Center for Freedom and Prosperity Foundation
For Immediate Release
Monday, March 4, 2011
202-285-0244
www.freedomandprosperity.org
CF&P Praises Florida Delegation’s
Leadership in Seeking Withdrawal of Destructive
IRS Interest-Reporting Regulation
(Washington, D.C., Friday, March 4, 2011) All members of the Florida Delegation to the U.S. House of Representatives – 19 Republicans and 6 Democrats, spearheaded by Congressman Bill Posey – have signed a letter to President Obama urging withdrawal of a proposed IRS regulation (REG-146097-09) that would undermine U.S. financial markets by requiring American banks to put foreign tax law above U.S. Tax law.
Link to Letter: http://www.freedomandprosperity.org/files/NRAreg/FL-Delegation-03-02-2011.pdf
The regulation is a retread of a Clinton-era proposal that was eventually shelved after facing strong opposition from both private industry and public policy organizations. The Center for Freedom & Prosperity is again taking a leading role in preventing implementation of a regulation that would put America’s economy at risk solely for the benefit of overseas tax collectors.
CF&P President Andrew F. Quinlan comments on the Florida Delegation letter to President Obama:
- “The Florida delegation is united against this proposed rule because they recognize the amount of economic damage that would be caused by driving private capital from the U.S. economy. American banks and financial institutions benefit greatly from the bank deposits of nonresident aliens. These deposits, in turn, help every American by creating jobs, financing small business loans and improving the general welfare of all.
“The Center for Freedom and Prosperity salutes Congressman Bill Posey for his leadership on this important issue and we look forward to working with him and other Members of Congress who stand up against destructive regulations.”
Quinlan plans on testifying against the proposed rule at the IRS’s public hearing scheduled for April 27, 2011, as he did against the previous versions of the rule.
The proposed rule would overturn more than 90 years of U.S. law by requiring reporting of bank deposit interest paid to foreign account holders, which can then be turned over to foreign governments. Florida banks, which have substantial deposits from Latin America, would be particularly hard hit. If the regulation is not withdrawn, the Florida members explain, it “could drive job-creating capital out of America and harm U.S. financial markets.” The letter concludes with, “We ask that you withdraw this proposed regulation and send a clear message to existing and potential depositors that the U.S. encourages such deposits and believes America’s best interest is served by maintaining current policy.”
Link to Letter: http://www.freedomandprosperity.org/files/NRAreg/FL-Delegation-03-02-2011.pdf
Signers of the letter, Florida Delegation to the U.S. House of Representatives
Bill Posey
Debbie Wasserman Schultz
Mario Diaz-Balart
Alcee L. Hastings
Connie Mack
Kathy Castor
Richard B. Nugent
Allen B. West
Daniel Webster
C. W. Bill Young
John L. Mica
Cliff Stearns
Vern Buchanan
Ileana Ros-Lehtinen
Jeff Miller
Thomas J. Rooney
Ander Crenshaw
Sandy Adams
Steve Southerland II
Gus M. Bilirakis
David Rivera
Dennis A. Ross
Theodore E. Deutch
Frederica S. Wilson
Corrine Brown
_______________________________
Complete Text of Letter:
March 2, 2011
Dear Mr. President,
America’s financial institutions benefit greatly from deposits of foreigners in U.S. banks. These deposits help finance jobs and generated economic growth mainly benefiting local communities, consumers, families, and small businesses. For more than 90 years, the United States has recognized the importance of foreign deposits and has refrained from taxing the interest earned by them or requiring their reporting.
Unfortunately, a rule proposed by the Internal Revenue Service (REG-146097-09) would overturn this practice and would likely result in the flight of hundreds of billions of dollars from U.S. financial institutions. This regulation requires the reporting of bank deposit interest paid to foreign account holders so that this information can be made available to the countries of origin of the nonresident alien account holders.
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.” In addition, 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.
Many nonresident alien depositors are from countries with unstable governments or political environments, where personal security is a major concern. They are concerned that their personal bank account information could be leaked by unauthorized persons in their home country governments to criminal or terrorists groups upon receipt from U.S. authorities, which could result in kidnappings or other terrorist actions being taken against them and their family members in their home countries, a scary scenario that is very real.
Mr. President we have several objections to this initiative, and strongly urge you to permanently withdraw the proposed regulation. Specifically:
The regulation will cause serious irreparable harm to the U.S. economy. Because of the privacy laws of the United States, nonresident aliens are estimated to have deposited over $3 trillion in U.S. financial institutions. Should this regulation be finalized, economic and academic sources indicate that a substantial portion of that capital will be withdrawn from the U.S. economy. During this time of economic concern, we urge that every effort be made to keep capital within the borders of the United States.
The regulation flagrantly violates the intent of Congress. On several occasions, lawmakers have chosen to refrain from taxing the deposit interest paid to nonresident aliens. These actions were made for the explicit purpose of attracting and keeping capital in the U.S. economy. We feel the IRS is abusing its regulatory authority and doing so in a manner that is contrary to Congressional intent and the last ninety years of legislative history.
The regulation will weaken the competitiveness of U.S. financial institutions. Should the proposed rule take effect; American companies will lose hundreds of billions of dollars in deposits to institutions in competing jurisdictions that maintain privacy protections. The purported goal of the regulation will not be achieved, but will instead disadvantage American financial institutions and the U.S. economy.
The regulation will negatively affect the solvency of financial institutions. Should this regulation take effect it will have a negative impact on the balance sheets of U.S. financial institutions and the solvency of those that have a high percentage of non-resident alien deposits may erode. At a time when federal policies should be aimed at enhancing solvency, this regulation would undermine that goal.
This proposal may be good news for high-tax governments, but it is contrary to American economic interest. The jobs of American workers and the competitiveness of U.S. companies should be our top priorities. This regulation works against both. It will put Americans out of work and it will force dollars out of U.S. financial institutions and into foreign financial institutions.
We ask that you withdraw this proposed regulation and send a clear message to existing and potential depositors that the U.S. encourages such deposits and believes America’s best interest is served by maintaining current policy.
Sincerely,
_____________________________________
For additional comments:
Andrew Quinlan can be reached at 202-285-0244, andy@freedomandprosperity.org
Dan Mitchell can be reached at 202-218-4615, dmitchell@cato.org
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