US Study Predicts That Interest Reporting Regulation Will Drive Away $87 Billion

by Mike Godfrey, for LawAndTax-News.com, Washington

19 April 2004

A recently published study conducted by the the George Mason University's Mercatus Center has predicted that some $87 billion of capital could be withdrawn from US financial institutions, if the IRS goes ahead with plans to implement its interest reporting regulation.

In the report, entitled "An Economic Analysis of the Proposed IRS Rules Governing the Reporting of Deposit Interest Paid to Nonresident Aliens", Dr Jay Cochran also suggested that depositors who withdraw their assets as a result of the regulation are likely to move them to non-US and non-European depositaries in the light of the European Union's parallel savings tax directive.

He additionally predicted that such a sizeable reduction in the US deposit base could lead to an increase in the country's interest rates.

Speaking following the release of the report, Andrew Quinlan, president of the Center for Freedom and Prosperity welcomed it, observing that:

"The Mercatus study demonstrates that the IRS reporting regulation could have a severe impact on the US economy. This analysis highlights the reasons why the misguided regulation should be withdrawn immediately."

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