CFP Urges Withdrawal Of Clinton-Era Tax Regulation

by Mike Godfrey, Tax-News.com, Washington

27 January 2004

In a letter sent to US Treasury Secretary, John Snow on Monday, the Center for Freedom and Prosperity, in conjunction with more than 30 other free market groups, urged the US government to withdraw REG-133254-02; the proposed IRS regulation which would require the reporting of bank deposit interest paid to non-resident aliens.

The CFP explained to the Treasury Secretary:

"We have many concerns with the regulation. High on our list is the potential economic damage to the US economy, both because of the direct impact of the regulation (loss of deposits as nonresident aliens shift funds from American banks) and the indirect impact of the proposed rule (loss of other forms of indirect investment from overseas because of the interaction of the regulation and the European Union’s savings tax directive)."

"Another concern is the IRS’s abuse of the regulatory process. For more than 80 years, Congress has sought to attract capital to the US economy by neither taxing nonresident alien bank deposit interest nor requiring the reporting of such income. The IRS does not have the right to unilaterally change this law, so the regulation is a clear violation of congressional intent."

The letter concluded by revealing that:

"Our greatest concern, however, is that the proposed regulation will hinder tax competition between nations and thereby undermine the global shift to lower tax rates and fundamental tax reform. Indeed, the regulation is contrary to the Administration’s tax agenda. The President is seeking to reduce and eliminate double-taxation of income that is saved and invested and shift closer to territorial taxation, but the IRS is impeding this laudable goal by pursuing a regulation that would help foreign governments double-tax income that is earned in America."

Speaking with regard to the CFP's ongoing campaign against the proposed regulation, Andrew Quinlan, president of the organisation, observed that: "Not one Member of Congress has endorsed the rule. In fact, 18 Senators and more than 65 House Members have asked for its withdrawal."

Meanwhile, Daniel Mitchell of the Heritage Foundation warned that:

"Foreigners have about $2.3 trillion invested in US financial institutions. The regulation only applies to a portion of that money, to be sure, but it is extremely foolish to consider a regulation that will drive funds from the economy."

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