Thread by @LHSummers

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. washingtonpost.com/opinions/2021/…

Here are the facts: Where there is information-reporting to the govt on taxable payments — as w workers’ W-2s detailing wages or 1099s that savers receive reporting on interest accrued — the IRS collects more than 95% of taxes owed, with minimal reliance on intrusive audits.

Where there is no such information-reporting, as w proprietorship income deposited at financial institutions, tax compliance is much worse — below 50%.

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.

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.

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.

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.