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May 1, 2003
The Honorable John Snow
Secretary of the Treasury
Department of Treasury
1500 Pennsylvania Avenue
Washington, DC 20220
Dear Secretary Snow,
We want to express our strong opposition to an IRS regulation (REG-133254-02) to require the reporting of deposit interest paid to foreigners who invest their money in U.S. banks. This proposal contravenes
existing law and would harm the competitiveness of American financial institutions. Capital will flee the U.S. economy if the regulation is implemented, and millions of American borrowers – including homebuyers and
small businesses – could be adversely affected.
Unfortunately, we do not have an official estimate of the amount of deposits that might flee because the IRS did not perform a cost-benefit analysis. But we do know that more than $40 billion of savings
deposits (on an annualized basis) left the U.S. banking system in the first quarter of 2001, almost surely in response to the original version of the regulation, which the Clinton Administration proposed on January
17, 2001. We also know that both the American Bankers Association and the Federal Deposit Insurance Corporation think the threat of capital flight is real. Both have warned that the proposed regulation could
undermine the safety and soundness of the financial services industry.
We also are very concerned that the IRS is abusing the regulatory process by blatantly ignoring the will of Congress. For more than 80 years, lawmakers have sought to attract these deposits to the U.S.
banking system. This is why Congress decided not to tax this income or require it to be reported. Yet the IRS unilaterally wants to replace this outcome of the democratic process with a bureaucratic edict.
We hope that this misguided regulation will be permanently withdrawn. We also look forward to an explanation of why the IRS did not perform the required cost-benefit analysis for this regulation.
Cc: Vice President Richard Cheney
Stephen Friedman, Director of National Economic Council
Josh Bolten, Deputy Chief of Staff for Policy to the President