The proposed bill includes intrusive tax collection measures which would inhibit the productivity of the nation.
There’s a strong reason behind the recent wave of bitcoin adoption among the world’s least stable and poorest countries. Bitcoin disproportionately benefits the underbanked and underprivileged because it gives them access to an open global monetary network with predictable policy and low barriers to entry. Although the U.S. has attracted substantial amounts of bitcoin interest and investment since its inception, it’s safe to say that the average American citizen knows little beyond what the mainstream media headlines and FUDsters say.
While this runs counter to the U.S.’s typical affinity for technological advancement, it makes sense. As the home of the world’s reserve currency, the U.S. is uniquely positioned to provide wide access to basic financial services and stable infrastructure to its constituents, who rarely see the need to transfer money outside of that ecosystem. Consequently, the average American doesn’t sense any pressure to move beyond pseudo-decentralized platforms and the legacy bank he or she has been using for a lifetime. Most Americans haven’t witnessed repeated defaults like those which have occurred in Argentina. Most Americans don’t face the high fees and dangerous circumstances associated with sending remittances through legacy international money transfer services like Western Union. Most Americans haven’t experienced the despair concomitant with a collapsing currency such as that in Zimbabwe or Venezuela. And most Americans don’t know what it feels like to watch the currency they regularly use magically materialize, only to be given away to citizens in a country not theirs. It makes sense that U.S. media and unsuspecting Americans see bitcoin as only a speculative investment. They simply don’t understand its deeper purpose because the U.S. financial ecosystem has yet to give them reason to.
This may soon be about to change. If the effects of unprecedented stimulus and spending, negative real returns, increasing inflation, rising institutional distrust, and frighteningly high traditional asset prices aren’t enough, the recently-proposed $3.5 trillion budget reconciliation bill might give Americans reason to consider alternative financial habits — and not for the reasons you may be thinking. Although extraordinary in size and scope, the budget reconciliation bill also proposes unprecedented tax compliance measures that would dramatically change the financial landscape for many Americans. As it is currently written, the bill introduces requirements for banks and other financial third parties to report to the Internal Revenue Service net inflows and outflows on all accounts valued at $600 or more, or with at least $600 worth of annual transactions. While these measures are ostensibly intended to cut down on tax evasion by wealthy individuals, they almost certainly will have second- and third-order effects on those not so fortunate, most notably small businesses and everyday individuals.
Though many Americans currently enjoy reliable and accessible banking services, the proposed methods for enforcing tax compliance will have dramatic impacts on banks’ abilities to efficiently do their job, threatening their capacity to offer cost-effective products and services to those who struggle with access as is. Extensive reporting requirements will unquestionably introduce enormous amounts of additional red tape to an already-overburdened banking sector. Banks and institutions will be forced to pass higher operating costs on to consumers, making it more difficult to access basic financial services in the future.
More importantly, however, is the fact that approval would give the IRS authority to collect information on every American bank account valued at as little as $600. Many Americans are probably not very keen on banks reporting their account data to be examined by the IRS. And while this intrusion into U.S. citizens’ financial privacy is morally questionable, it also poses a tremendous security risk to the average American citizen. Large institutions aren’t exactly known for keeping data secure from malicious cyber actors. Even those with the world’s top tech talent have trouble with keeping data secure. How much more secure can we expect the public sector to be? There are far too many examples of government breaches to cite, but let’s not forget about the 2015 incident in which 700,000 IRS accounts were compromised.
Regardless of what is ultimately included in the 2021 budget reconciliation bill, the mere presence of popular political support for such intrusive levels of financial surveillance and irresponsible fiscal policy illuminates how desperate we’ve become to perpetuate a system that seems to be reaching a breaking point. If the U.S. continues to embrace elements of modern monetary theory — excessive spending, endless stimulation and higher taxes — it will continue to reduce taxable activity, along with its chances of collecting the revenue needed to support the policies that largely introduced these issues in the first place. Add in the potential for extensive financial surveillance and U.S. citizens find themselves in a tough predicament. Their incentives for finding a better way will align with those in similar situations throughout the rest of the world. As many around the world have already discovered, bitcoin is an escape valve in a system that is beginning to show some cracks. Adoption is just beginning.
This is a guest post by Drew Borinstein. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.