News Release

January 17, 2002

IRS Rule That Forces Banks To Report Interest on Foreign Deposits Should Be Formally Scrapped

WASHINGTON—Exactly a year ago, the U.S. Internal Revenue Service issued a proposed regulation (REG 126100-00) that would force U.S. banks to report the bank deposit interest they pay to nonresident foreigners. This last effort by the Clinton administration IRS to undermine tax competition still threatens damage to the U.S. economy. Even though President Bush halted the regulation as soon as he took office but the regulation, it still needs to be formally withdrawn.

Commenting on the regulation issue, Cato Institute Fiscal Policy Analyst Veronique de Rugy said:

"Retaining this misguided initiative would have a terrible effect on U.S. economic performance. America's modest tax burden, combined with privacy laws for foreigners seeking to escape oppressive fiscal systems, has helped attract more than $1 trillion deposited in U.S. financial institutions. This inflow of assets is a key determinant of American prosperity.

"The consequences of the regulation could have a significant impact on the U.S. economy at a time when it needs all the help it can get. In fact, if the IRS information exchange agreement is approved, it would drive a substantial amount of capital out of the country to competing institutions in other jurisdictions such as Switzerland, the United Kingdom or the Cayman islands. And, the resulting damage to the economy would far exceed the benefits from the president's tax cut.

"On the one-year anniversary of this regulation, for the sake of American taxpayers, the Bush Administration should formally withdraw IRS regulation 126100."