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Keeping Money in U.S. Banks (H.R. 2568)

Washington, October 6, 2011 - Congressman Posey filed bipartisan legislation (H.R. 2568) to prevent the flight of billions of dollars in foreign bank deposits from U.S. banks. The IRS recently proposed overturning a nearly 100 year old policy, without direction from Congress, with a regulation requiring all U.S. banks to report annually on the amount of interest paid to non-resident alien individual deposits. By law, these non-resident aliens do not pay taxes on this interest, and the rule creates legitimate concerns that once personal bank account information is collected it could be shared with countries with less scrupulous government agencies. Posey's bill would block the implementation of this new requirement. A bipartisan coalition in Congress rejected the rule back in 2001. Florida Senator Marco Rubio has introduced a bipartisan Senate companion to H.R. 2568.

More: This new IRS regulation would result in tens of billions of dollars being withdrawn from U.S. banks and moved overseas. The Administration’s proposed rule will require banks to report interest from all non-resident alien deposits to the IRS. These deposits are not subject to taxation and it has been a long standing U.S. policy (90 years) to encourage foreign investment by not taxing this interest. The reporting would not be for taxing purposes, but rather just to collect the information at the IRS with the potential to share it with other countries. If the IRS implements this regulation it is likely that many of these foreign deposits will leave U.S. financial institutions.

According to the Florida Office of Financial Regulation, the state agency that regulates state charted financial institutions; there is a total of $16 billion deposited in state chartered institutions alone. These institutions make up 15% of all Florida banks. Foreign deposits can be concentrated in some of these institutions and it’s possible that as many as 2 to 3 dozen state chartered institutions could be exposed to liquidity issues should this proposed IRS regulation go into effect. The result could be as much as half of all foreign deposits in these institutions leaving.

Furthermore, every dollar in these financial institutions turns over roughly 7 to 9 times. So for every billion dollars that’s withdrawn from Florida banks, it could result in a $7 to $9 billion hit in economic activity in the State of Florida. If you assume that 40% of deposits leave the U.S. because of the implementation of this policy – that’s a $50 billion hit to Florida’s economy.

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