware even though it doesn't make "logical" sense; just to (legally) get the regulatory advantages.
This is speculation, obviously, based on the direction this goes with the account surveillance.
No it isn't. Once you want to convert to fiat (so you can spend it), you're back in the realm of the regulated financial world. If you're running a small business, chances are you can't a) use your crypto without converting to fiat or b) can't use your crypto without identifying yourself to a regulated financial institution.
Since BTC, ETH, etc. are public ledgers, you're basically already giving every government agency in the world the ability to track your balances and transactions without any additional regulation or infrastructure required. Of course, if you're super careful, they might not know it's you yet, but if they really want to, they can find out and make sure you don't sleep very well at night while they wait.
This might sound good if you're living in the jungles of Belize. But let's be realistic. The average individual and small business owner cannot meet their day-to-day financial obligations by dealing only with unregulated counterparties that transact in crypto. And the vast majority of people do not wish to live a life where they're exchanging USBs for cash using crypto "plugs" they meet in fast food parking lots.
Furthermore, in the latter scenario, that cash is eventually going to get deposited back into a regulated institution (to pay credit card bills, etc.). If anything, a person depositing thousands of dollars in cash on a regular basis is going to draw more scrutiny, especially if they're not running a cash business.
Which leads to the obvious solution: you're going to buy that Wendy's where you're exchanging your USBs for cash. Congratulations. You're now officially a money launderer!
There may eventually be a slowdown of small business activity as ever increasing Panopticon-type surveillance proves a drag on innovation and profitability.
I'm not so concerned about transactions for the common person over $600. I'm very concerned about the transaction over $600 for every government official though.
This is warrantless mass-surveillance, and done overtly. The US is still a democracy, and people should push back, and demand that their elected representatives block it.
Justice Douglas, in his dissenting opinion on the 1974 California Bankers Association v Shultz case that upheld the constitutionality of the Bank Secrecy Act, provided an excellent argument against warrantless mass-surveillance and the doctrines, like Total Information Awareness, that promote it:
It is estimated that a minimum of 20 billion checks - and perhaps 30 billion - will have to be photocopied and that the weight of these little pieces of paper will approximate 166 million pounds a year. 6
It would be highly useful to governmental espionage to have like reports from all our bookstores, all our hardware [416 U.S. 21, 85] and retail stores, all our drugstores. These records too might be "useful" in criminal investigations.
One's reading habits furnish telltale clues to those who are bent on bending us to one point of view. What one buys at the hardware and retail stores may furnish clues to potential uses of wires, soap powders, and the like used by criminals. A mandatory recording of all telephone conversations would be better than the recording of checks under the Bank Secrecy Act, if Big Brother is to have his way. The records of checks - now available to the investigators - are highly useful. In a sense a person is defined by the checks he writes. By examining them the agents get to know his doctors, lawyers, creditors, political allies, social connections, religious affiliation, educational interests, the papers and magazines he reads, and so on ad infinitum. These are all tied to one's social security number; and now that we have the data banks, these other items will enrich that storehouse and make it possible for a bureaucrat - by pushing one button - to get in an instant the names of the 190 million Americans who are subversives or potential and likely candidates.
It is, I submit, sheer nonsense to agree with the Secretary that all bank records of every citizen "have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings." That is unadulterated nonsense unless we are to assume that every citizen is a crook, an assumption I cannot make.
Since the banking transactions of an individual give a fairly accurate account of his religion, ideology, opinions, and interests, a regulation impounding them and making them automatically available to all federal investigative agencies is a sledge-hammer approach to a problem that only a delicate scalpel can manage. Where fundamental personal rights are involved - as is true when as here the [416 U.S. 21, 86] Government gets large access to one's beliefs, ideas, politics, religion, cultural concerns, and the like - the Act should be "narrowly drawn" (Cantwell v. Connecticut, 310 U.S. 296, 307 ) to meet the precise evil. 7 Bank accounts at times harbor criminal plans. But we only rush with the crowd when we vent on our banks and their customers the devastating and leveling requirements of the present Act. I am not yet ready to agree that America is so possessed with evil that we must level all constitutional barriers to give our civil authorities the tools to catch criminals.
Also worth noting that the threshold for reporting transactions when the BSA was passed, of $10,000, was worth $55,490 after adjusting for inflation. Now Treasury wants to decrease it to $600, which is a 92X decrease from the original threshold. If you factor in the 41% increase in real median income since 1974, the threshold the Treasury is pushing for would be 130X smaller, as a share of median income, than it was when the BSA was enacted.
The BSA fell down the the slippery slope to total mass-surveillance.
> This is warrantless mass-surveillance, and done overtly. The US is still a democracy, and people should push back, and demand that their elected representatives block it.
Agreed. The Community Bankers association is requesting that U.S. banking clients contact their elected representatives. Only 90,000 have spoken up so far, more are needed to push back against the normalization of dangerous proposals.
> While community banks do not endorse such broad IRS access to their customers’ account information, consumers need to be aware of the potential effects of this proposal. Mandating new, broad bank account reporting to the IRS would infringe on the privacy of bank customers, push more people away from a banking relationship and overload the IRS with more personal information about American citizens than it can possibly process or keep safe from a data hack. To be heard in Washington before this bank IRS reporting regime is enacted, you can send the following customizable message directly to your members of Congress and ensure your voice is heard.
The proposal under discussion is under the header "INTRODUCE COMPREHENSIVE FINANCIAL ACCOUNT REPORTING TO
IMPROVE TAX COMPLIANCE", page 94 of 114 in the PDF, labelled page 88 in the source document
“Fair” enforcement of a legally-enforced tax system is impossible. A just system would be physically impossible to cheat, not legally precarious. Shifting that burden of legal compliance onto the individual is crippling for the society. The problem with ‘surveillance’ is that there is nothing positive about it for the productive honest people that have a lot to lose, and it’s really not much of a problem for the dishonest criminal with nothing to lose.
I don’t think it’s possible to have a fair income tax. It’s also irrelevant.
Bond issuance almost entirely funds the government already, it requires zero enforcement, zero taxpayer burden, and it’s impossible to cheat. Income tax is mostly an excuse for legal surveillance of other matters. Some of those might be reasonable and good, but the voters should decide that.
This is interesting. With enough computing power, and that is already dead cheap, the potential to spy is enormous.
As much as I am a fan of Bitcoin, is it not possible to create an alternative currency, where the value of the currency is pegged to the state currency, but transactions are encrypted and untraceable. Sorr of like an underground banking system.
DAI satisfies that, is is pegged to the dollar by a smart contract that issues loans, expands, and contracts the DAI supply to keep the peg. It is not backed by real dollars*. It's not untraceable, same as Bitcoin, but that's been solved by things like Monero. I bet the two concepts are compatible.
*It is backed by traditional crypto, in addition to USDC and other stablecoins which are in turn backed by real dollars, so it's partially backed by dollars.
> ... compelling banks to share data on customer accounts, a move that requires congressional approval, would amount to just an initial step in narrowing the gap ... The IRS would need to figure out a way to use the information to decide which business owners to audit and what questions to ask them. The plan also includes billions of dollars for technology and staffing so the IRS could digest and analyze that information.
> One key prong of President Biden’s plan to bankroll Democrats’ $3.5 trillion budget plan is to monitor gross inflows and outflows from an individual’s bank account ... some are concerned that it might run up against the Fourth Amendment and those who can’t afford to fight tax audits or move their money into offshore accounts ... The proposal would require banks to report to gross inflows and outflows to the IRS, including transactions from Venmo, PayPal, crypto exchanges and the like ...
>The proposal would require banks to report annual account inflows and outflows to the Internal Revenue Service. The requirement would also extend to peer-to-peer payment services such as Venmo but wouldn’t require individuals and businesses to report any additional information to the government, according to people familiar with the plan. Financial institutions already must report interest, dividend and investment income, and the IRS can get bank information during audits.
I wonder how this could work in practice. A Gov entity will have to connect to some bank APIs to streamline the monitoring? Most banks don't have APIs to connect to. It would pretty wild if the Gov had to ask people to share their bank passwords and then had to screen-scrape the data from their accounts to "establish a connection".
Nothing so complicated. Compliance departments just start sending reports of all transactions greater than $600 on a monthly basis just like they do with SAR's and large cash value withdrawals.
I'm having difficulty seeing how this isn't a 4th Amendment violation, or something that'd have to be gated behind a legislative statute.
Make no mistake. The U.S. financial system is one of the greatest "soft power" projectors on the planet. It is most certainly not being utilized in a way that helps you.
Generally with this sort of thing it’s up to the bank to file reports to comply with the regulation. I don’t know the specifics for how the current $10k+ transaction reports work, but usually I think the government doesn’t bother trying to integrate with the myriad software systems out there, instead they just have an XML API of some sort that you can send machine readable versions of paper forms to.
It could simply go the way of the Payment Services Directive (PSD) from Europe, which has spurred (and mandated) the development of open APIs at financial institutions.
The proposal seems wrong, but the article is a bit off too.
> As Mises noted, capitalism suffocates without loopholes.
The definition of “loophole” here, though, is actual tax avoidance. Wrong tack to take. I’ve worked in small and marginal businesses, we paid the taxes. No sympathy here.
The article refers twice to the idea that the reporting will be on movements of $600 or more- is that right? A plain reading of the text (below) suggests that the account balance is of $600, and the movements will be of any size.
The text, which is short and could have been included, is:
> This proposal would create a comprehensive financial account information reporting regime. Financial institutions would report data on financial accounts in an information return. The annual return will report gross inflows and outflows with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account with the same owner. This requirement would apply to all business and personal accounts from financial institutions, including bank, loan, and investment accounts,2 with the exception of accounts below a low de minimis gross flow threshold of $600 or fair market value of $600.
Other accounts with characteristics similar to financial institution accounts will be covered under this information reporting regime. In particular, payment settlement entities would collect Taxpayer Identification Numbers (TINs) and file a revised Form 1099-K expanded to all payee accounts (subject to the same de minimis threshold), reporting not only gross receipts but also gross purchases, physical cash, as well as payments to and from foreign accounts, and transfer inflows and outflows.
Similar reporting requirements would apply to crypto asset exchanges and custodians.
> Separately, reporting requirements would apply in cases in which taxpayers buy crypto asset from one broker and then transfer the crypto assets to another broker, and businesses that receive crypto assets in transactions with a fair market value of more than $10,000 would have to report such transactions.
> The Secretary would be given broad authority to issue regulations necessary to implement this proposal.
The proposal would be effective for tax years beginning after December 31, 2022.
Reminder that the bottom 50% of the income distribution pays 3% of the tax receipts and after accounting for the costs of enforcement it is clearly theater.
this feels so icky. there's probably many good reasons but i hate seeing an administration i want to do good increasing the survelliance state in such a critical, serious way.
Don’t forget that Obama expanded the surveillance state more than GW Bush did.
This will also increase the cost of government to track it all. I expect it will disproprtionately focus on the lower-to-middle income businesses and people, not the high-end deadbeats, since it’ll be easier to grab pennies from many than millions from a difficult few.
There is no doubt in my mind that the elimination of paper money is in our future. There are numerous articles about central banks developing their own digital currencies. Once that happens, say goodbye to any type of financial privacy or autonomy. I'm willing to bet that during times of economic slowdown, similar to China [1], the US gov't will put expiry dates on the dollars in your savings account in order to stimulate the economy, and people will defend that decision.
Why spend all this effort on direct taxation, when they can print the tax. Plus, inflation acts as a proportional tax. The more dollars you have the more the tax effects you.
