A Conflict of Interest

August 5th, 2011

A few weeks ago, U.S. Representative Gregory Meeks (D-NY) and Rep. Bill Posey (R-FL), introduced a bill aimed at demolishing the Internal Revenue Service’s plan to discourage money launderers and terrorists from hiding money in the United States.

The IRS plan would require American banks to report interest paid to foreign citizens who live outside the United States and who have deposits in U.S. banks. This new requirement would actually put foreigners on level footing with U.S. permanent residents, who under current law, must report their bank deposits to the IRS and pay taxes on the interest they earn. I do this every year. If you’re an American, you probably do, too. Foreigners who don’t live in the United States, however, don’t have to report their U.S. bank deposits to the IRS. As Senator Carl Levin has put it: “Foreign account holders should be treated the same as – not better than – U.S. citizens.”

Meeks and Posey, however, are adamant that foreigners should not lose their special status in the eyes of the IRS. Their bill would block the IRS from following through with its efforts (which, by the way, would only require foreigners to report these deposits, it has nothing to do with paying American tax).

As Heather Lowe, Global Financial Integrity’s Legal Counsel and Director of Government Affairs, has noted:

It is absurd that banks are required to report account information for U.S. citizens and legal residents to the U.S. government, but not information on the U.S. accounts owned by people who aren’t living here. In addition to posing multiple national security risks, this lack of reporting hampers the U.S. government’s ability to comply with our international tax treaty obligations and makes it even more difficult for law enforcements to keep the proceeds of international drug trafficking, money laundering, corruption, terrorist financing and other crimes out of the U.S.

This all raises one obvious question: why? Why would two U.S. Representatives attempt to weaken the power of the IRS in the best interest of foreigners? Senator Levin believes “It’s a mystery…why any member of Congress would try to protect the anonymity of foreign bank account holders.”

Rep. Meeks claims his reasoning is to help the American economy. In a statement he professed: “At a time when our economy is experiencing a nascent recovery, the last thing we want to do is discourage foreign investment in the United States.” But this line of reasoning is bizarre; the numbers simply do not support it. as Rebecca Wilkins, Senior Counsel for Federal Tax Policy at Citizens for Tax Justice, noted in her May testimony at an IRS hearing on the issue:

The claims of dire economic consequences are completely unfounded. There is no foundation that billions of dollars of deposits will leave the U.S. if these rules take effect. It’s estimated that foreigners have invested roughly $10 trillion in the U.S. economy. Only $4 trillion of that is in banks. Three-fourths of that is in the name of foreign governments, international and regional organizations, foreign banks and foreign government officials. Of the less than $1 trillion left, only the amounts held in the names of individuals are subject to this rule and I believe that only those people who are evading tax will move their money as a result of this regulation.

So then what could it be? Here’s an idea. According to Open Secrets, Representative Meeks was of received at least $85,000 from financial and credit companies for his reelection campaign in 2010, making him the House’s second largest recipient of campaign funds from these institutions. Moreover, he received at least $576,000 from finance, insurance and real estate interests; more than half of his total political contributions during the period. Posey, similarly, earned $251,000 from this sector.

That seems to settle that little mystery right up.

So just so we’re clear. Meeks and Posey, two officials elected to represent the interests of U.S. citizens, have introduced a bill that represents the interests of foreign money launderers, tax evaders, terrorist financers, and, perhaps, big banks. If I were a constituent of one of these districts, I would take a long, hard look at my representative in Washington and ask: who is this man and whose interests does he really have at heart?

Written by Ann Hollingshead

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