US Liberals Turn On IRS For Clintonesque Tax Measure

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

06 August 2002

Last week's 're-birth' of a Clinton-era IRS proposal to force US banks to provide information on interest paid to non-resident aliens which would then be sent to their home tax authorities seemed at odds with the Treasury Department's denial of the EU information-sharing regime, and the Centre for Freedom and Prosperity explains the conflict as an attempt by Clinton-appointed bureaucrats to hi-jack the tax agenda. The CFP says it will vigorously fight what it sees as an attack on the US's economic well-being. Here is a CFP statement on the issue:

' The Center for Freedom and Prosperity today announced that the Coalition for Tax Competition will aggressively oppose a proposed Internal Revenue Service (IRS) regulation that would force U.S. financial institutions to help foreign governments tax income earned in America. The proposed regulation would require U.S. banks to report to the IRS the amount of bank deposit interest paid to foreign depositors, even though the IRS admits that this information is not needed to enforce U.S. tax law and is being requested solely for the benefit of foreign governments.

'According to Andrew Quinlan, President of the Center for Freedom and Prosperity, "This proposed regulation will drive capital out of America and hurt U.S. financial markets. This 'new' regulation is based on the same misguided policies the Clinton Administration tried to sneak through during its last few days. Unfortunately, the IRS apparently puts the interests of foreign tax collectors above the interests of the American people, but we are confident that the Bush Administration will withdraw this 'Clinton-Lite' regulation at the first possible moment since it clearly undermines the President's economic growth agenda." Mr. Quinlan added, "The Coalition for Tax Competition will encourage taxpayers to make their voices heard during the public comment period. We expect this grassroots opposition, combined with testimony against the proposal, will help torpedo this tax harmonization scheme."

'Daniel Mitchell, Senior Fellow at the Heritage Foundation, stated, "This proposed regulation is a gross abuse of the regulatory process, which is probably only to be expected since the agency is still headed by a Clinton-appointed Commissioner. The IRS is supposed to enforce legislation enacted by Congress, yet the agency is trying to use bureaucratic edicts to overturn existing law." Mitchell also noted that, "The IRS also failed to conduct legally required cost-benefit analysis, further demonstrating the agency's disregard for the law."

'The Cato Institute's Veronique de Rugy urged Treasury Secretary Paul O'Neill to gain control of the bureaucracy at Treasury, commenting that, "While Paul O'Neill is racking up frequent flyer miles, a Clinton-appointed IRS Commissioner is issuing regulations that would require automatic sharing of confidential financial information with foreign governments - even though this is contrary to the Treasury Secretary's public statements. In fact, the Secretary is on record saying that private financial information should only be shared with other governments in response to specific requests with proper safeguards and upon demonstration of probable cause." Ms. de Rugy said, "This failure to defend U.S. interests is particularly frustrating since Europe's welfare states are using the World Trade Organization and the European Union to undermine America's competitive advantage in the global economy."

'If implemented, critics fear the regulation would hinder pro-growth tax reform. Grover Norquist, President of Americans for Tax Reform, explained that, "All proposals to fix the tax code, such as the flat tax, are based on common-sense principles such as taxing income only one time and taxing only income inside our borders. The IRS regulation is a slap in the face for those who support tax reform since it would help foreign governments double-tax income that is earned in America."

'The proposed regulation is based on a similar regulation proposed during the final days of the Clinton Administration. The only significant difference is that the original Clinton regulation required reporting on all foreign depositors, whereas the latest proposal targets residents of 15 major nations. Eric V. Schlecht, Director of Congressional Relations for the National Taxpayers Union, explained, "This modification is virtually meaningless since it is widely understood that the IRS will add all other nations, particularly those from Latin America, to the list within a few years if this misguided regulation is finalized. "

'Richard Rahn, Senior Fellow at the Discovery Institute, urged the President' s economic team to get more involved. According to Rahn, "Bureaucrats at Treasury and the IRS are ideologically motivated to pursue tax policy that will undermine President Bush. Without strong supervision from the White House, these bureaucrats will implement policies that weaken America." '

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