Yesterday’s message looked at how US debt and deficit spending is forcing a weakness in the US dollar’s strength.
In a moment we’ll see how this has the potential to more than double investment with ownership of this view.
First let’s see why the rumor floating around about capital controls on overseas bank accounts is not true.
Government debt and the continual government overspending are problems globally. This runaway expenditure creates uncertainty in the global economy.
However there is one economic fact that we can see… the solution. Most governments will need some combination of tax increases and spending cuts. We can expect taxes to go up.
That is the legacy of an era of abusive government spending led by the USA’s trillion-dollar deficits. Erasing them will be one of the great political issues of the coming decade.
Expect government programs everywhere to become less generous and to increase their tax enforcement.
We can see this in Greece right now. For example, the retirement age is being raised from 58 to 65. Quite a jump… but reasonable… unless you are a 57 year old Greek who has been expecting to retire.
We can see other European governments preparing.
An excerpt from a recent Reuters article, “European states keep Swiss bank secrecy under siege” by Jason Rhodes and Ben Berkowitz
article shows how: European states lined up behind German Chancellor Angela Merkel to expose tax cheats in a combined assault on the Swiss banking secrecy laws that help protect them.
German Finance Minister Wolfgang Schaeuble sent shivers through the large Swiss private banking industry this week when he said Berlin was prepared to pay for stolen data belonging to potential tax cheats at a Swiss bank, raising the bar in the fight against tax evasion.
Now, the Dutch, Belgian and Austrian governments have also flagged interest in obtaining a copy of a compact disc with tax-sensitive data that Berlin may soon buy from an informant.
Swiss Finance Minister Hans-Rudolf Merz said on Wednesday the Swiss would not help Germany or others hunt tax cheats on the basis of stolen Swiss bank data, but tried to defuse the escalating row by saying Berne would not retaliate.
“It is obvious that such a theft is a criminal act,” Merz said. “Switzerland should therefore not offer administrative (tax) assistance in such cases either now or in future.”
But he added that Switzerland would continue to engage in talks aimed at signing a new treaty with Germany.
Nearly $6 trillion of wealth is managed in Switzerland, with potentially almost one-third of it undeclared, analysts have said. Bankers fear the latest set of attacks could undermine the country’s entire private banking model.
Several European governments have tried to lure back some of the money hidden in tax havens by launching tax amnesties.
Wealthy Dutch savers last year declared 2.15 billion euros ($3.01 billion) under a penalty-free amnesty, with a third of the declared accounts hidden in Switzerland.
Britain has also targeted wealthy residents with hidden offshore money via a so-called voluntary disclosure program.
The most successful amnesty so far has been a Italian one, which recouped nearly 100 billion euros in three months, most of it hidden in the Italian-speaking Swiss canton of Ticino.
France and Germany, on the other hand, have not launched amnesties but have accepted stolen bank data from informants.
We can see the US preparing to increase tax enforcement.
One of the recent economic stimulus packages, Hiring Incentives to Restore Employment Act, contains a section that tightens the ability of the IRS to see overseas assets. Some writers misunderstood and thought this created capital controls that could even hinder buying real estate abroad.
I started receiving notes like this from readers:
Gary, Is this for real? If so, how will this affect international real estate purchases? Look at what this newsletter has written!
“Americans’ ability to move their money across international borders may become restricted thanks to new legislation passed last week. Buried within Obama’s recent $17.5 billion “H.I.R.E.” Hiring Incentives to Restore Employment Act (H.R. 2487) is a new U.S. Federal restriction on any foreign holdings which exceed the meager amount of $50,000 and leaves the door open for a new 30% transaction or ‘holdings’ tax to be enforced by the IRS. The new law amounts to an unprecedented extension of the US Government into the global sphere.”
Here is the reply I have been sending:
We are researching this now but I believe, as is often the case, some people make a mountain out of a molehill.
In this instance the mountain was formed over a decade ago. A law has been in place for years requiring overseas banks to collect data on US shareholders and submitting that data to IRS and collect 30% withholding of capital under certain circumstances.
This is why most overseas banks will not accept accounts for US investors.
Every bank, if they deal in US dollars is vulnerable in New York. If a bank accepts a US investor and breaks the law the US simply attacks their US assets and or arrests their employees when they enter the US.
For years overseas banks have been required to issue W9s for US clients.
See articles in our archives that were written about this law clear back in 2001 and 2002 when we accurately predicted what would happen to banking for Americans abroad at http://www.garyascott.com/2002/01/18/789.html and http://www.garyascott.com/2001/01/03/1514.html and http://www.garyascott.com/2001/12/16/763.html and http://www.garyascott.com/2001/02/16/164.html
US legislation as for bank privacy is concerned has been all wrapped up for years. Any changes now are just frosting on the cake. Very few major banks will offer a US resident a bank account. Many banks have made all their US customers, even those who are resident abroad close their accounts.
Any new legislation now is just frosting on the cake and this is slightly confusing to me as I cannot see what this ads to existing legislation except a bot fo clarification of the old existing laws. The new regs appear to be aimed at transparency… not control of asset held abroad.
We have tax attorneys researching this now and here he has said so far.
“Gary: I have only the first read also. Looks like a stronger language enforcement of what is already there. The 30% withholding, my first take, is on US investments, US stocks and the like.
“I am waiting for some legal publications to state more accurately than the press. The new statutes do want offshore banks to disclose US customers. I cannot pick up on how that is to be enforced, especially banks with no US connections. So, still waiting for more info but this is definitely not capital controls. Total transparency of what and where your assets are is what they always have been and remain after.”
Now it appears that others who have written about this new regulation are recanting. Several readers have shared this note they received:
Capital Controls Revisited
Yesterday we ran a story published over that made the claim that capital controls are now here and fully enforced by the law. After further review, however, it appears that claim is inaccurate. The HIRE act is not about capital controls, it’s really about enforcing IRS rules. One can still legally have money in offshore accounts as long as the financial institution and the individual report it to the IRS.
The fact is that the HIRE act now signed into law makes it very costly for financial institutions not to report accounts and transactions to the IRS, and it gives the U.S. authorities ways to better enforce the requirements for U.S. citizens to report all bank and financial accounts they hold outside of the U.S. And financial institutions that do not cooperate will now see increased pressures from the U.S. government.
The law also closes a loophole that existed when a country’s banking secrecy laws (think Switzerland) did not permit foreign institutions
to turn in info about U.S. citizens to the U.S. government; it now requires that these financial institutions close these accounts or
face penalties from the U.S. government.
Consequences of this last round of tightening are:
1) More foreign financial institutions will decide to stop doing business with U.S. citizens and businesses. And it will become increasingly more difficult for Americans to open foreign bank and brokerage accounts.
2) Once the U.S. government actually decides to implement capital controls, it will have already collected all the information needed to possibly force repatriation of capital held by U.S. citizens in foreign financial accounts (this could be the next step but it would be much harder to implement).
So, let’s recap. Capital controls are in fact not yet here, but the pressure is on and the HIRE act is another step to restrict the economic freedom of Americans.
I agree! It will be harder now for Americans to bank abroad.
Government debt and the continual government overspending are problems globally. This runaway expenditure will lead to tax increases, spending cuts and greater tax enforcement. Prepare for this now!
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Join us in North Carolina this June to learn more about how to bank abroad. June 24-27 International Investing and Business North Carolina
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April 26-27 Cuenca Real Estate Tour
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Here is the balance of our 2010 schedule.
June 28-29 Ecuador Travel & Andes
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2010 Summer Schedule
July 3-4 Coastal Real Estate Tour
July 6-7 Quito Real Estate Tour
July 9-10 Cuenca Real Estate Tour
Sept. 3-6 Ecuador Export Tour
Sept. 8-9 Imbabura Real Estate Tour
Sept. 11-12 Coastal Real Estate Tour
Sept. 14-15 Cuenca Real Estate Tour
Sept. 17-18 Ecuador Shamanic Mingo
Oct. 7 Quantum Wealth North Carolina
Oct. 8-10 International Investing & Business North Carolina
Oct. 11-12 Travel to Quito and Andean Tour
Oct. 13-14 Imbabura Real Estate Tour
Oct. 16-17 Coastal Real Estate Tour
Oct. 19-20 Quito Real Estate Tour
Oct. 22-23 Cuenca Real Estate Tour
Nov. 4-7 Super Thinking + Spanish Course Florida
Nov. 8-9 Travel to Quito and Andean Tour
Nov. 10-11 Imbabura Real Estate Tour
Nov. 13-14 Coastal Real Estate Tour
Nov. 16-17 Quito Real Estate
Nov. 19-20 Cuenca Real Estate Tour
Dec. 3-5 Ecuador Shamanic Mingo
Dec. 7-8 Imbabura Real Estate Tour
Dec. 10-11 Coastal Real Estate Tour
Dec. 13-14 Quito Real Estate Tour
Dec. 16-17 Cuenca Real Estate Tour