I’ve written several times about a proposed IRS regulation that would force American banks to put foreign law above U.S. law. I’ve repeatedly warned that the scheme, which would force financial institutions to report the deposit interest they pay to foreigners, is bad economic policy, bad regulatory policy, and bad banking policy.
My arguments have included:
- Explaining that this onerous regulatory scheme will result in capital fleeing to other nations, needlessly harming the financial sector and putting American banks at risk.
- Explaining why the proposal is a threat to human rights since many foreigners keep money in the United States because they live in nations with unstable and/or repressive governments.
- Explaining that the IRS action is a gross abuse of the regulatory process since an executive branch agency does not have the authority to overturn laws enacted as part of the democratic process.
- Explaining that this proposed regulation is just the beginning, and that proponents hope to issue follow-up rules that would cripple policies making America a haven for global capital.
But these points don’t seem to matter to the Obama Administration, which is ideologically committed to the anti-tax competition agenda of Europe’s welfare states. This is why the White House supports all sorts of destructive policies, including not only this misguided regulation, but also the creation of something akin to a world tax organization that will have power to block free-market tax policy.
A new article in the Weekly Standard explains what’s at stake.
Early last year the Treasury Department published its “Guidance on Reporting Interest Paid to Nonresident Aliens,” which would require banks to report to the Internal Revenue Service the interest paid to foreign depositors with a U.S. bank account. While the Treasury and the regulatory apparatus insist that the cost and inconvenience of adhering to this regulation is next to nothing, the rule may cost the U.S. banking system hundreds of billions of dollars in lost deposits, in turn costing our economy billions of dollars, while providing no discernible benefit to banks, depositors, taxpayers, or the U.S. economy. …a much bigger problem—for banks and the economy—than the compliance costs is the threat of a massive capital flight. The United States is a very popular place for foreigners to park their savings, for a variety of reasons. For starters, we offer a stable government that can be trusted to keep its hands off deposits—something that appeals greatly to residents of Venezuela, Argentina, Ecuador, and any number of other unstable countries. …As a result, a staggeringly large amount of savings from abroad is currently held in U.S banks. While the Treasury asserts that “deposits held by nonresident alien individuals are a very small percentage of the [total] deposits held by U.S. financial institutions,” that very small percentage amounts to more than $3.7 trillion, according to a 2011 Bureau of Economic Analysis report, hardly a pittance. The massive amount of foreign savings here is a boon to the U.S. economy. Banks lend against these deposits, mainly to companies here in the United States. Jay Cochran, an economist at George Mason University, studied the impact that the more limited 2002 reporting requirements would have had on the banking system, estimating that it would have resulted in nearly $100 billion in deposits leaving the U.S. banking system. A reporting regulation that covers all foreign accounts would likely result in two to three times more capital flight. The impact would be harmful not just for the banks but for the broader economy. The decline in profits in the banking sector alone from a roughly quarter-trillion-dollar capital flight would be in the range of $5-10 billion—which makes a mockery of the notion that the costs of the regulation are under $100,000.
For more information about this wretched proposal, here’s a video I narrated on the topic.
To put it bluntly, the Obama Administration is pushing this regulation because it thinks the anti-tax competition agenda of Europe’s welfare states is so important that it is willing to risk the health of the American economy, undermine the soundness of U.S. financial institutions, disregard the rule of law, and abuse the regulatory process.
Indeed, this proposal is even worse than the increasingly infamous Foreign Account Tax Compliance Act.
And that’s saying something, because with each passing day, it is more and more obvious that FATCA is a destructive law that will significantly harm the American economy. But at least it’s a law, one that was approved by Congress and signed by the President. And the costly FATCA regulations being developed by the IRS are for the purpose of enforcing the law.
The interest-reporting IRS regulation is also costly and destructive, to be sure, but what makes it so perverse is that it is – at best – completely gratuitous. It is being advanced solely for reasons of ideology, regardless of the law and consequences be damned.
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the […]
[…] when he asserted powers that didn’t […]
[…] administrations have a track record of pushing bad policies on their way out of office, so I’m not surprised the Obama […]
[…] this is not the first time the IRS has interfered with congressional […]
[…] how agencies will lie about regulatory burdens, it wouldn’t be a silver […]
[…] how agencies will lie about regulatory burdens, it wouldn’t be a silver […]
[…] IRS has stonewalled and treated Congress with contempt. The bureaucrats have disregarded the law to advance Obama’s hard-left agenda. They have used their power to help Obama’s reelection […]
[…] IRS has stonewalled and treated Congress with contempt. The bureaucrats have disregarded the law to advance Obama’s hard-left agenda. They have used their power to help Obama’s […]
[…] The IRS goes beyond the law to make the system worse, as we saw when it imposed a regulation that forced U.S. banks to put foreign tax law above American tax law. […]
[…] The IRS goes beyond the law to make the system worse, as we saw when it imposed a regulation that forced U.S. banks to put foreign tax law above American tax law. […]
[…] being said, the IRS goes beyond the law to make the system worse, as we saw when it imposed a regulation that put foreign tax law above American tax law. And when it arbitrarily rewrote the Obamacare legislation to enable additional […]
[…] being said, the IRS goes beyond the law to make the system worse, as we saw when it imposed a regulation that put foreign tax law above American tax law. And when it arbitrarily rewrote the Obamacare legislation to enable additional […]
[…] that are far more expensive to the overall economy. The IRS, for instance, imposed a regulation to force American banks to put foreign tax law above U.S. tax law regarding the reporting of bank deposit interest paid to nonresident foreigners with U.S. accounts. […]
[…] that are far more expensive to the overall economy. The IRS, for instance, imposed a regulation to force American banks to put foreign tax law above U.S. tax law regarding the reporting of bank deposit interest paid to nonresident foreigners with U.S. accounts. […]
[…] that are far more expensive to the overall economy. The IRS, for instance, imposed a regulation to force American banks to put foreign tax law above U.S. tax law regarding the reporting of bank deposit interest paid to nonresident foreigners with U.S. accounts. […]
[…] of my interest in tax competition, fiscal sovereignty, and financial privacy, I’m upset that his Treasury Department pushed through a regulation that overturns – rather than enforces – laws about protecting American banks from tax […]
[…] the IRS is taking this step without any congressional authorization or instruction. But if you read this link about an IRS regulation that would force American banks to put foreign law above US law, you’ll know that the tax agency is capable of rogue […]
[…] this regulation represents bad tax policy and undermines the rule of law. I also have explained that it will hurt the American economy and why it endangers the human rights of people living under tyrannical and thuggish […]
[…] And remember, while most of the blame for a terrible tax system should be directed against the clowns in Congress and the White House, the IRS goes above and beyond legislative requirements to hassle and torture Americans. Heck, sometimes it simply decides to ignore the law! […]
[…] the IRS is taking this step without any congressional authorization or instruction. But if you read this link about an IRS regulation that would force American banks to put foreign law above US law, you’ll know that the tax agency is capable of rogue […]
[…] been a big critic of Obama’s policies on taxes, spending, regulation, and intervention, so you won’t be surprised that I argued on CNBC that his policies have […]
This is the desperation phase of decline….
Desperate western world voter lemmings are entering the middle, the accelerated, phase of their decline: Trying to coral productive people into producing for distant unknowns – productive people who are increasingly going Laffer, and who are increasingly moving their creative business activities outside a declining western world of pitchforks.
It won’t work. What the pitchfork yielding westerners will be left with is exactly the crony rich which they so much hate, those whose primary wealth accumulation and preservation skill is to know enough of the right people in government and in bureaucracy to be protected from the pitchforks, to be bailed out, to be the recipients of subsidies, to be temporarily shielded from competition, until general decline makes all this unsustainable and the dam of zero-sum gimmicks breaks. These are exactly the non-productive rich that the pitchforkers so much hate. These coming events are the middle chapters from the book of HopNChange, the chapters that Greeks are now going through. For the rest of the Euro-zone the decline is more erratic, so, as is typical of such situations, it is a little harder to discern the downward trendline amidst the inherent fractal behavior of large systems. For the US, the lower growth trendline started rather recently — but is, in my view, already past the point of no return.
So this is how the story evolves from now on: The more the western voter pitchfork-holding lemmings persecute productive people, in the hopes of one day enslaving them, the more the mixture of productive rich to crony rich will tilt towards the latter, as the former go Laffer. The resulting higher residual correlation between wealth and corruption will, in turn, trigger even more –ever more justifiable now – hatred, and even more spiteful pitchfork waving at the next election – thus deepening the irreversible cycle of decline. This is why the predominant feeling in Greece today is a sense of corruption. There is no exit from such a situation and the US is firmly on its way to the European scenario. Only hitting bottom and eventual regeneration. But we’re still long ways from that in electoral time, though we are very close on a historical time scale. So enjoy your decline…
The increasing number of crony rich – enabled by the very regulation, redistribution and central planning the pitchforkers will vote for — become the moral justification for the pitchfork yielding masses to throw away the baby with the bathwater and embark into ever deepening cycles of regulation, redistribution, central planning and resulting misery. Things get worse…
In a nutshell, the principle remains the same:
There just aren’t enough productive people that can be either convinced, tricked or coerced into producing for distant unknowns – at least not enough to build a competitive society, one that grows at a rate on par with the world average, one that will avoid the arithmetically certain decline of compounding subpar annual growth rates — no matter how much we try to indoctrinate our young with mandatory collectivism. Going down this route the western world voter lemmings are doomed. Domed to uniform, centrally planned homogeneous collective decline.
If you remove yourself from the short term fractal behavior of complex systems – such as an economy – and the predictable spasmodic screams, and insufficient actions, of a minority being dragged down the vortex (the tea party), you see the relentlessly compounding western world trendline: Decline.
The newly awakening three billion people emerging world juggernaut, has neither the desire nor the patience to wait and see how the western world’s experiment with the flat effort/reward curves of socialism ends. They already know — they have already experienced the outcome.
this video stops at about 2 mins 55 seconds and you cannot listen to rest of it???????
Birds of a feather flock together. Marxists are Marxists wherever they live – the EU or the US