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NTU supports S. 1506
An Open Letter to Senator Rubio:
August 15, 2011
The Honorable Marco Rubio United States House of Representatives 317 Hart Senate Office Washington, DC 20510
Dear Senator Rubio,
On behalf of the 362,000 members of the National Taxpayers Union (NTU), I write in support of S. 1506, a bill to prevent the Secretary of the Treasury from forcing financial institutions to report interest on deposits paid to “nonresident aliens.” S. 1506 would provide relief from pending Internal Revenue Service (IRS) regulations that could have negative consequences for capital flows at a time when our economy can least afford them.
The United States has a long history of encouraging investment by noncitizens from abroad. Beginning with the Revenue Act of 1921 and continuing through the Tax Reform Act of 1986, Congress has demonstrated a desire to attract foreign capital into the American economy by not taxing or issuing reporting requirements for the interest paid on foreign deposits. The Internal Revenue Service’s proposed rules, concocted through an unelected bureaucracy, would fly in the face of this Congressional intent.
In addition to undermining democratic accountability, the IRS’s scheme could potentially drive billions of dollars in capital out of the United States. Foreigners currently have approximately $10.7 trillion invested in the U.S. economy, including $4.64 trillion in banks and brokerage houses. By decreasing privacy and subjecting U.S.-based nonresident alien deposits to the threat of home-country taxation, the regulations would inevitably result in a substantial migration of assets to friendlier financial climates. A 2004 study from the Mercatus Center at George Mason University found that a scaled-back version of the rule package, which would have only required reporting from a prescribed set of 15 countries, would “trigger a deposit outflow from U.S. depositories of more than $87 billion.”
The impacts of such an abrupt contraction of available capital could ripple throughout an already weakened U.S. financial sector and further endanger our meek economic recovery. By dramatically decreasing the banking system’s reserve base the regulation could potentially lead to higher interest rates, decreases in liquidity, or even the destabilization of certain banking institutions. Any of these outcomes could push the United States further toward a double dip recession.
For all the reasons above NTU encourages all Senate Members to work toward passage of S. 1506, in order to send a clear and unequivocal message that the United States remains a welcome destination for foreign capital.
Sincerely,Brandon Greife Federal Government Affairs Manager