The Honorable MarcoRubioUnited States Houseof Representatives317 Hart SenateOfficeWashington, DC 20510
Dear Senator Rubio,
On behalf of the 362,000 members ofthe National Taxpayers Union (NTU), I write in support of S. 1506, a bill toprevent the Secretary of the Treasury from forcing financial institutions toreport interest on deposits paid to “nonresident aliens.” S. 1506 would providerelief from pending Internal Revenue Service (IRS) regulations that could havenegative consequences for capital flows at a time when our economy can leastafford them.
The United States has a longhistory of encouraging investment by noncitizens from abroad. Beginning withthe Revenue Act of 1921 and continuing through the Tax Reform Act of 1986,Congress has demonstrated a desire to attract foreign capital into the Americaneconomy by not taxing or issuing reporting requirements for the interest paidon foreign deposits. The Internal Revenue Service’s proposed rules, concoctedthrough an unelected bureaucracy, would fly in the face of this Congressionalintent.
In addition to underminingdemocratic accountability, the IRS’s scheme could potentially drive billions ofdollars 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 banksand brokerage houses. By decreasing privacy and subjecting U.S.-basednonresident alien deposits to the threat of home-country taxation, theregulations would inevitably result in a substantial migration of assets tofriendlier financial climates. A 2004 study from the Mercatus Center at GeorgeMason University found that a scaled-back version of the rule package, whichwould 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 abruptcontraction of available capital could ripple throughout an already weakenedU.S. financial sector and further endanger our meek economic recovery. Bydramatically decreasing the banking system’s reserve base the regulation could potentiallylead to higher interest rates, decreases in liquidity, or even thedestabilization of certain banking institutions. Any of these outcomes couldpush the United States further toward a double dip recession.
For all the reasons above NTUencourages all Senate Members to work toward passage of S. 1506, in order tosend a clear and unequivocal message that the United States remains a welcomedestination for foreign capital.
Sincerely,
Brandon GreifeFederal Government Affairs Manager