Let’s get one thing out of the way from the outset: Attacks against 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 un-American.
As a substantive matter, I respect Omarova’s legal scholarship on financial regulation. But I also appreciate that, past a certain point, regulatory vigilance can become regulatory truculence and polarizes in a way that is not good for business or consumers. One can appreciate industry concerns about a nominee to this vital regulatory position who has advocated for Federal Reserve reforms that would, in Omarova’s words, “effectively end banking as we know it.”
But the banking industry’s desire for sympathetic treatment by government would stand on much firmer ground if not for its own form of radicalism. In particular, consider its demagoguery on the simple issue of information-reporting to improve tax compliance.
Here are the facts: Where there is information-reporting to the government on taxable payments — as with workers’ W-2s detailing wages, or 1099s that savers receive reporting on interest they’ve accrued — the IRS collects more than 95 percent of taxes owed, with minimal reliance on intrusive audits.
Where there is no such information-reporting, as with proprietorship income deposited at financial institutions, tax compliance is much worse — below 50 percent. In total, it is estimated that noncompliance will cost the federal government $7 trillion over the next decade. That’s 3 percent of gross domestic product on an annualized basis.
Of course, not all noncompliance involves bank deposits, and information-reporting on bank accounts would not even eliminate all noncompliance by bank customers. But given the magnitude of the problem, even incremental progress will have a huge effect: Treasury experts estimate that information-reporting by banks on total deposits and withdrawals could raise several hundred billion dollars in tax revenue over the next decade. Industry experts have made clear that such a regime would be easily implementable and low-cost to financial institutions, building off the current information-reporting they already do on the interest income that accrues on their accounts.
A responsible, public-spirited industry would work with the federal government to implement information-reporting in the least burdensome and most fair way. That is not the U.S. banking industry in 2021. Many in the industry know what is right but stay out of the public fray. The industry’s hired Washington guns assert ludicrously that it would invade the privacy of bank depositors to have an annual snapshot of their aggregate deposits and withdrawals reported alongside the interest they earn on them.
They suggest that they are arguing on behalf of their customers, even as they whip their customers up to complain. They use scare tactics to claim that the reporting will be bad for minorities and low-income individuals, when the exact opposite is true: giving the IRS information and resources will allow it to concentrate enforcement scrutiny on high-earners who accrue income in opaque ways, where it belongs. Their tax-cheat customers do indeed have something to fear from information-reporting — but no one else does.
And it boggles the imagination for an industry that prides itself on using IT to enable people to bank on cellphones to find it burdensome to report deposits and withdrawals to the IRS.
The Senate will no doubt look carefully at Omarova’s qualifications and record and her indications and commitments as to future intentions. But it should keep in mind, too, the record of those challenging her nomination.
Oliver Wendell Holmes famously observed that taxes are the price we pay for civilization. Bankers should insist on civil treatment from their regulators, but only after they have demonstrated a willingness to do their part toward collecting taxes.