Center for Freedom and Prosperity Foundation
For Immediate Release
Thursday, January 6, 2011
Obama’s Revival of Clinton-Era Interest-Reporting
Regulation Threatens U.S. Economy
(Washington, D.C., Thursday, January 6, 2011) President Obama’s Treasury Department has proposed a new Internal Revenue Service regulation (REG-146097-09) that would overturn existing law and force American banks to report the interest paid to all nonresident aliens. This ill-considered rule is a retread of a Clinton-era proposal that was shelved without implementation. But if implemented today, it could drive hundreds of billions of dollars out of the U.S. economy and harm America’s already shaky financial system. The Center for Freedom and Prosperity once again plans to be a leader in the effort to derail or kill this misguided regulation.
The regulation is designed to accumulate information that can be provided to foreign governments, which means the regulation puts the interests of overseas tax collectors above U.S. law and before the interests of the American economy. The IRS has long admitted that it has no use for the information it is demanding, though it has never explained how it has regulatory authority to overturn existing law.
The regulation could drive job-creating capital out of America and harm U.S. financial markets. According to the Commerce Department, foreigners have $10.6 trillion passively invested in the American economy, including nearly $3.6 trillion “reported by U.S. banks and securities brokers.”
“A 2004 study from the Mercatus Center at George Mason University estimated that a scaled-back version of the rule would drive $88 billion from American financial institutions, and this version of the regulation will be far more damaging” said CF&P President Andrew Quinlan, who added that, “the Center for Freedom and Prosperity will testify at the public hearing on April 28th, and fight to block this harmful regulation once again.”
Dan Mitchell, a Senior Fellow at the Cato Institute, noted that, “The IRS has failed to perform the cost-benefit analysis required by Executive Order 12866 and the IRS is acting in violation of current law, which is designed to attract foreign capital to the American economy.” Mitchell also noted that, “This proposed regulation also is a threat to human rights and civil liberties since many oppressed people around the world place their assets in American financial institutions to guard against persecution, expropriation, and other forms of abuse by thuggish governments.”
The regulation was first proposed in the waning days of the Clinton administration before being withdrawn in the face of near-unanimous opposition from the financial services industry, members of Congress, and the general public. Immediately upon withdrawal of the original regulation, the IRS tried a bait-and-switch and returned with a new proposal that offered only cosmetic changes. That version of the regulation also met with fierce opposition and was halted. The Obama administration now has revived the disastrous policy and seeks to once again require the automatic sharing of confidential financial information with all foreign governments.