Restraining Leviathan III: when the IRS goes wild

Here’s a question, the answer to which may just be a hearty “WTF?” Why does the IRS want to turn US banks into deputy tax collectors for foreign governments?

Under a proposed regulation, the Internal Revenue Service would order banks to report interest on deposits from foreign investors, not to the US government, but to the home government of the depositor.

What’s the problem, you ask? There are five, but I’ll list two here:

  1. Foreign depositors have put trillions of dollars in US banks because of the very fact that we don’t report interest payments to their governments. Yes, it’s tax avoidance on their part, but the moneys deposited here help grow our economy through loans and investment capital. If this regulation is enacted, foreign depositors will have every reason to move their fortunes elsewhere, to places like Hong Kong or the Caymans, which don’t threaten to rat them out to their governments. That loss would be a tremendous blow to our already ailing economy and banking sector.
  2. Even worse, this regulation overturns established US law. Congress mandated this safe-harbor for foreign deposits 90 years ago in recognition of the benefits an inflow of capital would bring, and that law has been reaffirmed by our democratically elected legislators at least twice since then. Yet now a bureaucratic agency want to undue laws enacted by the legislature through simple fiat.

WTF, indeed.

Dan Mitchell of the Cato Institute has produced a video that goes into these and three other reasons why this regulation shows the IRS is Stuck On Stupid:

This proposed regulation and the harm it will do have attracted the attention of Congress, who’ve reacted in bipartisan opposition to this dumb idea. For example, Senator Rubio said in a letter to President Obama:

At a time when unemployment remains high and economic growth is lagging, forcing banks to report interest paid to nonresident aliens would encourage the flight of capital overseas to jurisdictions without onerous reporting requirements, place unnecessary burdens on the American economy, put our financial system at a fundamental competitive disadvantage, and would restrict access to capital when our economy can least afford it. …I respectfully ask that Regulation 146097-09 be permanently withdrawn from consideration. This regulation would have a highly detrimental effect on our economy at a time when pro-growth measures are sorely needed.

You can read more reactions to this bureaucratic usurpation at Mitchell’s International Liberty, though I have no doubt the statists in the Congressional Progressive Caucus think it’s just peachy.

LINKS: Other posts on Leviathan government.

(Crossposted at Sister Toldjah)

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3 Responses to Restraining Leviathan III: when the IRS goes wild

  1. […] Scan more: Restraining Leviathan III: wh&#1077n th&#1077 IRS goes natural « Public Secrets […]

  2. Expat in CA says:

    Why is the IRS doing this? To “return the favour” to countries that are allowing their banks to obey FATCA.

    The fact is that the US government is forcing every other country in the world to act as their tax collectors, violating their own privacy laws to report on US expats. When these countries freak out about the effects of FATCA on their economies and their sovereignty in making their own laws, the US couldn’t care less. But propose that the US be subject to the same rules and suddenly it’s a huge deal.

    Seriously, get over yourselves. Either repeal FATCA or poney-up.

  3. CA Freeb says:

    Yes, they will be taking their monies out of the U.S. because of FATCA too. People are already doing it in retaliation for what FATCA is doing to their families as well as the exorbitant FBAR penalties on families who just happen to have an American in them even when the American in the family makes zero income and even when that person has never lived in the United States. My family in Canada used to invest in the U.S. in the RRSP and pulled out all their U.S. holdings over this “Hire” legislation.

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