Letter of Support: U.S. Banks Are Not Foreign Countries' De Facto Tax Collectors
Dear Senator Rubio and Representative Posey,
On behalf of more than 1.9 million Americans for Prosperity activists in all 50 states, I commend you for introducing S. 1506 and H.R. 2568, respectively, to prevent an unnecessary tax regulation from causing billions of dollars of foreign investment to leave the United States.
Early last year, the Internal Revenue Service (IRS) proposed a new regulation that would require U.S. banks to report deposit interest paid to nonresident aliens. This was a strange proposal, since there is no direct IRS interest in it: investment income (including interest payments) earned by nonresident aliens is not even subject to U.S. taxation. Foreign countries, on the other hand, do have an interest in this information as it may reveal that some nonresident aliens are not fully reporting interest income to their home countries and are therefore underpaying taxes back home.
U.S. financial firms should not be burdened with additional paperwork that makes them the de facto tax collector for foreign countries. These burdens go well beyond what is required by international agreements. International tax treaties do require the exchanging of information that is collected for domestic law enforcement, but there is no obligation to impose additional regulatory burdens to enforce other nations’ laws.
Moreover, foreigners have long looked to the U.S. banking system as one of the best in the world, so much so that they’ve deposited upwards of $3 trillion in U.S. banks. Imposing these new regulations may have the unintended consequence of causing many of these foreign depositors to take their business and capital elsewhere. When a similar proposal was analyzed in 2004, a George Mason University economist estimated that nearly $100 billion in deposits would leave the U.S. banking system. That’s a lot of capital that can be used to make loans, grow companies, and create jobs here in America.
Imposing costs on U.S. firms to enforce other countries’ laws defies common sense, and your bills rightly prohibit the IRS from imposing this new rule on U.S. banks. Americans for Prosperity is proud to support S. 1506 and H.R. 2568. I urge your colleagues to support passage of this important legislation. I look forward to working with you in the future.
Director of Government Affairs
Americans for Prosperity