More Congressmen Criticise IRS Bank Interest Reporting Rules

by Mike Godfrey, Tax-News.com, New York

12 May 2003

Adding to the dozens of Congressmen from both House and Senate who have asked the Administration to dump the IRS's proposed rules under which US banks would be compelled to report deposit interest paid to foreigners, 13 GOP first-term Members of the House of Representatives have now sent a letter to Treasury Secretary John Snow expressing their “strong opposition to an IRS regulation (REG-133254-02) to require the reporting of deposit interest paid to foreigners who invest their money in U.S. banks.”

The 13 members are Jeb Hensarling (R-TX), Katherine Harris (R-FL), John Carter (R-TX), Tom Feeney (R-FL), Chris Chocola (R-IN), Tim Murphy (R-PA), Bob Beauprez (R-CO), Jon Porter (R-NV), Tom Cole (R-OK), Trent Franks (R-AZ), Michael Burgess (R-TX), Rob Bishop (R-UT), and Stevan Pearce (R-NM).

Like other Congressional protesters, the 13 point out that the proposed rules would harm America’s competitiveness, saying: “This proposal contravenes existing law and would harm the competitiveness of American financial institutions. Capital will flee the U.S. economy if the regulation is implemented, and millions of American borrowers – including homebuyers and small businesses – could be adversely affected.”

The legislators also criticise the IRS for not carrying out a cost-benefit analysis of the proposed legislation.

The full letter reads as follows:

May 1, 2003

The Honorable John Snow
Secretary of the Treasury
Department of Treasury
1500 Pennsylvania Avenue
Washington, DC 20220

Dear Secretary Snow,

We want to express our strong opposition to an IRS regulation (REG-133254-02) to require the reporting of deposit interest paid to foreigners who invest their money in U.S. banks. This proposal contravenes existing law and would harm the competitiveness of American financial institutions. Capital will flee the U.S. economy if the regulation is implemented, and millions of American borrowers – including homebuyers and small businesses – could be adversely affected.

Unfortunately, we do not have an official estimate of the amount of deposits that might flee because the IRS did not perform a cost-benefit analysis. But we do know that more than $40 billion of savings deposits (on an annualized basis) left the U.S. banking system in the first quarter of 2001, almost surely in response to the original version of the regulation, which the Clinton Administration proposed on January 17, 2001. We also know that both the American Bankers Association and the Federal Deposit Insurance Corporation think the threat of capital flight is real. Both have warned that the proposed regulation could undermine the safety and soundness of the financial services industry.

We also are very concerned that the IRS is abusing the regulatory process by blatantly ignoring the will of Congress. For more than 80 years, lawmakers have sought to attract these deposits to the U.S. banking system. This is why Congress decided not to tax this income or require it to be reported. Yet the IRS unilaterally wants to replace this outcome of the democratic process with a bureaucratic edict.

We hope that this misguided regulation will be permanently withdrawn. We also look forward to an explanation of why the IRS did not perform the required cost-benefit analysis for this regulation.

Sincerely,

Jeb Hensarling

Katherine Harris

John Carter

Tom Feeney

Chris Chocola

Tim Murphy

Bob Beauprez

Jon Porter

Tom Cole

Trent Franks

Michael Burgess

Rob Bishop

Stevan Pearce

Cc: Vice President Richard Cheney

Stephen Friedman, Director of National Economic Council

Josh Bolten, Deputy Chief of Staff for Policy to the President

Recommended