The on-again, off-again proposal to require banks to monitor and report on the activity of America’s bank accounts that have $600 or more in business transactions is back in the latest version of H.R. 5376 Build Back Better Act being now being debated by the House in Congress.
The exact text as amended says:
SEC. 138402. APPLICATION OF BACKUP WITHHOLDING WITH RESPECT TO THIRD
PARTY NETWORK TRANSACTIONS.
(a) In General.–Section 3406(b) is amended by adding at the end
the following new paragraph:
“(8) Other reportable payments include payments in
settlement of third party network transactions only where
aggregate for calendar year is $600 or more.–Any payment in
settlement of a third party network transaction required to be
shown on a return required under section 6050W which is made
during any calendar year shall be treated as a reportable
payment only if–
“(A) the aggregate amount of such payment and all
previous such payments made by the third party
settlement organization to the participating payee
during such calendar year equals or exceeds $600, or
“(B) the third party settlement organization was
required under section 6050W to file a return for the
preceding calendar year with respect to payments to the
(b) Conforming Amendment.–Section 6050W(e) is amended by inserting
“equal or” before “exceed $600”.
(c) Effective Date.–The amendments made by this section shall
apply to calendar years beginning after December 31, 2021.
(d) Transitional Rule for 2022.–In the case of payments made
during calendar year 2022, section 3406(b)(8)(A) of the Internal
Revenue Code of 1986 (as added by this section) shall be applied by
inserting “and the aggregate number of third party network
transactions settled by the third party settlement organization with
respect to the participating payee during such calendar year exceeds
200” before the comma at the end.
What this does is place a requirement on banks and credit unions to monitor ordinary Americans’ checking accounts to detect payments coming in from third-party payments sources. These include things like monies from PayPal, CashApp, Venmo, and other sources used by people to exchange money.
There is a parallel law that will require these services to also monitor account payments for a $600 annual activity threshold and report it as income on a Form 1099-K to the IRS beginning in 2022. So, this amendment to H.R. 5376 doubles up on the surveillance of small business America’s money activities.
The reason behind these moves is that the government needs to find and tax income down to the nickel and dime level to pay for the massive investment in infrastructure contemplated by Congress. They literally dropped the threshold of “we care to tax you” from a $10,000 and over 200 transactions per year tolerance to a $600 per year level, regardless if it is even for one transaction, as the new line in the sand.
That says a lot about how short of cash the government believes it is with respect to the amount of spending it wants to do.
And this is in an era where the US financial system is fast running out of quantitative easing tricks to artificially create spending capacity by the government. Like many other nations that have overreached, the US is now facing the threat of inflation as market forces exert pressure to correct the balance in the economy. The bottom line is you can only print money for so long or you start down the road to Venezuela.
The pundits of Wall Street now debate this imbalance actively. Lawrence Kudlow penned the article “Stunning News on Inflation Shatters the Illusion of a Transitory Problem”, where he argues to stop the spending by Congress in order to stop the country from going into an inflation spiral. Larry writes, “Inflation is becoming embedded in our economy. That suggests it might well be higher and longer than a whole lot of people — including myself — might have thought five or six months ago. As I often say, put aside the politics. Just look at the numbers. And they are not good. This story goes beyond pandemic-related supply chain problems.” He goes on to say, “… for crying out loud, stop federal spending and the central bank’s money printing.”
Congress’ $600 threshold takes a different and somewhat more foreboding attitude about paying for government investments. It says that Congress now believes that things like the gig economy and cottage business of America, a part of the small business portion of the US economy that comprises around 43.5 percent of the country’s gross domestic product (GDP), is their vast, untapped reservoir of tax revenue that will pay for our infrastructure reinvestment.
And, in what Harvard Law professor Shoshana Zuboff calls “The Age of Surveillance Capitalism,” the way Congress wants to find all that uncollected tax money is to monitor people’s PayPal and checking accounts. Hence the language of H.R. 5376.
At the extreme end of these solutions to monitoring the micro-transactions of ordinary people, there’s the “changing banking as we know it” theories to take demand deposit accounts (DDA’s) like checking and savings accounts out of the commercial banks and put all of America’s transactions into a computer system run by the Federal Reserve. This degree of perfect surveillance of American money coming and going is one of the things that the Senate Banking Committee is pondering as it considers the nomination of Saule Omarova to be the head of the Office of the Comptroller of the Currency.
But does that really work? A fair portion of the small business economy already pays its taxes. Is the US now such a poor nation that it cannot find other ways to tap the nation’s wealth reserves? Do we really have to resort to sending the IRS to knock on anyone’s door who receives over $600 in Venmo payments exchanging money for concert tickets each year?
Will Americans stand for this degree of intrusion? Or will people elect to take their transactions out of the US banking system, thus undermining years of effort by bank regulators to encourage reluctant Americans to trust the US banking system with their finances?
It’s even possible that many third-party payment systems and merchant banking systems that power the gig and cottage economy could atrophy as a consequence of an IRS push to tax every nickel and dime under orders from Congress to pay for its spending packages.
There are political consequences to this. There are viability of the services and cottage industries consequences to this. There’s the viability of 43.5 percent of US GDP consequence to consider. A chase for pennies does have the potential to take down a carefully built house of cards. And none of us should be naïve enough to believe that this intricate system of interdependencies we have built in an America where core factories have long gone offshore and been replaced by piece work to support our population can’t come tumbling down.
There are many other ways to pay for infrastructure. We are an extraordinarily rich country. We have a massive liquidity reserve in the balance sheets of our industrial base that sits on the sidelines; hesitant because there’s no clear direction on where the US government wants to go other than continuing gridlocked autopilot. We have tremendous wealth locked up in our land, both financially and materials-wise, that can be converted into “found” wealth to invest in infrastructure.
We have financial elite thinkers who can advise on such things to help the national interest.
But we’d rather tax the little guy because zero-sum wealth transfer via taxation is the only thing we know how to do. That’s our core competency as a nation? That’s our post-industrial legacy to the world? Congress can’t put anything together better than this?
I’m not so sure this nation is being creative enough with the resources we must use to solve our need to build a better America.