House Hearing on Non-Resident Alien Deposits Regulation
October 27th, 2011
October 27th, 2011
Today, the House Subcommittee on Financial Institutions and Consumer Credit held a hearing on a proposed IRS regulation which would allow the IRS to track the deposits of non-resident aliens in the United States. The United States functions as a tax haven for many non-resident aliens, as the IRS is unable to determine how much money is hidden in US banks. The IRS is seeking the regulation as part of a global effort to increase tax information exchange, and eventually collect revenue from more US tax evaders. Video is available here.
Here’s how it all works. The IRS collects information on all interest payments paid by banks to depositors from residents in the United States, and uses this information to tax the depositors. However, the United States does not tax non-resident aliens, so that information is not collected. These non-resident aliens have about $4 trillion in deposits. The IRS would collect that information, and share it with countries which have tax information exchange agreements with the United States. We already do this for Canadian citizens, but not others.
Opponents of the regulation, including three of the four witnesses present at the hearing today, argue that it will cause large amounts of capital to flee the United States. Rebecca Wilkins, the only witness present to testify in favor of the regulation, correctly replied (repeatedly) that although there are $4 trillion in NRA deposits n the United States, roughly 3/4 of that sum belongs to institutions, such as banks, and would not be at risk of fleeing the country. Of the remaining $1 trillion, she pointed out that only a very small fraction of that would flee the country due to the new regulation.
This is where things got real bizarre. Ms. Wilkins pointed out the obvious: that the only depositors who would flee the country because the IRS has information on their depositors are those who don’t want the IRS to know how much money they have stashed away in bank accounts. One can imagine that this is consequential for tax evaders and all sorts of organized crime such as drug cartels, human traffickers, and arms dealers. Their money, a tiny fraction of the overall deposits, would move offshore. Ms. Wilkins said, “Make no mistake, the United States is a tax haven for citizens of other countries.”
The three majority witnesses, and many friendly representatives, flatly denied this. They claimed that this information would encourage kidnapping of wealthy Latin American depositors (even though the IRS doesn’t exactly publish this information on Facebook), cause “Half a trillion dollars” to flee the country, and all sorts of other harms. Ms. Wilkins was accused by Representative Posey of Florida of advocating for the interests of “Venezuela, Cuba, and eventually North Korea and Iran.”
It wasn’t always a pretty hearing, but its an important issue for anyone who cares about cracking down on global tax evasion. The new IRS regulation would be a significant step toward ending the United States’ status as a tax haven. I highly recommend reading Rebecca Wilkins’ testimony, and watching the video linked to above.