January 20, 2004
The Honorable John Snow
Secretary of the Treasury
Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Snow,
Three years ago, in the final days of the previous Administration, the IRS attempted to overturn existing law by proposing a regulation that would compel U.S. banks to act as tax collectors for
foreign governments. Your predecessor should have immediately - and permanently - withdrawn this misguided rule. For inexplicable reasons, however, he and some of his underlings decided to defend this Clinton-era
Fortunately, strong opposition in other quarters has kept this dangerous proposal from being implemented. But the continued existence of this proposal is a needless distraction when our joint efforts
should be focused on initiatives to strengthen our economy. To help promote economic growth and defend America's interests, I therefore urge you to rectify your predecessor's mistake and withdraw this proposed IRS
regulation (REG-133254-02). Forcing U.S. banks to report deposit, interest paid to foreign account holders would impose a harsh paperwork burden and undermine the competitiveness of U.S. financial institutions.
Simply stated, international investors surely will move their funds -- potentially more than $100 billion -- to banks in London, Zurich, Hong Kong, and elsewhere if the regulation is finalized.
regulation is particularly misguided since there is no need for the IRS to collect this information. For more than 80 years, Congress deliberately has chosen not to tax nonresident bank accounts and not to require
reporting of this information. The proposed regulation is therefore not only unnecessary, it actually is a clear violation of congressional intent. The IRS also has chose to flout the law requiring a cost/benefit
analysis of regulations that could have a significant impact on the economy.
This regulation has attracted widespread opposition, and for good reason. The Federal Deposit Insurance Corporation is worried it
could undermine the safety and soundness of our banking system. Taxpayer groups and research organizations fear it will undermine tax reform. The financial services industry does not want a costly regulatory burden
that will make them less competitive. And the Small Business Administration is concerned that important regulatory procedures have been ignored.
These are all valid points, but the biggest drawback is that
the regulation will hurt our economy. When the Clinton Administration first proposed the regulation, foreigners responded by withdrawing more than $40 billion (on an annualized basis) from U.S. savings accounts.
This means American consumers and businesses have less access to affordable credit. I urge you to permanently withdraw this regulation.
Member of Congress