Public outcry as well as pushback from banks and financial institutions of all sizes could force the Biden Administration to reconsider its proposal which would grant the Internal Revenue Service access to millions of daily transactions into or out of personal and business financial accounts.
The proposal would mandate the reporting of every deposit and withdrawal above $600, which is drastically lower than the current “above $10,000” threshold for mandated reporting under the Bank Secrecy Act of 1970. Banks and other financial institutions are also already required to report any cash deposits and withdrawals which seem “suspicious.”
But according to President Joe Biden, a much lower threshold is necessary to ensure “the super-wealthy” cannot hide income from the IRS.
Most of the criticism of Biden’s “anything above $600” proposal centers around the right of privacy expected by law-abiding Americans. That concern was expressed in a letter to Speaker of the House Nancy Pelosi and Treasury Secretary Janet Yellen from more than 140 Republicans in Congress, who also highlighted the burdensome compliance costs such a regulation would place on banks and financial institutions.
Among those signing the Sept. 13 letter were Arizona Reps. Andy Biggs, Debbie Lesko, and David Schweikert. The letter notes no evidence has been put forth by the White House or the IRS that the proposed threshold change “would substantially aid the IRS’s efforts to close the tax gap beyond the information already at the IRS’s disposal.”
In recent years, various IRS Commissioners have complained about understaffing and understaffing at the agency. The letter from the members of Congress also noted concerns that known issues with the IRS’ beleaguered IT system would make the personal, financial data of millions of Americans vulnerable to attack.
“Considering the IRS experiences 1.4 billion cyberattacks annually and has experienced multiple data breaches, we should not give this agency additional sensitive data to manage,” according to the members’ letter.
That letter was bolstered by one sent to Pelosi Sept. 17 by a coalition of banking, financial, and other impacted companies including the American Bankers Association, the Credit Union National Association, the Mortgage Bankers Association, and the National Association of REALTORS.
“This proposal would create significant operational and reputational challenges for financial institutions, increase tax preparation costs for individuals and small businesses, and create serious financial privacy concerns,” the letter stated. “While the stated goal of this vast data collection is to uncover tax dodging by the wealthy, this proposal is not remotely targeted to that purpose or that population.”
Last week the Democrat who chairs the U.S. House Ways and Means Committee admitted there is no longer support among his party for cutting the reporting threshold to $600.
Rep. Richard Neal (D-Mass) said the threshold should probably be lowered from $10,000, but the $600 proposal does not have the needed votes. Neal has not said what new threshold amount is still being considered by the White House.
According to the banking and financial industry, a fight is expected for any change that directly impacts the average citizen without a valid reason.
“The American people feel strongly about their right to privacy and it is not reasonable to undermine their financial privacy without a clearly articulated purpose,” the Sept. 17 industry letter states.
Democratic Senators Mark Kelly and Kyrsten Sinema will likely support the Biden Administration and Democrats’ $3.5 trillion tax plan, causing Americans to pay more in corporate taxes in Arizona than in China. The bill was derived from President Joe Biden’s Build Back Better Plan, and it would be the largest spending bill in American history.
If the bill passes, the federal-state corporate tax rate in Arizona would jump to over 30 percent, while China’s tax rate would be around 25 percent. That’s not including those enterprises in certain industries supported heavily by the Chinese Communist Party (CCP), which could receive a tax rate as low as 10 to 15 percent. Additionally, the bill would cause capital gains tax in Arizona to rise up over 35 percent, while China’s would ring in around 20 percent. This data was compiled by Americans for Tax Reform.
Back in July, Sinema expressed lack of support for the bill in July over its price tag, but not its content. At that point, Kelly hadn’t made a commitment to the bill either.
“I have also made clear that while I will support beginning this process, I do not support a bill that costs $3.5 trillion,” said Sinema. “And in the coming months, I will work in good faith to develop this legislation with my colleagues and the administration to strengthen Arizona’s economy and help Arizona’s everyday families get ahead.”
However, both Sinema and Kelly voted in favor of the framework for the $3.5 trillion plan last month.
The Biden Administration and Democratic Party’s proposed tax increases would cause the U.S. to have one of the highest capital gains taxes in the world.
Analysts with the Tax Foundation estimated that the impact of this policy would reduce the GDP by about one percent: more than $2 for every $1 in new tax revenue, or about $332 billion of lost output annually. Over the course of a decade, the cumulative GDP would reduce by nearly $1.2 to $1.8 trillion, which they stated would far exceed the amount of revenue the plan would raise in the same amount of time.
All while eliminating an estimated 303,000 full-time jobs. The primary cause for these projected negative changes comes from the proposed corporate tax rate. They estimate that this alone would reduce the GDP by .6 percent and eliminate 107,000 jobs.
As for after-tax incomes, they estimated that individual taxpayers would see an average reduction of $800 each year.
The Tax Foundation’s Senior Policy Analyst, Garrett Watson, assessed that ultimately, low- and middle-income families would feel these repercussions the most.
“The economic harm caused by the tax increases would claw back some of the plan’s expanded tax credits aimed at low- and middle-income families. For those in the bottom 30 percent, it would reduce the average net benefit of the plan per filer from $341 to $233, a 30 percent reduction,” wrote Watson. “Before accounting for economic effects, filers in the middle quintile would see a decrease in average after-tax income of about $38 – mostly due to the corporate tax increases – but that would rise to a $493 drop in average after-tax income every year when including the negative economic effects. The top quintile would see a $1,287 drop in average after-tax income, rising to a $3,861 drop in average after-tax income on a dynamic basis.”
They also noted that these proposed changes would raise a net federal revenue of around $1.1 trillion from next year to 2031, without accounting for dynamic factors like the estimated reduction in economy size. However, that revenue would be reduced by $1 trillion in tax credits. If dynamic factors weren’t excluded, federal revenue would ring in around $804 billion in revenue net of tax credits.
Per a poll released by Navigator Research earlier this week, House Speaker Nancy Pelosi claimed that an overwhelming majority of Americans supported the Build Back Better Act. The results meted out to 66 percent of Americans, 61 percent of independents, and 39 percent of Republicans.
Senate Bill 1783, legislation that further reduces and streamlines taxes, was signed by Governor Doug Ducey on Friday. Sen. JD Mesnard and Rep. Ben Toma led the fight for the bill in order to protect small businesses from the threat of a 77 percent tax increase.
“This tax cut will keep Arizona competitive for small businesses already operating here and new businesses flocking here every day,” Ducey said in a press release. “After a year as tough as the last, we should not be raising taxes on our small businesses — we should be cutting their taxes. That’s exactly what Senate Bill 1783 does. Arizona has now passed the largest tax cut in state history and will have the lowest flat tax in the country. My thanks go out to Senator J.D. Mesnard and Representative Ben Toma for their leadership on this issue.”
Senate Bill 1783 establishes a new and lower alternative small business income tax structure. Under the plan, “small business income” is defined as interest, dividends, profits and certain capital gains.
“Small businesses are the backbone of our economy and integral to the future success of our state,” Mesnard said. “Small businesses should be able to grow and reinvest in themselves without being forced to pay astronomical taxes. Rather, government should get out of the way so that they can thrive. That’s why I’m so grateful for the support of Governor Ducey and my colleagues in the Legislature.”
This tax relief will ensure small businesses continue to choose Arizona to start, expand or relocate operations. Small businesses are a core component of our state’s economy, making up more than 99 percent of Arizona’s businesses and employing more than one million people. Because of the structure of the 3.5 percent surcharge on individual income tax under Proposition 208, small businesses will not be subject to this crippling tax hike.
“It’s a no-brainer to have a separate tax structure for small businesses,” said Toma. “It should be our goal as public servants to make filing taxes easier for Arizonans. This session has been a massive win for Arizona taxpayers. Thank you to the governor and the many who supported this bill.”
The bill allows taxpayers to exclude small business income from their total individual income. Instead, small business income will be subject to an alternate small business income tax. A flat tax on small business income will phase in over time:
3.5 percent in 2021
3.0 percent in 2022
2.8 percent in 2023 and 2024
2.5 percent in and after 2025
Governor Ducey signed this year’s budget on June 30, which fulfills his commitment to ensuring working families, small businesses, veterans and all Arizona taxpayers get to keep more of their hard-earned money.
The budget implements the largest tax cut in state history. Arizona taxpayers will see a 2.5 percent flat tax phased in over three years and subject to certain revenue thresholds being met beginning on January 1, 2022. The tax plan saves money for every Arizona taxpayer no matter their income, eliminates income taxes on veterans’ military pensions, and increases the optional charitable contribution deduction over time to 100 percent.
The Washington Post and the Wall Street Journal’s editorial board published columns about the tax plan and the positive effects it will have on Arizona. Additionally, Governor Ducey, Senate President Karen Fann and House Speaker Rusty Bowers authored a joint op-ed about the historic tax reform in the Phoenix Business Journal.
The Arizona state General Fund is flooded with revenue. Latest projections show the state with $1.2 billion in ongoing revenue and a cash balance upwards of $6.5 billion in FY2024. This is by far the largest budget surplus in state history and doesn’t even include the $1 Billion stashed away in the rainy day fund.
When the state is sitting on a pile of cash this big, it means one thing: they are taking too much of your money. And the answer is simple: give it back to taxpayers.
With Republicans at the Legislature and Governor Ducey planning to provide a large and comprehensive tax cut, one special interest group is already lobbying hard behind the scenes to kill that plan: local cities.
The fight of course is over money. 15 percent of income tax revenues are shared with cities. In Phoenix, that accounts for just over $241 million this year, or roughly 4.8 percent of their $5 billion operating budget. Phoenix is arguing that the proposed income tax cut would result in a $65 million reduction in shared revenues; or 1.3 percent of their operating budget.
Of course, this estimated “cut” in revenue is seriously flawed. It fails to take into account that shared revenues from the income tax are based on collections from two years prior. Considering the tax package wouldn’t be fully implemented for another 4-5 years, any potential decrease in shared revenues would not be fully realized for at least 6-7.
Additionally, complaints about static reductions in revenue fail to include any dynamic analysis of economic growth and the corresponding increases in tax revenues, both from income and TPT collections, promulgated by tax cuts.
The passage of Prop 208 made Arizona the 9th highest income tax rate in the nation. It has already begun pushing small businesses to relocate to lower tax states, taking their jobs and income, property, and TPT tax revenues with them. Make no mistake, the loss in revenue for cities such as Phoenix will be much larger if no action is taken to address Arizona’s uncompetitive income tax climate. In fact, a study by the Goldwater Institute found that the Prop 208 price tag to state and local revenues will amount to a $2.4 billion loss.
Knowing that a debate over a potential 1.3% reduction in revenues 7 years from now won’t generate much sympathy to stop the tax package, the city of Phoenix has decided to tell lawmakers that if the legislature cuts your income taxes, cities will be forced to cut police officers on the street. In other words, legislative tax cuts would be responsible for “defunding the police.”
This rhetoric can’t be described as anything other than complete hogwash.
Here is the real bottom line: The City of Phoenix is downright reckless with taxpayer money. The city spends like drunken sailors. They’ve never seen a tax increase they don’t like. And they don’t think twice about fleecing the taxpayer every opportunity they get.
For years Phoenix ran a hotel that never managed to make a profit. In 2017 they finally shed the asset, but not before a staggering $200 Million loss to taxpayers.
All this reckless spending has forced the city to constantly raise taxes and fees. Just last month, Phoenix approved raising their water rates for the 5th time in 6 years on top of rate increases for trash and recycling.
On top of these tax and rate increases, research done by the Arizona Tax Research Association shows the city has also received over $24.6 million year to date in FY2021 (with four additional months of collections to go) from remote sellers. This is new revenue to the city due to the passage of 2019 Wayfair legislation. If these new monies were scored, that 1.3 percent revenue loss would actually be a potential 0.8% reduction realized in 6-7 years, a fraction of the money Phoenix has wasted in just the past couple years.
With tax increase after tax increase and revenue windfalls from the state, the city of Phoenix does not have a revenue problem, it has a spending problem. The legislature providing relief to taxpayers (who will surely be more responsible with their own money than Phoenix will be) will not cause any city to “defund the police.”