By Senator Marco Rubio and Representative Bill Posey
Last year, the Treasury Department proposed a new IRS mandate that will have disastrous consequences for Florida unless it is stopped from taking effect.
For more than 90 years, Congress has encouraged foreigners to invest their money in U.S. banks by exempting these deposits from taxes and reporting. This policy has led to hundreds of billions of foreign deposits in U.S. banks, particularly in Florida, creating good-paying jobs and credit for communities and small businesses. In fact, each $1 deposit results in $7 to $9 in sorely-needed economic activity.
Maintaining policies that encourage investment in our economy seems like a no-brainer at a time when unemployment is approximately 10 percent in Florida. Yet without consulting Congress, the administration is pushing a new mandate that would crush our pro-investment climate and cause billions of dollars to flee Florida's economy.
As anyone with a bank account knows, deposits are easily transferrable, and any adverse development can result in wholesale capital flight. This is precisely what will happen if banks are required to report to the IRS interest earned by foreign investors. A study looking at a narrower proposal from 2002 estimated that at least $88 billion in capital would have left the United States for other nations. The latest proposal, far larger in scope, would be much more damaging to our economy.
Florida, already hard hit by the economic downturn, would be particularly affected given its extensive ties to the Caribbean and Latin America. There are an estimated $14 billion in foreign deposits in Florida's state chartered banks, and much more in federally-chartered institutions. These funds are critical to our economy.
Unfortunately, our state could lose tens of billions of dollars in foreign deposits if the IRS regulation takes effect. For some banks in Florida, these deposits represent as much as 90 percent of their capital, and even a small withdrawal could result in bank failures and more bailouts by struggling American taxpayers.
Another compelling reason to scrap the IRS's mandate is that the release of sensitive financial information to foreign governments like Venezuela would put individuals and their families at risk of political persecution, criminal harm, extortion and kidnapping. Even the thought of such a risk would be enough to motivate many to transfer their money out of the American economy and to countries like Hong Kong or Singapore where the U.S. has little or no oversight.
When another less-onerous regulation requiring the reporting of foreign deposit interest was proposed in 2001, it was opposed by a bipartisan coalition of more than 100 members of Congress and was quickly withdrawn. Given that our economy is in a far worse state today, the case for shelving this pointless mandate is even more compelling.
To protect Florida's economy, we have introduced bipartisan legislation in both the House of Representatives and the Senate to stop this rule. Our legislation enjoys support from groups like the Florida Bankers Association, U.S. Chamber of Commerce, the National Taxpayers Union, as well as member-owned credit unions and community-owned banks across the country. Importantly, every single member of the Florida delegation -- from Reps. Allen West to Debbie Wasserman Schultz -- publicly opposes the IRS's ill-advised mandate.
As the economy struggles, Congress and the administration should take steps to increase economic growth and encourage investment in our economy. It can start by withdrawing its proposed rule related to foreign deposits in our economy, which will cause our economy to hemorrhage billions of dollars with literally no benefit to American taxpayers or our distressed economy.
Sen. Marco Rubio of Miami was elected to the U.S. Senate in 2010. U.S. Rep. Bill Posey of Rockledge represents the 15th District of Florida. Both are Republicans.