A recent proposal from the Biden administration has called for the Internal Revenue Service to have more direct access to the bank accounts of Americans. Many of the leaders on both sides of the aisle in Washington have advocated for data privacy. Yet, this proposal has a hidden technological danger as it threatens the data privacy and protection of Americans’ bank accounts.
In the backlash against the proposal that certain American bank account information be reported directly to the IRS, much of the opposition to the proposal has centered around the danger of federal agents utilizing bank data to put Americans under financial surveillance. All of these concerns are well-grounded and legitimate. However, it is important to also consider that having sensitive bank account data centralized under one government agency carries an enormous cybersecurity risk.
Despite the claims that the proposed concept would help curb tax fraud, there has been no widely circulated data on how much it would cost the IRS to protect the data adequately. Worse yet, no analysis has been conducted on the enormous financial damage that taxpayers could face in the event of a catastrophic data breach.
The IRS has been a target of hackers for decades. However, a new influx of data in this level provides many more entry points and for hackers and a greater incentive for hacking operations to occur. There are multiple angles to consider this from.
Centralized bank account data would be a high-value target for hackers
In the first place, the IRS possessing a centralized repository of American bank account data would invite hackers' operations. Even though the proposal has not yet fully specified the exact type of bank account data that would be included, there would still be a danger. The advocates for this policy have insisted that the bank account data being gathered would be fairly limited. Yet, even the smallest amount of bank account information can be leveraged by hackers.
For instance, a hacker might get something as basic as a list of bank account numbers, the total amount of annual funds for each account, and the email addresses associated with the accounts. Then, the hacker could use this information to go after specific targets such as high-value bank account owners, retirees and elderly, and other particular victims with spear-phishing campaigns, spoofing, and additional attack methods.
These hackers could come from two primary sectors, foreign government-sponsored attacks, and criminal cybergangs. Although these entities utilize stolen data for different purposes, the danger is the same.
Government-sponsored attacks to get bank account information would carry several incentives for foreign governments. Foreign intelligence agencies can use hacking as a data harvesting method and then use that broad information to hone in on specific individuals. In the context of bank account data, simply having a confirmation of which business, political, and military leaders own specific bank accounts could serve as a precursor to initiate hacking operations against the bank itself in order to get more detailed information on specific individuals. In addition to intelligence, government-sponsored hackers could also potentially use this information in attempts to steal from the bank accounts themselves.
Non-government cybergangs would also have many uses for a centralized repository of IRS bank account data. While foreign government hackers often have a focus on gathering data for intelligence purposes, organized cybercrime primarily focuses on financial incentives. If they got access to this IRS bank account data, hackers could use this to single out potential victims with high-value accounts. Furthermore, by knowing where potential victims have bank accounts, hackers can use additional methods, such as installing fake banking apps made to look like the victim’s home bank.
Government agencies have a history of data breaches
Even if an organization has a perfect track record of cybersecurity with no major incidents, there is still always the possibility that a breach will occur. Yet, the federal government does not even remotely have such a track record. It is also notable that while different agencies have fared differently, the IRS has become especially notorious for a track of record filled with data breaches and compromises.
According to a Government Accountability Office (GAO) report, in 2016 the IRS encountered $12.2 billion in attempted identity theft tax fraud and paid out at least 1.6 billion in fraudulent refunds. This is a 13 percent fail rate. The report also found that the IRS had not followed best practices for cybersecurity. If the IRS cannot even always determine that they are issuing a refund to the right person, there is little reason to think that bank account data would be protected from fraudsters.
Yet, it is also important to recognize that the IRS is not in a siloed cyber-ecosystem with data sharing that is exempt from the generalized attacks that have targeted multiple agencies across the federal government. Current federal law explicitly permits the IRS to share data with federal, state, and local agencies for a variety of purposes, and it has been doing so for years. In effect, this means that no matter how strict the IRS cybersecurity standards were, there would always be a possibility that another government agency could have a data breach, and jeopardize the shared IRS bank account data.
For instance, in the recent and massive SolarWinds hack, the federal government saw data compromises across numerous agencies and departments. These entities included the Bureau of Labor Statistics, the Department of the Treasury, the National Finance Center, and several others. Thus, even though the IRS claims that it was not affected by the SolarWinds hack, this does not mean that taxpayer data in possession of these other agencies remained secure.
The potential for third-party backdoors
The GAO report also determined that one of the primary security flaws in the system was the policies of the IRS that permitted third-party software to submit and extract data with a lack of adequate cyber oversight. Specifically, the report found that much of the third-party tax preparation software had critical flaws that could lead to data compromises.
If the IRS required banks to report their account data, additional third-party software would likely be introduced into the IRS technology ecosystem in order to deal with the sheer volume of bank data. If the IRS had multiple third-party data reporters approved for integration with its system, each reporting software would stand as potential security fail point.
The broader effects of this would be twofold. On the one hand, if the IRS was too lax in its security compliance requirements, there would be a higher likelihood of taxpayer bank account data breaches. On the other hand, if the IRS implements extremely stringent cybersecurity compliance mandates, there could be an increased cost to the banks themselves and the third-party data reporting software developers.
Government financial monitoring of citizens has principle issues and technical dangers
It goes against the most basic American principles of limited government and due process for the IRS to presumptively monitor the bank accounts of citizens. Given that the entire policy proposal is based upon a faulty foundation, it comes as little surprise that the proposal carries extreme technological and security risks as well. Americans should be able to have confidence that their private bank account information will not be centralized in the hands of a government agency with a history of leaking data.
When it is shown that a policy is good and effective, it is often necessary to branch out that policy to other areas that need it. For more than five years in Mississippi, the state has benefited from Educational Savings Accounts program. However, despite existing for so long and having shown to be beneficial, only a very small portion of students are eligible. Mississippi should revisit and expand this program.
An Education Savings Account assesses the funds that the state has already allocated to each student. Then, the fund allows that student’s parents to use those funds for sanctioned educational costs such as private school tuition, online learning programs, and private tutoring. Conventional education funding models apportion taxpayer dollars to the exclusive control of government education boards and bureaucrats. On the other hand, ESAs allow parents to choose the best way to use their child’s public education funds, if they decide to use it outside of public school administration.
However, across the United States, Educational Savings Accounts have been implemented differently, bringing various results. As it stands currently, there are eight states that have implemented Educational Savings Accounts into their educational systems: Arizona, Florida, Indiana, New Hampshire, North Carolina, Tennessee, West Virginia, and Mississippi. States such as Indiana have broadened the eligibility of their Educational Savings Accounts program to a need-based system for students. Other states like Mississippi have limited eligibility only to those students with special needs.
Mississippi has certainly taken the right steps in providing this opportunity for students with special needs. However, broadening the eligibility for Educational Savings Accounts would give more students these alternative education options. Despite Mississippi’s Educational Savings Accounts program existing for more than five years, it still only makes up for about 0.06 percent of the state’s K-12 revenue. Additionally, only 19 percent of Mississippi students are eligible for the program, and only 0.1 percent of students across the state actually use this educational choice program.
In Mississippi, the problem goes beyond merely increasing awareness. Instead, the Educational Savings Account program in Mississippi is limited to only a small group of students. Mississippi would do well to expand the program, as other states have done.
For instance, in addition to providing accounts to special needs students, Arizona has expanded its program eligibility. This expansion now applies to those who attended a “D” or “F” ranked school, have been adopted in the state’s foster care system, and those whose parents were killed in the line of duty. This has aided a little less than a quarter of Arizona students, and the program continues to grow.
In West Virginia, the state has expanded its ESA eligibility to 93 percent of its student population. This policy has given West Virginian students and parents the ability to determine where their allocated education funding will go instead of leaving those decisions exclusively in the power of education school boards and bureaucrats. Students can attend public schools if they opt to do so, but the funds follow the student if they decide to pursue other educational options.
Mississippi has taken good steps in providing school choice to its students, but the policy is too limited in scope to be more than five years old. Expanding Education Savings Account eligibility would give Mississippi parents the choice to decide where their student’s education funding should best be spent.
Due to a decreased demand in light of the Covid pandemic and stay-at-home orders, the price at the pump in 2020 was artificially low since fuel was in relatively low demand. Yet, as the economy moves forward, gas prices have skyrocketed to extremely high levels. Despite these factors, some federal and state leaders have advocated for an increase in the gas tax.
As the economy continues to move forward, the demand for fuel has gone up. According to the Energy Information Administration, the average gasoline cost per gallon in the Gulf Coast states has gone from $1.85 in October 2020, to $2.95 in October 2021. This reflects an increase of 59 percent in just 12 months. Fundamentally, the cost of gasoline directly influences economic activity, particularly on the level of consumer spending.
Despite the market forces that are already driving up the costs of gasoline, some have advocated for an increase in the state and federal gas tax on top of these high gasoline costs. The key argument made for such proposals is the claim that tax increases are needed to increase funding for roads and bridges. However, the quantifiable benefits of increasing funding by raising taxes are questionable when one considers the fact that large amounts of funding have been allocated and then mismanaged.
While an increase on the gas tax might be easier to propose in the midst of low-cost fuel, the recent increases in fuel cost have demonstrated just how much of an impact permanent gas tax increases could have. An understanding of the effect of the gas tax on consumer spending provides some insight into this issue. Tax areas such as the corporate and personal income tax rates have a more general impact on economic growth and spending. On the other hand, the price of gasoline and its accompanying taxes directly correlate to consumer spending and economic activity.
A study conducted by JP Morgan and Chase compared consumer spending trends from periods with high fuel costs to periods with low fuel costs. This analysis determined that for every $1 saved at the gas pump, consumers saved 20 cents and spent the remaining 80 cents directly in the economy. In addition, the study found that approximately 18 percent of the increased consumer spending went to restaurants, 10 percent went to groceries, and the remaining spending was distributed across several other sectors.
All of these economic growth factors carry a strong argument against any increase in the gas tax. On the federal level, there have been proposals to raise the gas tax from 18 cents to 33 cents. On the state level, there have been proposals to raise the gas tax from 18 cents to 28 cents. This would equate to a 25-cent increase per gallon on just fuel taxes.
According to the Mississippi Department of Revenue, the state economy used approximately 4.3 billion gallons of gasoline in the 2020 fiscal year. 2.6 billion gallons were exempt from taxation, mostly due to a policy that government gasoline use is exempt from taxation. This left 1.6 billion gallons of gasoline to be taxed in the state. The gas tax proposals mentioned above would have both caused an approximate $400 million increase in the tax burden on Mississippians. Using the JP Morgan consumer spending metrics mentioned above, this tax-driven increase in gas prices could equate to $72 million in unrealized consumer spending at restaurants, $40 million for grocery stores, and $208 million in the remaining sectors.
Increasing taxes must always be compared against the economic impact of the tax increase. Rather than using gas tax increases to bring more funding to Mississippi’s roads, state leaders should encourage free-market economic growth by leaving more money in Mississippi pockets. As economic activity increases, the state’s citizens and government can go into a better economic position without increasing the tax burden.
One only has to turn on the television to see that the federal government has, in effect, completely engulfed state and local government. When a problem arises, many individuals no longer consider how state government will remedy the situation
The burden of governance has shifted to the federal government in many aspects. Part of the reason for this is that the federal government has grown beyond comprehension in the last 150 years.
One area in which this is evident is the growth of spending between federal, state, and local governments. According to the Tax Policy Center, the amount of spending by the federal government has greatly surpassed any other category of spending. The report showed that federal receipts in 2018 totaled over $3.5 trillion, which greatly surpasses the states’ $1.8 trillion and local government’s $1.4 trillion. This is a huge transition from federal spending never rising above several billion dollars in the early 1900s.
Why does this occur? Part of the reason for this change between state and federal budgets is that the federal government wields monetary power that the state does not have. When the federal government sees a problem, it is not restricted by budgetary restrictions. All it needs to do is just print more money or borrow from some other entity. This was clearly done in the COVID-19 pandemic.
States do not have this luxury. Because the United States cannot have 50 different currencies, printing power is reserved for the federal government. This means that state budgets are limited to the amount they can obtain through revenue. This creates several effects. For one, because state budgets are limited in funding, more time and effort is made in debating where to appropriate funds. The second effect is that the amount that is appropriated is already minimal and thus will not have the same capacity to create long-lasting change.
It's no wonder the federal government has increased in size and overshadowed state action. Federal funding is virtually unlimited, and thus less time and effort is needed to pass the budget. In fact, detailed budgets are no longer necessary on a federal level due to the inception of bureaucracy and shifting the burden of responsibility on executive agencies. The federal government has, in essence, taken the role of state governments as they now dictate where the majority of government money, in general, will be spent and appropriated. This is a problem.
As difficult as it might be, decreasing reliance on federal action is incredibly important if state governments want to maintain their autonomy. A big part of that can be done by boosting the economy. If the economy grows and flourishes, more money can be gleaned through state revenue. This may provide an outlet for states to take hold of their own problems and diminish the federal government's role in their own affairs. Ironically, it is typically the states that struggle economically that rely more on federal aid. State solutions are always preferred. It would be best to find more solutions to get federal action out of state affairs and back into its own domain.
It can be easy to think about terms like “inflation” as theoretical ideas and not connect how much macroeconomics affects the lives of average Americans. But a recent development is an unfortunate example of just how much inflation actually affects average Americans. Retail chain “Dollar Tree” has recently announced it is raising prices above 1 dollar.
Dollar Tree raised prices in response to inflation that made it increasingly challenging to offer products within the one-dollar range. To combat this, the company is increasing many of its products from $1.00 to $1.25 and $1.50. This move to raise prices is ultimately a part of the greater increase in prices across the entire economy as the nation reels from the effects of massive government spending increases.
In early January 2020, the United States money supply was approximately $15.5 trillion, according to data from the St. Louis Federal Reserve. Just over a year later, in September 2021, the money supply had increased to $20.9 trillion. To put this increase in perspective, a similar $5.4 trillion increase in the money supply had previously taken seven years. The money supply in 2012 was about $10.1 trillion, and it did not build up to $15.5 trillion until January 2020.
Such a drastic inflationary increase in the money supply has real effects. The more dollars that are in the economy, the less valuable the dollar will be. The changes at Dollar Tree are a practical indicator of this basic economic principle of supply and demand. When the government prints more money to “pay” for its spending wish list, the money supply increases, and it becomes less valuable.
Even without the massive inflation of the present day, in former days the nation saw the demise of penny candy, nickel postage stamps, and 50-cent cups of coffee. Yet, in today's economic environment, not even the dollar itself carries enough value to support a line of products. As the government continues down a path of disastrous policies, one can only speculate what else the recent wave of inflation has in its crosshairs.
As the federal government considers raising the debt ceiling, pushing forward massive spending plans, and increasing the deficit more than ever before, everyday Americans are just trying to live their lives and support their families. The policies of a big government are inevitably detached from the challenges that its people face every day. As more spending and debt is enacted in the marble halls of Washington, thousands of Americans will be handing the store clerk a bigger chunk of change at the local Dollar Tree.
Many on the Left claim to be supporters and advocates of blue-collar working families, such as farmers and ranchers. “Tax the Rich” they say. But an example of how untrue these claims are can be found in a proposed change to the capital gains tax that would hurt many family farms.
Biden has proposed an increase on the capital gains tax. The political optics of this proposal have sought to portray the tax increase as something almost exclusively towards the easy political targets, such as luxurious business tycoons and stock market billionaires. Noticeably absent from these portrayals of the policy are the farming families that would also be affected by the proposals.
As technology and automation grow, farms are growing in size as production costs go down and farmers can manage more land. For example, in 1920, the average Mississippi farm was 67 acres. Fast forward to the present day, and the average farm is 300 acres. This is a 350 percent increase in average farm size. Also, according to the 1920 Mississippi agricultural census, the state had around 272,000 farms and 29 percent of the Mississippi workforce were directly employed by agriculture.1 Today, the state has 34,700 farms and about 8 percent of the workforce is directly employed2 by agriculture. Despite this 87 percent decrease in the total number of farms, the number of cultivated acres has decreased by only 42 percent.
Less farms means that there are fewer farmers today, and the average farmer will own more land. This means that while the farmers of former days generally had less land and assets, today’s individual farmers will often have hundreds of acres that they can farm with relative ease because of modern technology.
This means many modern farmer’s estates have more value -value that the government can potentially tax upon their death through tax policy changes. Under current law, no capital gains taxes are imposed on the value of farms being sold by heirs. If a farmer buys land for $400,000 and the farm is worth $800,000 at the time of death, the heirs of the farm would not have to pay any capital gains tax if they chose to sell the farm.
But the Biden tax hike would change that. The proposal imposes capital gains tax on the sale of any estate valued at more than $2 million for all land and equipment.3 Such a measure fails to recognize the growing size of family farms. Such a change penalizes the increase in farm size that mechanization and innovation has enabled.
While Washington is putting trillions of dollars of debt on future generations, it adds insult to injury for those same leaders to tax the heirs of hardworking farmers. Farmers have the tools and technologies to produce more than ever before. An increase in the capital gains tax goes directly against these accomplishments and skims off of the fruits of American farmers’ productivity and increased success.
[1] This only counted actual farmers and does not include indirect agricultural employment.
[2] See footnote 1
[3] $1 million for single individuals
One of the most basic principles of economics is that there is no such thing as a free lunch; however, some people buy into the lie that the government can provide just that.
The Covid-19 pandemic has changed many aspects of the American way of life, but a major component of that change is how people respond to temporary economic hardship, cultivating an expectation for the government to solve their problems. In the midst of the pandemic, the government-imposed lockdowns brought about job losses, decreased spending, and economic hardship. As a short-term effort, the federal government issued direct payments to Americans. But many wanted this short-term effort to become permanent. In 2020, a Change.org petition arose, gaining support for making stimulus checks a permanent monthly occurrence. This demonstrates the apparent ignorance of what stimulus checks actually do and how they affect the economy.
As Brad Polumbo of the Foundation for Economic Education contends, stimulus checks really do not stimulate anything. Instead, all that stimulus checks do is redistribute wealth that the government has already attained because it does not have the power of a mystical Santa Claus to grant money for everyone out of thin air. It has to come from somewhere, and it just so happens that taxpayers, the very people that receive the stimulus check, are the ones responsible for paying for it. However, the truth of how “free” money from the government really is not free typically gets overlooked. The immediacy and novelty of the concept of receiving the money you did not have to earn somehow entices people enough to want to continue.
The irony is that despite the intention of stimulus checks to stimulate the economy, they never actually did so. A report by the Opportunity Insights Economic Tracker predicted that households earning more than $78,000 would only spend $105 of the $1400 stimulus check they receive. The whole purpose of the program was to get people to spend more so that the economy would continue to function at a somewhat normal capacity. However, many people took the stimulus check and instead saved it as the future of the pandemic remained uncertain at the time.
Thus, in effect, all that the stimulus check program provided was an immediate security blanket that will likely cost us much more down the road with inflation and other factors. In fact, Wayne Winegarden of the Pacific Research Institute released a study indicating that the economic trajectory will likely lead to higher pressure on interest rates, higher inflation, and growing economic distortions, especially as the Biden Administration pushes for higher taxes and increased regulation.
This evaluation of the stimulus program gives us insight into how government and free markets operate. Whenever a national crisis arises, the government’s automatic reaction is to bring itself into the situation and try to remedy the problem with some artificial solution.
Long-term prosperity does not come from stimulus checks. Prosperity comes when free markets are permitted to ebb and flow. Instead of imposing economically restrictive lockdowns, and then redistributing taxpayer dollars when economic breakdown ensues, government should allow people to fix problems themselves as they create new and innovative ways to meet new challenges, build markets, and improve their lives.
According to the 2020 census, Mississippi experienced an overall population decrease from 2010 to 2020. As state leaders attempt to determine the cause and implement policies to encourage people to move to Mississippi, repealing the income tax could be a good place to start.
The Mississippi legislature is currently holding hearings on an initiative to repeal the income tax. As the legislature considers the potential implications of an income tax repeal in Mississippi, it is vital to consider the implications of tax policy on population growth.
Mississippi ranks lower than many of its neighbors when it comes to the total tax burden. Meanwhile, other states in the Southeast have better rankings. It is important to note that of the top 5 states that Mississippi has lost population to in the last couple of decades, all of them have a lower tax burden than Mississippi.
These competing states include Texas, Georgia, Alabama, Florida, and North Carolina. Texas and Florida have no income tax at all, while North Carolina has a flat tax on income. Georgia and Alabama both have an income tax, yet both of these states have a sales tax of only 4 percent. Meanwhile, Mississippi currently has both the second-highest sales tax rate in the nation (7 percent) and a graduated-rate state income tax.
Repealing the income tax provides a foundation for the citizens of other states to consider moving to Mississippi. Economic growth in Mississippi is dependent on its people. There are several keys ways that repealing the income tax would directly encourage people to move to Mississippi.
According to the 2021 edition of the “Rich States, Poor States” report, published annually by the American Legislative Exchange Council, states with low or no income taxes saw greater economic growth. A review of the data reveals that tax burdens are a direct factor in the economic growth of states.
Repealing the income tax is a proven component of economic growth that has worked in other states. For example, in the wake of Florida’s repeal of the income tax several years ago, the state has seen growth in its workforce and immigration levels, particularly for high-earners. Similarly, the state of South Dakota has seen incredible growth as a result of economically friendly policies, including its lack of a state income tax.
People follow the opportunity that economic growth generates by moving to states with successful job growth. In fact, a study found that approximately 52 percent of all relocations are for economic reasons. Mississippi should notate these facts and encourage people to move to the state by creating an environment that leaves more money in its citizens' pockets.
If Mississippi wants to get competitive with other states and see an increase in its population instead of a decrease, repealing the income tax is an important place to start. While other factors play into people moving to Mississippi, the bare minimum that state leaders can do is enact policies that leave money in the people’s pockets. It’s time to axe the tax.
As Mississippi’s free-market organization, we have led the way on the campaign to abolish the state income tax. We are delighted that the state legislature is taking evidence on how best to do this.
Abolishing state income tax would mean:
- Workers get to keep more of what they earn each month. Instead of handing over $1 out of every $20 they make in their pay packet to the state of Mississippi, they would get to decide how to spend that money on their priorities and families.
- A boost for Mississippi’s competitiveness. Having a state income tax makes Mississippi a less attractive place to do business, which is why so many young Mississippians move to states like Tennessee, Texas, and Florida states with low or no state income tax.
The problem, however, is how to abolish the state income tax?
In 2020, Governor Reeves proposed phasing out the income tax over time. Then, earlier this year, House Speaker Gunn proposed the largest tax break in our state’s history, removing the requirement to pay any income tax on the first $40,000 anyone earned ($80,000 if you are a married couple).
But how can we do this and ensure that the sums still add up?
Concerns have been raised about the idea of paying for income tax eliminating by raising taxes on other things, and the Speaker’s proposal involved a 2.5 percent rise in the state sales tax.
Since an agreement could not be reached, the Speaker’s proposal stalled in the legislature.
Now, however, there is a real opportunity to bring all sides together and find a way of making this work.
For years, politicians in Jackson have found ways of spending your money. If we can find an agreement to abolish the state income tax, we will be committing future increases in tax revenue to give people tax breaks, not more public sector fat cats.
With the state budget almost $1 billion in surplus, now is the time to make this happen.