A GOP tax-writer is lobbying against a new requirement that banks disclose interest disbursed to foreigners, a regulation that has drawn sharp rebukes from Republicans.
Rep. Charles Boustany Jr. (R-La.), the chairman of the House Ways and Means oversight subcommittee, is pressing Treasury over whether the rule is a significant regulation, saying previous answers from the department were insufficient.
Republicans also worry that the regulation could allow unstable or authoritarian governments to get their hands on their citizens’ financial information.
“Rather than continuing to request the specific deposit information when it is needed, the department is now burdening banks with new reporting requirements regardless of whether the information is requested by a foreign government,” Boustany told Treasury Secretary Timothy Geithner in a letter dated and released Friday.
But Treasury officials say the provision, scheduled to go into effect in 2013, will be a key tool against tax evasion, going hand-in-hand with a U.S. mandate that foreign banks report back on Americans’ holdings.
"These regulations, by requiring reporting of deposit interest to the IRS, will ensure that the IRS is in a position to exchange such information reciprocally with a treaty partner when it is appropriate to do so,” the finalized April regulation said.
Emily McMahon, an acting assistant Treasury secretary, also said in March that critics were wrong to assume that the rule will cause foreigners to pull their funds out of U.S. banks, or that financial information would be shared with corrupt governments.
“Nonresidents have many reasons for depositing money in U.S. banks, including the strength and stability of our financial institutions and the quality of our regulatory supervision,” McMahon wrote in a letter to the Miami Herald.
The IRS had pulled back on a similar regulation after it was proposed late in the Clinton administration.
Boustany’s letter comes more than seven months after a previous message to Treasury, in which he expressed doubt that the then-proposed regulation would serve a “compelling tax collection purpose.”
Because the federal government largely doesn’t tax foreign-held deposits in U.S. banks, Republicans argue the rule is instead intended to help other countries with their collection process.
In his newest letter, Boustany also demands that Treasury support its assertion that the new regulation is not significant. That request comes as Republicans have spent much of this Congress blasting Democrats and the Obama administration for imposing excessive regulations that hurt the economy.
Lawmakers in Florida are among those particularly concerned about the rule, with all of the Democrats and Republicans in the Sunshine State delegation lobbying against the provision with the White House last year.
Sen. Marco Rubio and Rep. Bill Posey, both Florida Republicans, have introduced measures to roll back the reporting rule.
Rubio said the regulation would force billions of dollars out of Florida after it was finalized in April, and Posey said the administration should have better studied the economic impact of the regulation.
“They are basically telling foreigners that their money is no longer welcome in the United States,” Posey said.
But liberal groups like Citizens for Tax Justice have said that the rule is but one step in battling money laundering, shell corporations, bank secrecy and the like.
And while GOP skeptics have expressed concern that the U.S. will exchange information with Mexico and Venezuela because it has tax treaties with those countries, administration officials have said they will only share with governments they believe can adequately keep that information confidential.
“We think you’re going to find it reassuring in the sense that it’s not going to carry the risk you’re concerned about,” Geithner told Rep. Mario Diaz-Balart (R-Fla.) at a March hearing.
In a statement sent on Friday, Treasury said that Venezuela had not met requirements under their treaty with the U.S. that requires not only confidentiality, but also that exchanged information is only used for the administration of tax laws.
“Accordingly, the United States does not, and has no plans to, exchange information with Venezuela,” the department said.