Obama’s HIRE Act is really the “FIRE Act”
Buried in an ostensible jobs bill signed by President Obama last year is a little-noticed job-destroying government regulation that threatens to trigger a massive outflow of capital from the American economy. – AT
By Peter W. Dunn at American Thinker
EXCERPTS:
Now the HIRE Act of 2010 contains a time bomb called FATCA (Foreign Account Tax Compliance Act), which has indeed accelerated a process. Unfortunately that process is not job-generation, but job-destruction caused by an exodus of capital from the United States. Investment means jobs; a departure of investment capital means job losses. Thus, the HIRE Act is really the “FIRE Act.”
FATCA (Foreign Account Tax Compliance Act) is the brood of FBAR (Foreign Bank Account Report). FBAR requires that U.S. persons divulge foreign accounts to the Treasury Department, but few knew about or ever complied with it (see “When Government turns Predator“). To stanch the bleeding of U.S. capital into secret bank jurisdictions like the Cayman Islands and Switzerland, Congress introduced FATCA into law as part of the HIRE Act. FATCA requires that foreign financial institutions (FFIs) reveal the accounts of U.S. persons to the IRS. The FFIs will then have to collect tax withholdings for the IRS from these clients. If by January 1, 2014 the FFI is unwilling to reveal its U.S. clients’ accounts, the IRS will impose a punitive 30% withholding on all payments to the FFIs, on dividends, interest, and gross sales of stocks, bonds, and financial derivatives.
Let’s suppose that a foreign investor trades stocks on a U.S. exchange, but his broker is FATCA non-compliant. One day he buys 10,000 shares of XYZ at $25 per share, and the next day, he takes advantage of a nice uptick of $1.00 in XYZ and sells at $26 per share. He makes a tidy profit of $10,000. But because his broker is non-compliant, the IRS now withholds 30% — not of the profit, but of the gross proceeds of the sale! So the client now receives the sum of $260,000 minus 30%. The foreign investor is unhappy because his $250,000 investment has become $182,000. If he wants his money back, he must file a U.S. tax return.
No investor would accept such conditions. Hence, an FFI must either comply with the invasive regulations of FATCA or simply abandon the U.S. markets.
FULL ARTICLE
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