(Original Post)
November 08, 2011|By Mark K. Matthews, Washington Bureau
WASHINGTON — In a rare show of solidarity, all 27 members of Congress from Florida — 20 Republicans and seven Democrats — have united against a plan proposed by the Internal Revenue Service to collect details about foreigners who secretly deposit money in U.S banks.
Why unanimity on such an arcane topic? It's about $100billion that they fear may leave Florida — and the country.
That's the top estimate of how much foreign cash has been deposited in Florida banks — nearly $1 of every $4 held by these institutions. And if the IRS regulation prompts mass withdrawals, bankers say, that will affect banks' abilities to make loans to Floridians.
[The IRS rule] will put Americans out of work and it will force dollars out of U.S. financial institutions and into foreign financial institutions," said a letter signed by all 25 Florida House members earlier this year.
Added U.S. Rep. Bill Posey, a leader in the fight: "I can't think of any benefit we would get from this regulation."
The Rockledge Republican wants to maintain the status quo, which allows foreigners to deposit cash in U.S banks without disclosing their names or paying taxes on the interest.
But administration officials and their supporters say that some of these depositors — no one knows how many — use the U.S. as a tax haven, much as tax evaders used secret Swiss bank accounts that in recent years have been opened up because of international pressure. If the new rule takes effect, they argue, the only losers will be bankers who cater to tax evaders.
"Only people who are really cheating — those are the only ones who would lose their money," said Rebecca Wilkins of Citizens for Tax Justice, a left-leaning watchdog group.
Posey and U.S. Sen. Marco Rubio, R-Fla., have filed bills to block the IRS rule — although neither measure has advanced far. (U.S. Sen. Bill Nelson, D-Fla., is a co-sponsor of the Rubio bill.)
Meanwhile, the IRS could finalize the rule at any time, according to congressional and industry sources; the IRS did not respond to questions about when that may happen.
The Treasury Department has argued in letters to Congress that knowing more about foreign deposits in U.S. banks would enable Washington to trade information with other countries, which would help the agency to hunt down U.S. tax cheats costing the U.S. as much as $100billion a year.
"A jurisdiction's willingness to share information with the United States to combat offshore tax evasion depends on our willingness and ability to reciprocate and exchange information," wrote Michael Mundaca, a top Treasury Department official no longer with the agency, in March.
But Posey and others counter that any money gained from catching U.S. tax evaders would pale next to the potential flight of foreign deposits from American banks. That's particularly true in Florida, given the state's close ties to Latin America and South America.
Alex Sanchez, president of the Florida Bankers Association, estimated the state's banks hold $60billion to $100billion in foreign deposits, out of total deposits of about $412billion.
"They [foreign deposits] are scattered across the state but mostly centered in Miami, South Florida and Central Florida," said Sanchez, noting that the loss of even some of this money could cause a crisis for banks.
"The percentages [of foreign deposits] in some of our banks is up to 40[percent] to 50percent," he said.
How much of this money actually would leave the country, however, is unknown.
Administration officials have stated the impact would be minimal.
"The Treasury Department certainly has every interest in protecting the U.S. economy from harm. We have looked very carefully at the available data and are comfortable that the proposed regulations will not result in that outcome [a flight of foreign deposits]," Mundaca wrote.
And Sanchez acknowledges he has seen few skittish foreigners transfer their accounts since the rule change was proposed in January.
But he argues that the flight of even a few billion dollars would harm the state's still-slumping economy.
"As the health of banks go, so goes the economy," he said.
What complicates the debate is that little is known about these foreign depositors — including how much money they have in U.S. banks.
The Treasury Department estimates that foreign individuals and corporations have deposited about $460billion in the United States. But because the new rule would cover only individuals — not corporations — they note any potential fallout would affect only a fraction of that amount.
Florida opponents of the rule contend the state's foreign depositors often are rich or middle-class citizens from Latin or South America who want to put their money somewhere safe — away from either corrupt regimes or criminals who would kidnap them for ransom if they knew of their wealth.
"Kidnappings are a real way of life in most of these countries," said Simon Cruz, CEO of Intercredit Bank in Miami, who said his bank's foreign deposits were "substantial."
Supporters of the rule say those totals — and names — should be known to the government.
"The U.S. has no real idea of which foreigners are investing in the U.S. and how much they are investing," said Heather Lowe of Global Financial Integrity, a Washington-based group that supports tighter rules to stop the illegal flow of money.
"That should strike any American, who does have to provide [this] information to the IRS, as a little bit odd," she said.
mkmatthews@tribune.com or 202-824-8222