Lawmakers Target the Middle Class

By Kyle Wingfield

A pithy answer was attributed to Willie Sutton for why he robbed banks: “Because that’s where the money is.”
Sutton later claimed the quote was invented by “some enterprising reporter.” Still, the quip well explains why Congress is looking to middle-class Americans’ bank accounts to fund trillions of dollars in new spending.

At issue is the proposed requirement for banks to report information about accounts with transactions of more than $600 – a threshold revised this past week to an annual total of $10,000, with exceptions for payroll deposits or other similar payments.

But many Americans have transactions in and out of their bank accounts for reasons that indicate nothing about income that is illicit or, more to the point, “off the books” and untaxed.

Example: Right out of college, I lived in a house with two other guys. We each paid $500 a month in rent. Had one of us collected money from the others and written a single check to the landlord – not an uncommon practice – he would have more than crossed the $10,000 line. And that was 20 years ago; rents, and thus the likelihood of crossing the threshold, have only gone up since then.

Lawmakers who support the proposal say this isn’t about snooping on taxpayers. So what is it about? A similar threshold for transactions with accounts in foreign banks is used to alert the IRS to the possibility an audit is needed.

That seems to be the real idea here, too: Conduct more audits, poke around until some mistake is found, and squeeze until the taxpayer cries uncle.

No, proponents say, this is only about dinging “the rich.” To demonstrate their sincerity, the Treasury Department conjured its own example in an Oct. 19 “fact sheet”:
“Imagine a taxpayer who reports $10,000 of income; but has $10 million of flows in and out of their bank account.”

I’d give you more details about this hypothetical taxpayer, but that’s all the “fact sheet” offers. You have to “imagine” the rest, and it takes quite an imagination. Who, exactly, has “$10 million of flows in and out of their bank account” but reports a mere $10,000 of income? Drug dealers come to mind, but they’re unlikely to keep their money in banks.

Instead, we’re supposed to believe this is how many “high-income people under-report their income (and under-pay their tax obligations).” Really? It would take a very wealthy not-so-sophisticate to shuffle that kind of money through a bank account without reporting more income.

Even imagining unreported sources of income on the scale of $10 million is difficult. Capital gains? Already reported. Business income? Difficult to hide in such amounts.

Usually, wealthy folks accused of being tax dodgers are acknowledged to take advantage of tax loopholes. But loopholes are legal, and few people try to navigate them without the help of counsel.

So when red flags arise over two accounts, one likely owned by a wealthy person and one by a person of more modest means, which is going to get the scrutiny? The one who almost certainly already has a tax lawyer, or the one who probably doesn’t?

Therein lies the point. The charade here is the notion that this proposal is about taxing “the rich.”

As Sen. Mike Crapo, R-Wyoming, noted at a recent press conference, Congress’ own data indicate only “4 to 9 percent of expected (tax) recoveries” would come from those earning over $500,000. The rest would come from people under that threshold – half from people earning less than $50,000.

Even if there’s more money out there the authorities simply don’t know about, that doesn’t erase the likelihood people under that income level will also be targeted – again, for transactions that may well have had nothing to do with unreported income.

Willie Sutton may not have uttered that famous phrase, but his behavior demonstrated its essential truth. Similarly, money-hungry lawmakers will say one thing but act in a way that targets the middle class. That’s where the money is.


Kyle Wingfield is president and CEO of the Georgia Public Policy Foundation: www.georgiapolicy.org.

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