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Archive for March 28th, 2010
It's Official – America Now Enforces Capital Controls
March 28th, 2010 | 
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It’s Official – America Now Enforces Capital Controls
Submitted by Tyler Durden
t couldn’t have happened to a nicer country. On March 18, with very little pomp and circumstance, president Obama passed the most recent stimulus act, the $17.5 billion Hiring Incentives to Restore Employment Act (H.R. 2487), brilliantly goalseeked by the administration’s millionaire cronies to abbreviate as HIRE. As it was merely the latest in an endless stream of acts destined to expand the government payroll to infinity, nobody cared about it, or actually read it. Because if anyone had read it, the act would have been known as the Capital Controls Act, as one of the lesser, but infinitely more important provisions on page 27, known as Offset Provisions – Subtitle A—Foreign Account Tax Compliance, institutes just that. In brief, the Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS. And should this provision be deemed illegal by a given foreign nation’s domestic laws (think Switzerland), well the foreign financial institution is required to close the account. It’s the law. If you thought you could move your capital to the non-sequestration safety of non-US financial institutions, sorry you lose – the law now says so. Capital Controls are now here and are now fully enforced by the law.
Let’s parse through the just passed law, which has been mentioned by exactly zero mainstream media outlets.
Here is the default new state of capital outflows:
(a) IN GENERAL.—The Internal Revenue Code of 1986 is amended by inserting after chapter 3 the following new chapter:
‘‘CHAPTER 4—TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS
‘‘Sec. 1471. Withholdable payments to foreign financial institutions.
‘‘Sec. 1472. Withholdable payments to other foreign entities.
‘‘Sec. 1473. Definitions.
‘‘Sec. 1474. Special rules.
‘‘SEC. 1471. WITHHOLDABLE PAYMENTS TO FOREIGN FINANCIAL INSTITUTIONS.‘‘(a) IN GENERAL.—In the case of any withholdable payment to a foreign financial institution which does not meet the requirements of subsection (b), the withholding agent with respect to such payment shall deduct and withhold from such payment a tax equal to 30 percent of the amount of such payment.
Clarifying who this law applies to:
‘‘(C) in the case of any United States account maintained by such institution, to report on an annual basis the information described in subsection (c) with respect to such account,
‘‘(D) to deduct and withhold a tax equal to 30 percent of—‘‘(i) any passthru payment which is made by such institution to a recalcitrant account holder or another foreign financial institution which does not meet the requirements of this subsection, and
‘‘(ii) in the case of any passthru payment which is made by such institution to a foreign financial institution which has in effect an election under paragraph (3) with respect to such payment, so much of such payment as is allocable to accounts held by recalcitrant account holders or foreign financial institutions which do not meet the requirements of this subsection.
What happens if this brand new law impinges and/or is in blatant contradiction with existing foreign laws?
‘‘(F) in any case in which any foreign law would (but for a waiver described in clause (i)) prevent the reporting of any information referred to in this subsection or subsection (c) with respect to any United States account maintained by such institution—
‘‘(i) to attempt to obtain a valid and effective waiver of such law from each holder of such account, and
‘‘(ii) if a waiver described in clause (i) is not obtained from each such holder within a reasonable period of time, to close such account.
Not only are capital flows now to be overseen and controlled by the government and the IRS, but holders of foreign accounts can kiss any semblance of privacy goodbye:
‘‘(c) INFORMATION REQUIRED TO BE REPORTED ON UNITED STATES ACCOUNTS.—
‘‘(1) IN GENERAL.—The agreement described in subsection (b) shall require the foreign financial institution to report the following with respect to each United States account maintained by such institution:
‘‘(A) The name, address, and TIN of each account holder which is a specified United States person and, in the case of any account holder which is a United States owned foreign entity, the name, address, and TIN of each substantial United States owner of such entity.
‘‘(B) The account number.
‘‘(C) The account balance or value (determined at such time and in such manner as the Secretary may provide).
‘‘(D) Except to the extent provided by the Secretary, the gross receipts and gross withdrawals or payments from the account (determined for such period and in such manner as the Secretary may provide).
The only exemption to the rule? If you hold the meager sum of $50,000 or less in foreign accounts.
‘‘(B) EXCEPTION FOR CERTAIN ACCOUNTS HELD BY INDIVIDUALS.—Unless the foreign financial institution elects to not have this subparagraph apply, such term shall not include any depository account maintained by such financial institution if—
‘‘(i) each holder of such account is a natural person,and
‘‘(ii) with respect to each holder of such account, the aggregate value of all depository accounts held (in whole or in part) by such holder and maintained by the same financial institution which maintains such account does not exceed $50,000.
And, while we are on the topic of definitions, here is how “financial account” is defined by the US:
‘‘(2) FINANCIAL ACCOUNT.—Except as otherwise provided by the Secretary, the term ‘financial account’ means, with respect to any financial institution—
‘‘(A) any depository account maintained by such financial institution,
‘‘(B) any custodial account maintained by such financial institution, and
‘‘(C) any equity or debt interest in such financial institution (other than interests which are regularly traded on an established securities market). Any equity or debt interest which constitutes a financial account under subparagraph (C) with respect to any financial institution shall be treated for purposes of this section as maintained by such financial institution.
In case you find you do not like to be subject to capital controls, you are now deemed a “Recalcitrant Account Holder.”
‘‘(6) RECALCITRANT ACCOUNT HOLDER.—The term ‘recalcitrant account holder’ means any account holder which—
‘‘(A) fails to comply with reasonable requests for the information referred to in subsection (b)(1)(A) or (c)(1)(A),
or ‘‘(B) fails to provide a waiver described in subsection (b)(1)(F) upon request.
But guess what – if you are a foreign Central Bank, or if the Secretary determined that you are “a low risk for tax evasion” (unlike the Secretary himself) you still can do whatever the hell you want:
‘‘(f) EXCEPTION FOR CERTAIN PAYMENTS.—Subsection (a) shall not apply to any payment to the extent that the beneficial owner
of such payment is—
‘‘(1) any foreign government, any political subdivision of a foreign government, or any wholly owned agency or instrumentality of any one or more of the foregoing,
‘‘(2) any international organization or any wholly owned agency or instrumentality thereof,
‘‘(3) any foreign central bank of issue, or
‘‘(4) any other class of persons identified by the Secretary for purposes of this subsection as posing a low risk of tax evasion.
One thing we are confused about is whether this law is a preamble, or already incorporates, the flow of non-cash assets, such as commodities, and, thus, gold. If an account transfers, via physical or paper delivery, gold from a domestic account to a foreign one, we are not sure if the language deems this a 30% taxable transaction, although preliminary discussions with lawyers indicates this is likely the case.
And so the noose on capital mobility tightens, as very soon the only option US citizens have when it comes to investing their money, will be in government mandated retirement annuities, which will likely be the next step in the capital control escalation, which will culminate with every single free dollar required to be reinvested into the US, likely in the form of purchasing US Treasury emissions such as Treasuries, TIPS and other worthless pieces of paper.
Congratulations bankrupt America – you are now one step closer to a thoroughly non-free market.
Posted in 
So The Government Doesn't Like Consequences?
So The Government Doesn’t Like Consequences?
Posted by Karl Denninger
I have written much about “Health Reform”; those of you who missed it can go back and read the entire set of posts in reverse-chronological order quite easily if you’d like.
Today, however, I want to focus on a point I made in a previous Ticker entitled “Why Health Reform Is Doomed To Fail“:
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We in America are forced to pay for all of the medical innovation in the world, as a direct and proximate consequence of the acts of the douchebags in Congress who have (1) banned reimportation of drugs and devices, and (2) exempted drug and device makers, along with insurance companies, from anti-trust laws that would otherwise make their conduct felonious in The United States.
We often lament how other nations “spend less but get equal or better care.” There is no magic and no secret as to how they do this. It doesn’t happen because these nations are more efficient, or have fewer middlemen.
It happens because our lawmakers have put in place a legal structure that allows health-care related companies to sell at below-market (and perhaps even below-all-in cost!) prices to other nations while barring the purchasers of those drugs and devices from selling them to whoever they want – specifically, those who live HERE!
If that was not the case then drug and device makers would face competition from these re-imported items and our prices would go down (a lot) while theirs would go up (a fair bit.) The drug and device makers, along with foreign governments who run socialized health systems, don’t like this – therefore they get our government to pass laws that make it illegal for the free market to address this distortion – and force Americans to eat the costs that should be borne by foreigners.
Nor does it stop there. Medicare and Medicaid allegedly (if you believe doctors, hospitals, and others) pay reimbursements that are below the cost of providing services. These firms and individuals thus cost-shift the part of that cost not covered to you, the privately-insured individual or corporation along with the uninsured. This would normally be illegal under anti-trust law too, but that has also been made legal by exemptions passed by this very same government.
Finally, if you have no insurance and no money, you will get emergency care anyway. An “emergency”, by the way, includes perfectly-foreseen emergencies – like giving birth. Even if you’re an illegal Mexican invader. Instead of the hospital sending that bill to The Federal Government which then pays it and forwards it to Mexico (since it was their citizen that incurred the expense), offsetting whatever we need to in order to secure payment, our government again makes lawful that which would otherwise not be – that is, you are forced through higher costs to you to pay for that illegal invader’s medical care.
One of the “cute tricks” passed with Medicare Part “D” (by George W. Bush) was a “tax credit” for corporations who provided health care to retirees from their firms. This too was a distortion – an intentional one put into that bill to “buy off” some key Reps and Senators to insure passage of Medicare Part “D” (the biggest boondoggle and scam in the history of the Republic – until President Obama signed this piece of crap legislation.)
But this legislation repeals that little ditty in the Medicare Part “D” law.
Remember, the Democrat talking points were that this bill would “lower your costs” and “make health care more affordable.” It was also called a “jobs bill” – that is, that this bill would create jobs.
Within hours corporations announced intent to recognize the repeal of this exemption – via 8Ks filed with the SEC. This was not a surprise – Caterpillar had warned the Administration, as had other firms, that the bill as written would increase their costs and that they would have to recognize those forward costs.
Securities laws require firms to disclose material changes when they are realized – which in this case means when the bill was signed into law, since they had already analyzed the bill and it’s impact. Legally, these companies are obligated to file the 8Ks disclosing these charges.
The Administration and Democrats generally ignored these folks when they warned of this impact before the bill was passed, of course, claiming they were part of some “Vast Right-Wing Conspiracy.” Oh wait – that was Clinton. Ok, ok, so Pelosi said she had to pass this bill so we could know what was in it. (And no, that’s not an exaggeration – she really did say that!)
Well, the corporations weren’t lying, and now the 8Ks are flying. Caterpillar has announced an intent to take a $100 million non-cash charge, John Deer $150 million, and AT&T a whopping $1 billion.
Government’s response?
Threats.
Perhaps Mr. Waxman and Mr. Stupak should have considered that so-called “independent analyses” citing changes in 2016 have next to nothing to do with the costs incurred now. You might have also noted the trajectory of stock prices in the health care sector and try to square that with the concept that costs to consumers and businesses would come down:
Price appears to be moving from the lower left to the upper right of this chart, implying improving profits for firms in the health care sector as a whole. Or you could look at insurers such as Wellpoint:
Mr. Waxman may not want to square what the market is saying about these charts, but it doesn’t matter what Mr. Waxman wants. What matters is what the market believes, which is that these firms will make more money, not less. That is, on balance they will siphon off more of Americans’ hard-earned money that will be retained in their pockets.
Nor does the damage stop with AT&T, Deere and Caterpillar. One of New Hampshire’s papers reported that the ski resorts in the state may have to pay as much as one billion in fines, because they hire a large number of seasonal workers without offering health benefits. Either these firms will have to increase prices or reduce costs, which means hiring fewer workers (and poorer service for customers.) Either way, this isn’t “helping the economy.”
Mr. Waxman cites “independent analysis” that claim no material change. They obviously didn’t talk to Towers Watson, a benefits consulting firm, that says the impact could be as much as a $14 billion loss in corporate profits. (I think they’re missing a zero over the next 20 years, but even so $14 billion isn’t zero – and it certainly isn’t a profit INCREASE.)
I said from the beginning that this bill would not decrease costs, it would dramatically raise them. That it was a bill that would ultimately result in an increase in taxes now, and that you’d get improved health care effectively never.
Unlike many on the other side of the debate, however, I also put forward an alternative that would have actually worked to decrease costs – by removing the ability to cost-shift and hide the true costs of procedures, drugs and devices. A simple four-point plan that would have exposed all costs, removed anti-trust exceptions, brought true competition, forced illegal invaders who avail themselves of our health care to either pay up or have their bill paid by the nation they are citizens of, and put a stop to ambulance chasers and the defensive medicine they cause doctors to practice.
That plan would have fit inside of 50 pages of legislation, not over 2,000. It would have instantly brought true competition to the provision of health care, stopped cost-shifting instantly, prevented gouging of cash customers, resolved the pre-existing condition issues plaguing insurance currently and not cost taxpayers a nickel.
But it wouldn’t have been popular with the lobbying interests, so it didn’t get a hearing or debate.
Instead we got not only a flawed bill but one that will raise costs to corporations and individuals and destroy jobs.
It will also ultimately destroy the private health care system in The United States.
Pelosi, Reid and Obama passed and signed it, and now we’re seeing it all right – we’re being violated by it within hours of passage.
Congratulations Democrats.
proudly supports:
Bill Still For President
for Congress
Michigan 11th District
By Bill Still
There is only one answer for the world economic situation; monetary reform.
1. No More National Debt
2. No More Fractional Lending
PDF PowerPoint Congressional Patriots Federal Reserve Balance Sheet Paulson's Lies Bernanke's Lies FedUpUSA Archive Mathematics of Failure Media Kit Door Hanger Corruption Flier Bank Flier Made In America A list of products and services made right here in the USA. Choosing to buy American made products preserves and creates American jobs.