Let’s set one thing aside from the outset: attacks on Omarova based on her country of birth – she was born in Kazakhstan, then part of the Soviet Union, and came to the United States in 1991 – are unacceptable and anti -American. .
On substance, I respect Omarova’s legal scholarship on financial regulation. But I also understand that, past a certain point, regulatory vigilance can become regulatory earthiness and polarize in ways that aren’t good for business or consumers. One can understand industry concerns about a candidate for this vital regulatory post who has advocated for Federal Reserve reforms that, in Omarova’s words, “will effectively end banking as we know it.” .
But the banking sector’s desire to be treated sympathetically by the government would be much stronger were it not for its own form of radicalism. Consider in particular his demagoguery on the simple matter of reporting information to improve tax compliance.
Here are the facts: when there are reports of information to the government about taxable payments – such as with workers’ W-2s detailing wages, or the 1099s that savers receive reports of the interest they’ve accrued – the IRS collects over 95% of taxes owed, with minimal reliance on intrusive audits.
Where there are no such disclosures, such as for property income deposited with financial institutions, tax compliance is much worse – below 50%. In total, non-compliance is estimated to cost the federal government $7 trillion over the next decade. This represents 3% of gross domestic product on an annualized basis.
Of course, not all non-compliances relate to bank deposits, and disclosing bank account information would not even eliminate all non-compliances by bank customers. But given the scale of the problem, even incremental progress will have a huge effect: Treasury experts estimate that reporting by banks on total deposits and withdrawals could generate hundreds of billions of dollars in revenue taxes over the next decade. Industry experts have made it clear that such a regime would be easily enforceable and inexpensive for financial institutions, building on the current information they already provide about interest income accruing to their accounts.
The recent revelations from the Pandora Papers that financial firms are now using South Dakota as they once used the Cayman Islands or Switzerland only underscores the need for greater reporting.
A responsible and responsible industry would work with the federal government to implement disclosure in the least restrictive and fair way. This is not America’s banking industry in 2021. Many in the industry know what is right but stay out of the public fray. Industry mercenaries in Washington are ridiculously claiming that it would violate the privacy of bank depositors to have an annual snapshot of their deposits and withdrawals combined with the interest they earn on them.
They suggest that they are arguing on behalf of their clients, even as they incite their clients to complain. They use scare tactics to claim that reporting will be bad for minorities and low-income people, when the exact opposite is true: giving the IRS information and resources will allow it to focus control of the application on high earners who accumulate income in an opaque way. , where this belongs. Their tax evading clients do indeed have something to fear from reporting – but no one else does.
And it’s beyond imagination for an industry that prides itself on using computers to allow people to rely on cellphones to find it tedious to report deposits and withdrawals to the IRS.
The Senate will no doubt carefully consider Omarova’s qualifications and record, as well as her indications and commitments as to future intentions. But we must also bear in mind the record of those who challenge his appointment.
Oliver Wendell Holmes pointed out that taxes are the price we pay for civilization. Bankers should demand civil treatment from their regulators, but only after demonstrating their willingness to do their part in tax collection.