IRS Regulation Is Threat To Economy

November 13, 2002

Alexandra K. Helou
Office of Associate Chief Counsel (International)
Internal Revenue Service
CC:DOM:ITA:RU (REG-133254-02)
Room 5226
P. O. Box 7604, Ben Franklin Station
Washington, DC 20044

Dear Ms. Helou:

I am writing to express my strong opposition to the regulation that would force American banks to report interest payments made to nonresident aliens with U.S. accounts. This regulation is clearly contrary to America’s national interests. Residents of other nations view the United States as a safe haven and have about $1 trillion of deposits in American banks. This capital helps fund job creation and economic growth, benefiting U.S. workers and entrepreneurs. But if this regulation is implemented, a substantial portion of this liquid capital will flee to more hospitable jurisdictions.

If the IRS undermines the confidentiality of the American banking system, this will hurt our economy and weaken financial markets. But it also will be bad for the nonresident aliens who are putting money in our banks. By definition, these people feel that U.S. financial institutions are a safer and sounder steward of their money. Some of them may be escaping oppressive tax burdens, while others may be fleeing corruption and crime. Regardless, America benefits by gaining access to this capital.

The proposed regulation is particularly foolish since there is no legitimate need to collect information on foreign-owned bank deposit interest. On more than one occasion, Congress has chosen not to tax that income because of a desire to attract job-creating private capital. This means that information on this income is completely unnecessary for purposes of enforcing U.S. tax law. Indeed, many regulatory experts and tax lawyers make persuasive arguments that the IRS is abusing its regulatory authority by promulgating a regulation that overturns existing law.

The IRS claims that foreign governments will help collect U.S. taxes if we help them collect their taxes, but this is a specious claim. It is highly unlikely that any Americans have hidden their money in the 15 nations (high-tax countries like France and Sweden) on the list. Instead, the regulation would merely serve to drive capital from America. But this regulation will not even result in higher tax collections for other governments. Depositors will quickly shift their funds out of America and to London, Hong Kong, Zurich, and other places that respect the need for a safe and stable banking system.

This is a lose-lose proposition for America. The regulation should be immediately withdrawn.

Very sincerely yours,

Jack Kemp

Cc:
Treasury Secretary Paul O’Neill
CEA Chairman Glenn Hubbard
Economic Advisor Larry Lindsey