Excerpt from Ike Brannon and Sam Batkins | To be featured January 23, 2012 | Weeklystandard.com |
The costliest regulation you’ve never heard of.
There are a number of pricey regulations that have received attention of late: net neutrality, new ozone standards, countless regulations stemming from the passage of the Dodd-Frank bill. These rules typically garner a mention in the Wall Street Journal, a formal Office of Information and Regulatory Affairs (OIRA) review, and, in some cases, a lengthy Regulatory Impact Analysis.
However, the costliest proposed regulation to come down the pike in some time has nearly escaped detection. 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.
The notion that banks should report the interest paid on accounts held by nonresident aliens is not a new one: The Bush administration proposed this rule in 2002 for residents of 15 European nations in order to help our allies deter tax fraud, and with the hope that they might do the same for us. Foreigners have never paid U.S. taxes on interest earned in U.S. banks and would continue being exempt under the proposed rule; the sole requirement would be that banks report the interest paid to these account-holders to the IRS.
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