STRAIGHT TALK by Ballard Cassady KBA President & CEO bcassady@kybanks.com
STAY THE COURSE
Reprinted from the KBA’s presentation to the Banking and Insurance committee last month concerning the IRS proposal and the ensuing crypto bills being filed in KY. As always, we appreciate the opportunity to present information to the Banking and Insurance Committees. Today, we were asked to update you on the IRS reporting requirement for banks that has been one of the most hotly contested legislative proposals of any presidential administration in my 70-year history. This proposal was made part of a budget reconciliation bill, as a funding vehicle for a massive welfare expansion, costing between $2T to almost $5T, depending on who’s doing the math. The bill initially proposed that banks be required to report to the IRS all inflows and outflows of cash exceeding $600 for every bank customer account—whether for minors, businesses, non-profits etc. After massive public backlash, House Democrats moved that reporting threshold to hit “only” bank customers whose accounts receive $10,000 in non-wages deposits annually, completely missing the point that the issue was privacy, not the dollar amounts.
The KBA’s goal is the same as this committee’s, the safety and soundness of Kentucky’s banking industry.
privacy is woven into the very fabric of every community’s business relationship. This IRS reporting –– at any dollar threshold ––would blight all of those relationships with consequences we can barely imagine……… because this proposal is without precedent. Then too, customer data provided to the IRS would be subjected to much greater security risk, as evidenced by the 1.4 billion cyberattacks and breaches the IRS currently reports. It's also ironic that the government has imposed a ton of costly bank regulations in recent decades aimed at attracting people who don’t use banks, the so-called unbanked. Often, these are people who don’t trust institutions of any kind, and this IRS proposal will send them fleeing –– and plenty of current bank customers with them. In addition to all that, the Wharton School of Business looked at how this new IRS funding impacts the IRS’s efficiency. Currently, the IRS claims it spends just over $1 for every $300 it collects. Based on the Congressional Budget Office (CBO) scoring of a prior version of the bill, the IRS will be spending additional funding of $80B to collect an additional $120B. So, that means its efficiency will plummet, while the misery it can inflict on millions of Americans through audits and collections soars.
For community banks in Kentucky, the cost of doing the IRS’s job for them would mean adding bank staff that our smaller banks absolutely cannot afford.
Ultimately, the version of the bill that passed the House on November 19 did not include the provision requiring banks to report on their customers to the IRS. Good, right? Wrong! The bill contains $80B to hire more IRS agents, perhaps as many as 87,000 new agents. Less than $2B of that $80B is allocated to “taxpayer services”. The rest goes to operations support and enforcement— meaning audits, investigations, asset monitoring, and legal actions. That has many observers fearing a plan to slip the bank reporting requirement back into the bill in the Senate.
While many senators have expressed staunch opposition to it, it’s hard to predict how Senate negotiations could end up. And even if it isn’t included, unelected and unaccountable regulators have developed a nasty habit of making laws disguised as regulations. You may recall that Dodd/Frank was only supposed to apply to banks over $10B until the regulators decided if it’s good for one, it’s good for all. So, our industry, along with thousands of our customers, continue to watch for this threat to re-emerge, and we’re joined by many other groups. The advocacy groups for every national or state financial institution, as well as business and consumer groups, have been deeply united in their intense opposition to this proposal. It attacks the very nature of the relationship between financial institutions and their customers, a relationship that has been developed and preserved by decades of statutory and case law. For a bank customer, privacy is the essence of that relationship, and trust in that
For community banks in Kentucky, the cost of doing the IRS’s job for them would mean adding bank staff that our smaller banks absolutely cannot afford. And when such banks get regulated to that breaking point, they have no choice but to sell or merge. Those current transitions are undertaken with care for the communities involved, but change is hard, so hard that it should never be forced by misguided government regulation. Whether or not our industry falls under the IRS yoke in the final version of the reconciliation bill, we surprisingly share the concern of some progressive media voices about who is truly being targeted by a massive expansion of tax collectors. When the leaked documents on tax evasion by the world’s rich and powerful, known as the ‘Pandora Papers,’ made headlines a few weeks ago, Forbes pointed out that relatively few Americans were in the report…, probably because the U.S. tax code provides plenty of legal tax sheltering opportunities without going offshore. So, if the current version should pass, who will those new agents go after to collect the money needed to finance all this new welfare? It won’t be the likes of Warren Buffet, Elon Musk or Jeff Bezos—they have legal means to avoid taxes. That new tax revenue is more likely to be coming from you and me. The most honest of folks can make simple mistakes or misunderstand the massive tax code. And the vast majority of us can’t afford a team of tax professionals. That makes us the low-hanging fruit for all those new agents. continued on the next page KENTUCKY BANKER MAGAZINE | 9
