Let’s say you have hired a contractor for some renovation work of your house, and once you are done with him, you decide to pay him in cash instead of writing a check. Why is it more convenient? Because cash leaves less paper trail. And the contractor doesn’t have to report it as an income.
It means he won’t have to pay taxes on that money. It’s not just that, parents pay nannies and babysitters in cash. People dealing in used cars also dodge taxes on their sale bills. Waiters also don’t report much of what they earn.
The Biden administration is planning a proposal in Congress that will allow the IRS to monitor people’s bank accounts to find those who are underreporting their income. The tax avoidance is “costing” the Treasury almost $280 billion a year.
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The IRS and Money-Monitoring
This new program is one of the many plans of Democrats who are going to introduce much social welfare and green energy programs this year. If this IRS proposal gets through it will help the IRS collect an extra $700 billion in taxes.
That means a 900% return on the investment the government makes. However, this idea of letting the government look into people’s bank accounts is not as rosy as it seems. Since the anti-government sentiments are at an all-time high along with fake news everywhere. This move is not going to get well digested by all. Even if the Treasury Department says that it’s for wealthy, not middle or lower-income families, that will not get welcomed by anyone.
The earlier plan was to review the accounts that were holding $600 or more, which filters out accounts that are dormant or held by kids. But this limit is way too low, that’s why the cut-off will likely be set to $10,000. Either way, the idea of monitoring financial details is not going to end well for anyone.
The IRS needs to make some major steps to ensure that the public won’t lose the trust they have in the government. The IRS already needs to focus its auditing power on those who belong to the higher-income group, but it rather wants to follow the path of least resistance and audits lower-income groups.
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The IRS isn’t necessarily cruel but EITC can be a complicated system that can trigger the IRS system, which makes delayed tax refunds. Adding this monitoring will only put more burden on the IRS system.
The IRS system can easily spot the tax “avoidance” here and there by going after middle or lower-income earners. However, what about wealthy people who hide behind sophisticated tax schemes? Does the IRS have an answer for that? It better do.