April 20, 2010
The New Front in the War on Wealth
By Steve McCann
With the current and projected level of unsustainable spending and the determination to control the day-to-day activities of the American people, the Obama administration and the Democrats in Congress will do anything to expand revenue to the Treasury, the consequences (unintended or otherwise) be damned.
The United States under the current governing regime continues to move toward a powerful central government. As a step in that direction, the Congress and the White House recently granted the Internal Revenue Service more police power to not only collect taxes, but within that process, to negate the legal rights of the people to petition the courts and to control the behavior of American and non-American taxpayers.
On March 18, 2010, President Obama signed yet another stimulus act ($17.5 billion) using the innocuous-sounding title of the Hiring Incentives to Restore Employment Act (cynically abbreviated to H.I.R.E.). This bill was touted as another step in helping job creation. In reality, it does the opposite.
Hidden within the bowels (page 27) of this so-called jobs legislation is an unreported (in the once-mainstream media) provision known as Foreign Account Tax Compliance. Apparently, the congressional leadership did not want attention focused on this as a standalone bill, so it was hidden within a much more popular-sounding jobs bill. The justification for passing this provision was ostensibly to crack down on so-called tax evaders.
In summary, this bill requires that foreign banks and financial institutions disclose the full details of American account-holders to the IRS -- and to withhold 30% of all outgoing capital flows into those accounts if the IRS (not the courts) deems the account-holder "recalcitrant." These requirements would also apply to non-American citizens living in the United States or to foreigners having investments and paying taxes within the country.
If these stipulations are deemed illegal by a given foreign nation's domestic laws, then the financial institution and the account-holder are required to close the account.
The end result of this action, if allowed to stand, will be to force banks and other foreign financial institutions to stop doing business within the United States, and further, make the country much less attractive to foreign investors, who will now come under the heavy hand of the IRS.
Per the Swiss Bankers Association, "These measures could have a boomerang effect and will make the US less attractive for foreign investors."
And per the Swiss-American Chamber of Commerce, "A lot of banks simply will not be able to do business in the US and that would cause considerable damage to the US economy."
Not only banks, but the activities of asset-managers and securities-dealers will be affected. The administrative cost of tracking down all U.S. (citizen and non-citizen) clients and making efforts to make sure that they are tax-compliant will be enormous and impractical.
Therefore, foreign investors viewing the overall landscape of what was once the preeminent nation for investment will not subject themselves to the machinations of the IRS and other enforcement agencies, which have been given unlimited power to broadly interpret regulatory bills passed by this Congress and signed by President Obama.
The IRS, through its police power, can now involve itself in the ability of U.S. citizens to choose where and how they can invest their money or have bank accounts.
Actions such as this will result in minimal long-term domestic and foreign capital investment in new ventures or expansion of existing businesses in the United States. The country is experiencing a recovery, but one limited to financial intuitions and Wall Street (underwritten by the taxpayer). The current stock market rebound reflects a surge in cash investment before massive income and capital gains tax increases begin in 2011. However, with actions such as the Foreign Account Tax Compliance provision, job creation so vital to the nation's economic health will not occur.
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