Imagine a coming wave of human and financial disasters: Kidnappings in Latin America. Bank failures in Florida. Millions of jobs lost across the United States.
What could cause such chaos?
According to American bankers and their allies, a little-noticed proposed change in U.S. tax regulations.
These critics were out in force Wednesday at a public hearing in Washington, speaking against an Internal Revenue Service plan that would require U.S. banks to report the interest paid to foreign nationals with deposits. Bank industry groups told IRS officials that the proposal could drive capital out of the country, put banks at risk and leave well-off Latin Americans at the mercy of criminal thugs and corrupt politicians.
Supporters of the IRS proposal to help other countries crack down on tax cheats said these dire predictions are overblown.
Rebecca Wilkins, an attorney with Citizens for Tax Justice, said U.S. banks are using scare tactics to prop up a regime of financial secrecy that allows tax evaders and money launderers to thrive.
There is no evidence that there will be a wholesale flight of capital if the rule is approved, she said. The only people who will pull their money out of American banks will be tax evaders, she said.
“Those who oppose this regulation are those who favor tax evasion,” Wilkins said.
Wilkins spoke on behalf of the Financial Accountability & Corporate Transparency Coalition, which describes itself as a network of small business, consumer, grass-roots, financial policy, faith-based, labor and government accountability organizations.
As iWatch News has reported, the United States is a major tax haven for affluent Latin Americans even as the IRS fights to stop American taxpayers from hiding money in Swiss banks and other offshore destinations. Robert Goulder, editor-in-chief of U.S.-based Tax Notes International, calls the United States “the biggest tax haven in the world.”
American banks deny they help foreign nationals evade taxes in their home countries.
Under U.S. law, foreign nationals living outside the United States who deposit money in American banks don’t have to pay U.S. taxes, and the deposits and interest generally don’t have to be reported.
The current controversy over the issue began in January, when the IRS revived a 2001 plan that would require U.S. banks to report interest paid to foreign nationals. The earlier proposal, which drew widespread condemnation by bankers and politicians, was eventually watered down to apply only to Canadians.
The opposition from bankers and lawmakers is just as intense this time around. All 25 members of Florida’s U.S. House delegation have written President Barack Obama to ask him to kill the proposal.
At the Wednesday hearing, opponents invoked both economic concerns at home and human rights worries abroad.
Thomas Cardwell, Florida’s commissioner of financial regulation, said that if the rule is approved, it’s “a real possibility” that some Florida banks could lose half their foreign deposits. Institutions with a high percentage of foreign deposits, he said, could face liquidity crises and, possibly, failure.
Grisel Vega, a board director of the Florida International Bankers Association, said that many Latin American nations are “global hot spots for kidnapping and ransom,” and Latin Americans fear they could become targets if information about their U.S. bank accounts is shared among tax authorities.
Wilkins of the Tax Justice Network said such fears are unfounded. Terrorists, drug dealers and kidnappers “already know who the wealthy people are” in their countries, she said.
IRS officials at the meeting gave no indication of the agency’s timetable or how it will proceed with the proposed rule. The agency received more than 60 letters and emails before the public comment period closed on April 7. Federal regulators typically spend weeks or months reviewing comments before deciding whether to finalize a proposed rule.
Elise J. Bean, chief counsel of the Senate Permanent Subcommittee on Investigations, added that the IRS already has extensive experience sharing information with other countries. The agency has procedures in place to make sure it doesn’t share data with foreign governments that might misuse the information, she said.
Speaking at the hearing on behalf of Sen. Carl Levin, a Michigan Democrat who has spent years investigating offshore tax havens, Bean said Levin “strongly supports” the new information-reporting proposal. Levin would like to see the rule strengthened, she said, so that it also applies to foreign shell corporations that could be used by foreign nationals and by American citizens to hide their money from tax authorities.