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February 28, 2003
The Honorable John Snow
Department of the Treasury
1500 Pennsylvania Avenue
Washington, DC 20220
Dear Mr. Secretary,
I am very pleased with your new leadership at the Treasury Department.
I am sure we can work closely together to promote good policy that helps the American economy grow. With this in mind, I would like to bring to your attention the concerns I have about a proposed IRS regulation. To help attract capital to the U.S. economy, Congress has repeatedly chosen over the last eighty years not to tax foreign-owned bank accounts and not to require the reporting of interest income paid to these accounts. Unfortunately, the IRS proposed a regulation (REG-133254-02) that would require banks to report interest paid to nonresident aliens. This proposal is very troubling. The IRS is supposed to enforce the law, not create new law.
I urge you to withdraw this regulation. It will impose significant costs on banks if it is implemented. However, these paperwork costs will be trivial compared to the loss of international
competitiveness since banks in London, Zurich, and Hong Kong will be delighted to accept deposits that will flee America.
Indeed, the Chairman of the Federal Deposit Insurance Corporation has warned that this regulation could undermine the safety and soundness of the U.S. banking system.
Ordinary Americans will be the ones to
pay the cost.
Mortgages and car loans will be harder to obtain, and businesses will have less access to affordable credit. Unfortunately, the IRS did not perform the required cost-benefit analysis, so we do not have a good estimate of the potential drain of capital. It is worth noting, however, that more than $40 billion left the U.S. in the first quarter of 2001, immediately after the Clinton Administration first proposed this misguided scheme.
Based on these facts, it is clear that the proposed regulation is not based on sound economic policy and it was not created through the standard regulatory process.
It will undermine the pro-growth features of the President's tax plan. In short, it must be withdrawn. Thank you for your consideration.
Michael D. Crapo
United States Senator