October 19, 2021

At Hearing, Warren Calls Out Bank Lobbyists for Defending Wealthy Tax Cheats

Warren on the IRS reporting proposal: “This proposal would help un-rig our tax system just a little bit, making sure that the wealthy have to pay the taxes they owe, just like everyone else does.”

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Video of Hearing Exchange

Washington, D.C. — At today's Senate Banking, Housing, and Urban Affairs Committee (BHUA) hearing, United States Senator Elizabeth Warren (D-Mass.) called out bank lobbyists and set the record straight on the IRS information reporting proposal in the reconciliation bill. During an exchange with Deputy Secretary Wally Adeyemo, Senator Warren highlighted how increasing third-party reporting will help the IRS find the hidden cash of banks’ wealthy clients when they cheat on their taxes. The provision in the reconciliation bill would ensure the wealthy pay their fair share — just like wage earners currently do with third-party reporting from their employers — and raise hundreds of billions of dollars in revenue without raising audit rates on Americans making less than $400,000. 

The Biden administration has proposed additional financial account information reporting to the IRS as a revenue raiser for reconciliation. Currently, financial service providers must report to the IRS if they pay interest of $10 or more on a taxpayer’s accounts. Under the administration’s proposal, banks and other financial institutions would report two additional numbers once a year: gross inflows and gross outflows. Senator Warren’s Restoring the IRS Act includes a similar proposal.

Transcript: International Policy Update: The Treasury Department’s Sanctions Policy Review and Other Issues
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Opening Statement from U.S. Senator Elizabeth Warren
Tuesday, October 19, 2021 

Senator Warren: Thank you, Mr. Chairman. So giant corporations and the wealthy have worked hard to rig the tax code so that they can pay lower taxes than everyone else. And now the Democrats are looking to make things just a bit fairer and hordes of lobbyists are fighting us tooth and nail to stop it. The whole thing is disgusting. 

But one fight is downright breathtaking even in this cesspool, and that’s the lobbyist fight to protect the ability of their wealthiest clients to cheat on their taxes. Millions of hardworking Americans file their taxes honestly every year. Their employers send them W-2 forms that say exactly how much they earned in wages right down to the penny, and then the employers also send a copy of that to the IRS. This is called “third-party reporting,” and it helps taxpayers fill out their tax forms accurately.  It also helps the IRS zero in on tax cheats if the numbers don’t add up.

Wage earners from cashiers to teachers are subject to third-party reporting. But the wealthy get their money in other ways. And mostly the IRS doesn’t get any information, no third-party reporting to keep them honest.

Senator Warren: So Deputy Secretary Adeyemo, let’s consider a multi-millionaire with several mansions, who sells one of those mansions for several million dollars more than they paid for it – that’s taxable income, but does the IRS get third-party verification of how much profit they made? 

Deputy Secretary Wally Adeyemo: No, they do not, Senator. 

Senator Warren: Alright, let’s ask about a partner in a law firm or a private equity fund –  when they get millions of dollars as a distribution of profits from their firm, does the IRS get true third-party verification of how much money they make?

Deputy Secretary Wally Adeyemo: No, they do not.

Senator Warren: Okay. So when rich people rake in millions in sales or profits distributions, they’re on the honor system. So, tell me, Deputy Secretary, how is the honor system working right now?

Deputy Secretary Wally Adeyemo: It's not working well, Senator. As you know, the top 1% of earners in America underpay their taxes by more than $150 billion dollars each year. Almost $2 trillion dollars over the course of ten years. 

Senator Warren: More than $150 billion dollars a year is lost by these top earners. And that is exactly why Congress is considering a simple new third party reporting requirement. Under this proposal, banks would report just two, very general numbers to the IRS each year: the total dollars that have come into an account, and the total dollars that have gone out.

This means the IRS can spot wealthy tax cheats that have millions of dollars flowing into an account but they’re not reporting any money on their tax return.

Now, many rich people are unhappy with the, or happy now with the current system. And the banks who serve them are also happy. So they started a campaign to keep the IRS in the dark about tax cheating. And some of these folks are just outright lying about the proposal, claiming, for example, that it would give the IRS information on individual transactions, and some Republicans have picked up on these lies. So let’s go through some of these. Deputy Secretary Adeyemo, just to set the record straight, under this proposal, if I bought new tires, or a couch, or a cow – would the IRS know about it? 

Deputy Secretary Wally Adeyemo: No, they would not, Senator.

Senator Warren: Well, if I paid my friend Sherrod, paid him back for buying me a cup of coffee – would the IRS know about it?

Deputy Secretary Wally Adeyemo: No, they would not, Senator.

Senator Warren: Would anything, anything at all, in this proposal cause the IRS to increase audit rates on folks making less than $400,000?

Deputy Secretary Wally Adeyemo: No, Senator, it would actually allow us to reduce audits on those individuals and increase our ability to go after those who are more likely to cheat the system by underpaying their taxes, which are wealthy taxpayers.

Senator Warren: Well, thank you, Deputy Secretary. You know, this proposal would help un-rig our tax system just a little bit, making sure that the wealthy have to pay the taxes they owe, just like everyone else does. So tell me, why have the lobbyists been fighting this proposal so fiercely? Small businesses have been putting together W-2s for their employees every year for a zillion years – don’t tell me that the banks can’t do this.

Deputy Secretary Wally Adeyemo: Senator, those who don’t seek to pay their fair share will go to no ends to try and avoid taxation, and that’s exactly what we’re seeing here. The President’s goal ultimately is to level the playing field so that wealthy individuals have to pay taxes in the same way that working class pay every day in America.

Senator Warren: Well, thank you very much. You know, the Democrats are fighting for tax reforms that will help ensure that the very rich and giant corporations start paying their fair share. And, I get it, that the lobbyists and the rich people that they represent are going to fight us with everything they’ve got, including spending millions on these campaigns, but we need to make the tax system fairer, and this is one of the critical ways we can do it. Thank you for your help on this. Thank you, Mr. Chairman.