The Wrong Way to Reform the IRS

By Kevin D. Williamson

Sunday, October 10, 2021

 

When it comes to combined malice and incompetence, it is tough to beat the IRS — and the Biden administration, working from its own rich stores of malice and incompetence, now wants to give the taxman even more power to snoop on Americans, a proposal that has even congressional Democrats walking sideways away from it.

 

The Biden administration has proposed commanding U.S. banks to monitor and report to the IRS all inflows to and outflows from bank accounts with $600 or more in them. The administration insists that the IRS would not be keeping files on individual transactions but demanding only “high level” information, such as total account activity. But as we have seen demonstrated a thousand times over, such aggregating ends up incorporating a great deal of private information, which can be extracted in unforeseen ways. Given the way the IRS has maliciously abused taxpayer information, it is not difficult to imagine its doing as bad or worse through mere negligence. The IRS is basically run by a bunch of guys whose account passwords are all “password.”

 

Congressional Democrats have responded to Biden with a less-of-the-same counteroffer: giving the IRS the power to monitor accounts with more than $10,000 in them.

 

Both proposals are outrageous, and should be thrown out with extreme prejudice.

 

Some of you will remember the debate about the (imbecilic-acronym alert!) USA PATRIOT Act, which expanded surveillance and investigatory powers commonly used in drug-trafficking and organized-crime investigations for use against suspected terrorists. A great many Democrats spent months running around with their dresses over their heads, weeping and gnashing their teeth and warning that Dick Cheney was going to be sneaking a peek at Americans’ library cards — a possibility that seemed to terrify most of all Americans who had never used a library card and were never going to.

 

Senator Joe Biden took a different view. If there’s one thing Biden has consistently loved almost as much as the sound of his own voice over the years, it is police power. The limits on government’s investigatory powers after 9/11 were, in Senator Biden’s words, “crazy.” About the PATRIOT Act, he declared: “What’s good for the mob should be good for terrorists.”

 

(At the time, the word terrorist was not generally understood to include people who disagree with the local school board and say so with great enthusiasm, but these things have a way of creeping up on us.)

 

So Biden has proposed a kind of new and improved PATRIOT Act directed not at terrorists but at high rollers with . . . a few hundred bucks in the bank . . . who might be chiseling the IRS.

 

This isn’t the first time the federal government has tried something like this. Even excluding the military and federal employees, there are millions of Americans whose principal place of residence is in a different country, and there are many millions more who mainly live in the United States but maintain a second home abroad. There are hundreds of thousands of Americans in Mexico, Canada, and the United Kingdom, and tens of thousands each in such countries as France, Spain, Switzerland, and Israel. They are not all fat cats, but they are all subject to (two-alarm imbecilic-acronym alert!) FATCA, the Foreign Account Tax Compliance Act, an intrusive law the U.S. government applies to foreign banks.

 

The idea behind FATCA, as with Biden’s latest shenanigan, is that Americans are improperly hiding money to which the IRS is entitled. FATCA has produced basically nothing in terms of new tax revenue (one tax expert puts it as less than 1/100^th of a percent of federal tax revenue, a few millions out of trillions), but it has made it effectively impossible for many Americans who live abroad, full-time or part-time, to open a bank account. Along with the firearms silencer, the Swiss bank account is at the top of the list of things that are a lot less cool in real life than in the movies, but when FATCA took effect, thousands of non-billionaires with Swiss accounts found themselves fired by their bankers, who preferred to forgo that business rather than endure the cost of compliance with a law arrogantly imposed on them by a foreign government.

 

There is not much evidence that Americans are hiding large sums of taxable money in bank accounts at home or abroad. The powers that be in Washington say that the IRS is losing out on $100 billion to $150 billion in tax revenue each year, but there is almost nothing to support that figure. The Congressional Research Service looked into it and could find no evidence for it. The Joint Committee on Taxes took up the question and calculated losses of less than $1 billion a year.

 

Consider the parallel case of voting fraud. There probably is not a lot of voting fraud in U.S. elections, but there is some, and we put people in jail for it from time to time. A little bit of election fraud undermines trust in the entire system, providing fertile ground for conspiracy kookery and contributing to political violence. It’s the sort of thing you want to hit pretty hard before it becomes a widespread problem.

 

At the same time, we should expect the authorities to be reasonable and prudent in the measures they take to police that fraud: Photo-identification check at the polling place, yes; invasive surveillance, no. Democrats object very strongly to most clean-election measures, because they believe that anti-fraud efforts will hurt them more than they hurt Republicans. (Now, why would they think that?) But they do not care very much about invading the financial privacy of American bank depositors, because they think of money for government as money for them and theirs. (Now, why would they think that?) The disconnect is instructive.

 

Conservatives who believe in well-ordered liberty — and who are not raging infants — understand that taxes are an ordinary part of modern life and that some apparatus will have to be invested with some power and some considerable resources to collect those taxes. We should want an efficient, decent, even-handed tax collector. Simply starving the IRS of operating funds, as some Republicans have tried to do, is insufficient. What is needed is a positive reform agenda.

 

As it stands, we have a politicized IRS that leaks the confidential information of Democrats’ political enemies and engages in other similar misbehavior. Giving such an agency new, wide-ranging powers of investigation and surveillance is an indefensibly stupid and immoral proposition. The IRS is in need of radical, fundamental, top-to-bottom reform; in fact, it probably will need to be replaced with an entirely new agency (administering a deeply revised tax code) if we are ever to rid ourselves of its particular culture of abuse and corruption.

 

Americans with $600 in the bank deserve privacy. Americans with $10,000 in the bank deserve privacy, too. The issue isn’t the number — you can’t put a price on the Bill of Rights. What the Democrats are proposing is an unreasonable search without a warrant, an infringement of Americans’ fundamental constitutional rights millions of times over, year in and year out.

 

It is also precisely the wrong way to go about reforming our revenue system.