July 22, 2002
The Honorable Paul O'Neill
Secretary of the Treasury
Department of Treasury
1500 Pennsylvania Avenue
Washington, DC 20220
Dear Secretary O'Neill,
I am writing regarding two important tax policy issues currently being considered by the Administration: the European Union's "savings tax directive" and the proposed IRS regulation (REG-126100-00) which
would require banks to report interest earned by non-resident aliens' bank deposits.
As I expressed on the floor of the House of Representatives on July 25, 2001, I am concerned that the proposed regulation could cause significant flight of capital out of the United States. Furthermore, I am
concerned that this significant change in tax policy would hinder our efforts to reform the tax code to promote greater efficiency and growth.
Finally, there are questions as to whether this proposed regulation contradicts Congressional intent.
The EU's "savings tax directive", to which the United States must agree for it to be implemented, appears to be a clear attempt by the European Union to form a tax cartel whereby high tax rates can
be more easily maintained. Like the proposed IRS regulation, participation in this cartel could cause capital flight from the United States.
In addition, this initiative would appear to stifle the global competitive forces that have led to lower tax rates around the world.
The domestic economic impact of these policies may be difficult to estimate and I would be interested in your views on the matter.
I would also appreciate a better understanding of the Administration's policy intent in this important matter as I consider possible hearings in the Ways and Means Committee to further explore this issue.
Committee on Ways and Means
Hon. R. Glenn Hubbard
Mr. Lawrence Lindsey
Ms. Pam Olsen
Ms. Barbara Angus