US Treasury Continues To Push For Foreign Interest Reporting

by Mike Godfrey, Tax-News.com, Washington

15 August 2003

The US Treasury is pushing to finalize an Internal Revenue Service regulation that will require domestic banks to report the interest earned by non-resident aliens to the tax authority in the country in which they are domiciled, according to a report from the Washington Post.

The unpopular proposal has been heavily criticized by the banking industry, as well as by conservative politicians and free market think tanks, who fear a mass exodus of foreign money invested in the country. Many observers have also expressed bemusement at the keenness of the government to push through a regulation that is a holdover from the Clinton government.

Another body opposed to the measure is the Federal Deposit Insurance Corp. FDIC chairman Donald Powell wrote a letter to the Treasury earlier this year complaining that the proposal would especially harm "smaller institutions whose survival is dependent on stable sources of deposits."

A true measure of the opposition to the proposal which exists in the United States can be seen in the fact that some thirty members of the House and eighteen Senators have added their names to letters opposing the regulations; more than thirty think tanks, including the CATO Institute, the Heritage Foundation, and the Center for Freedom and Prosperity have expressed opposition; and of the 217 public comments made during the Treasury's 90 day consultation period, only one supported the measure.

It is estimated that there is over $1 trillion invested in US banks by overseas residents, and around $200 billion of this is likely to be caught by the new reporting rules.

In a critique of the IRS proposal earlier this year, Veronique de Rugy of the Cato Institute cited Federal Reserve data showing that "more than $40 billion was taken out of savings accounts in the first quarter of 2001 after the Clinton Administration first unveiled the proposed regulation."

"One can only imagine what will happen if the regulation is actually implemented," Ms de Rugy concluded.

Recommended