[Link to signed PDF copy]
March 6, 2003
The Honorable John Snow
Secretary of the Treasury
Department of Treasury
1500 Pennsylvania Avenue
Washington, DC 20220
Dear Secretary Snow,
Congratulations on your confirmation. I look forward to working with you to reform our tax code and make America's economy more competitive. As part of this effort, I urge you to closely review an IRS regulation
(REG-133254-02) that would require banks to report the interest they pay to non-resident aliens. This initiative, originally proposed during the waning days of the Clinton administration, undermines the rule-of-law
and is a threat to America's economic interests.
Beginning in 1921, lawmakers decided not to tax foreign-owned bank deposit interest in order to attract capital to the U.S. economy. This has been a remarkably
successful policy. American banks have more than $1.7 trillion of foreign funds, and this money helps fund job creation and economic growth in the United States. Unfortunately, this proposed IRS regulation would use
bureaucratic edict to undermine existing law. Requiring the reporting of bank deposit interest will give foreign governments the ability to tax income earned inside U.S. borders. This will cause non-resident aliens
to shift a significant share of their deposits to other jurisdictions.
It would be very useful to find out how much money would flee our economy, but this number is not known since the IRS failed to follow
the law and perform a required cost-benefit analysis. And even though nonresident alien deposits only account for a portion of the foreign money in American banks, I fear it will be a substantial amount of money.
Indeed, it is worth noting that more than $40 billion of savings deposits fled American banks in the first quarter of 2001 (on an annualized basis), almost surely in part because the proposed regulation was first
announced January 17, 2001.
I urge you to permanently withdraw the proposed regulation. At the very least, the regulation should be withdrawn until the IRS produces a peer-reviewed, independent analysis of
how much capital will leave the U.S. economy if the regulation is implemented.
United States Senate
cc: Vice President Richard Cheney
CEA Chairman Glenn Hubbard
NEC Chairman Steve Friedman
Deputy Chief of Staff Josh Bolten