CFP Reaction To US Information Sharing Plans Mixed

by Mike Godfrey, Tax-News.com, Washington

28 August 2002

In a Center for Freedom and Prosperity strategic memo released on Monday, Senior Heritage Foundation fellow, Dan Mitchell praised the US government for rejecting the EU's savings tax directive as laid out by the 15 nation bloc, but warned that the Internal Revenue Service's recent decision to enforce a watered-down version of a Clinton era information sharing regulation still poses a threat to the fiscal sovereignty of America.

'If the proposed regulation is implemented, American banks will be forced to report the deposit interest they pay to nonresident aliens from selected nations. This decision is bad for America's national interests,' he announced.

Mr Mitchell went on to condemn the new IRS regulation as 'bad tax policy', arguing that: 'It will enable other nations to tax income earned in the United States. And it will facilitate an additional layer of tax on income that is saved and invested. Both of these features undermine good tax policy and fundamental tax reform.'

He warned that the new measure could also give hope to the European Union with regard to its savings tax initiative, allowing it to argue that the directive is still viable because the IRS measure represents a watered-down version, or 'equivalent measure'.

'This certainly is an inaccurate reading of both the regulation and the EU directive, but supporters of tax harmonization alomst surely will adopt this strategy since it is their only option - short of admitting defeat,' Mr Mitchell observed.

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