A major component of President Joe Biden’s plan to raise revenue to pay for his trillions of dollars in new federal spending is now under fire from trade associations across the country.
The Biden administration has made clear its plan to beef up IRS auditing by expanding the agency’s funding and power. Biden’s latest proposal would require banks to turn over to the Internal Revenue Service bank account information for all accounts holding more than $600.
In a sharp pushback against the proposal, more than 40 trade associations, some of which represent entire industries or economic sectors, signed a letter to U.S. House Speaker Nancy Pelosi, D-Calif., and Minority Leader Kevin McCarthy, R-Calif., raising the alarm about the plan.
The letter, which includes the support of several banking coalitions, calls on Congress to reject that requirement, saying it violates customer privacy and would create an incredibly expensive and elaborate reporting requirement for the banks.
“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,” the letter said. “In addition to the significant privacy concerns, it would create tremendous liability for all affected parties by requiring the collection of financial information for nearly every American without proper explanation of how the IRS will store, protect, and use this enormous trove of personal financial information. We believe that this program is costly for all parties, not fit for purpose, and loaded with potential for unintended and serious negative consequences.”
The groups argue it would target “almost every American” and question whether the IRS could keep that information secure from hackers and bad actors.
“The undersigned associations representing a cross-section of financial and business interests write to express our strong opposition to a proposal under consideration as part of the reconciliation package that would establish an expansive new tax information reporting regime that would directly impact almost every American and small business with an account at a financial institution,” the letter said. “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. We urge members to oppose any efforts to advance this ill-advised new reporting regime.”
U.S. Inflation Hit 30-Year High in October as Consumer Prices Jump 6.2%
Core index was up 4.6% as pandemic-related supply shortages, strong consumer demand continue
U.S. inflation hit a three-decade high in October, delivering widespread and sizable price increases to households for everything from groceries to cars due to persistent supply shortages and strong consumer demand.
The Labor Department said the consumer-price index—which measures what consumers pay for goods and services—increased in October by 6.2% from a year ago. That was the fastest 12-month pace since 1990 and the fifth straight month of inflation above 5%.
The core price index, which excludes the often-volatile categories of food and energy, climbed 4.6% in October from a year earlier, higher than September’s 4% rise and the largest increase since 1991.Consumer-price index, percent change froma year earlier.
On a monthly basis, the CPI increased a seasonally adjusted 0.9% in October from the prior month, a sharp acceleration from September’s 0.4% rise and the same as June’s 0.9% pace.
Price increases were broad-based, with higher costs for new and used autos, gasoline and other energy costs, furniture, rent and medical care, the Labor Department said. Food prices for both groceries and dining out rose by the most in decades. Prices fell for airline fares and alcohol.
U.S. stocks fell and bond prices rose as investors digested the impact of price pressure on the global economy.
Persistently higher inflation—triggered by a faster-than-anticipated but uneven economic recovery, trillions of dollars in pandemic-related government stimulus and other factors—is hitting consumers’ wallets. At the same time, a rebounding economy and healthy household balance sheets are both stoking demand and cushioning price increases.
The inflation surge is complicating the Federal Reserve’s strategy for unwinding easy-money policies the central bank imposed early in the pandemic. It has also emerged as a political factor affecting the Biden administration’s economic agenda.
Prices climbed the fastest in the South, a part of the country that reopened earlier in the pandemic but was hit relatively harder by the Delta variant of Covid-19. Prices were also up more in the Midwest than in the Northeast and West.
Americans have never been in so much debt
American households are carrying record amounts of debt as home and auto prices surge, Covid infections continue to fall and people get out their credit cards again.Between July and September, US household debt climbed to a new record of $15.24 trillion, the Federal Reserve Bank of New York said Tuesday.
It was an increase of 1.9%, or $286 billion, from the second quarter of the year.
“As pandemic relief efforts wind down, we are beginning to see the reversal of some of the credit card balance trends seen during the pandemic,” such as lower spending in favor of paying down debt balances, said Donghoon Lee, research officer at the New York Fed.
Now that the stimulus sugar rush has worn off, consumers are going back to their old ways of spending with their credit cards. Credit card balances rose by $17 billion, just as they had during the second quarter. But they’re still $123 bullion lower than at the end of 2019 before the pandemic hit.
Mortgages, which are the largest component of household debt, rose by $230 billion last quarter and totaled $10.67 trillion.Auto loans and student loan balances also increased, rising by $28 billion and $14 billion, respectively.
Even though credit card debt has yet to get back to its pre-pandemic level, total debt is already $1.1 trillion higher than at the end of 2019.
High spending spurred by even higher inflation
Americans are spending big at the moment. Economists’ explanation is, for the most part, “because they can”.
With the labor market recovery chugging along and the worker shortage driving up wages, people’s wallets are getting filled ahead of the holidays.
That’s a good thing, because everything is getting more expensive.
Inflation is sitting at multi-year highs thanks to supply chain disruptions that have increased the costs of shipping and raw materials. At the same time, consumer demand is also going through the roof.
The latest inflation data from early Tuesday showed prices producers receive for their products rose 0.6% in October, adjusted for seasonal swings, or 8.6% over the preceding 12-month period. Much of the increase was due to higher energy costs.
Businesses can only absorb so much of the increase in prices before passing the higher costs down to end-consumers.
Stripping out energy and food prices, as well as trade services, the producer price index rose a seasonally adjusted 0.4% last month, or 6.2% over the 12-month period.
The price index tracking intermediate demand — that’s goods and services sold to businesses — for processed goods jumped 2.1%, its biggest advance since May, mostly driven by higher energy costs.
Over the 12-month period ended October, the index has climbed 25.4%, the biggest increase since January 1975.Consumer price inflation, which tracks prices paid for food, housing and the like in October is due Wednesday morning.
IRS reporting requirement: Why crypto and NFT fans are worried about the infrastructure bill
Industry groups are concerned about a ‘digital assets’ provision that may require reporting cryptocurrency transactions to the Internal Revenue Service.
The $1.2 trillion infrastructure bill, which is on its way to President Biden’s desk, includes provisions to fund everything from new roads to improved broadband connections, but it also includes tax reporting provisions that people and organizations in the cryptocurrency and NFT worlds are concerned could stifle transactions.
Existing tax law, in a section of the U.S. tax code called 6050I, requires that people who receive more than $10,000 in cash and equivalents (like cashier’s checks and money orders) in many business transactions file a report with the Internal Revenue Service (IRS), including details about who paid them—such as names and Social Security numbers—or potentially face felony charges. The new law expands the definition of cash to include “digital assets” and comes as governments around the world grapple with the rapid rise of crypto and the potential for its use in money laundering. Critics worry the new provision could force participants in crypto transactions and NFT trades, which are often anonymous, to have to disclose information about the people they’re doing business with, which they simply might not have.
“Miners, stakers, lenders, decentralized application and marketplace users, traders, businesses, and individuals are all at risk of being subject to this reporting requirement, even though in most situations the person or entity in receipt is not in the position to report the required information,” warned attorney Abraham Sutherland, an adjunct professor at the University of Virginia School of Law and advisor to the Proof of Stake Alliance, an industry group, in a September report.
Decentralized finance, or defi, operations, where automated smart contracts essentially provide financial services, could also be affected by the provision, warn people in the industry.
“This 6050I provision in the infrastructure bill seems like a disaster if I understand it,” said Coinbase CEO Brian Armstrong in a tweet. “Criminal felony statute that could freeze a lot of healthy crypto behavior (like Defi).”
The new law also contains a provision that would expand the definition of “broker” under the law to include cryptocurrency brokers, which some in the industry—including a group called the Crypto Council for Innovation—have feared would rope in coin miners and developers involved in building and maintaining crypto systems. Brokers are also required to report many transactions to the IRS.
Bloomberg reported earlier this year that the Treasury Department, which is ultimately responsible for putting out regulations saying how the new provisions will actually work in practice, is likely to exempt organizations and people that aren’t brokers in the usual sense. Since getting the law itself amended seems difficult with a fiercely divided Congress, it’s likely that the Treasury Department will see furious lobbying by the crypto industry to make sure it doesn’t interfere too much with their operations.