Level Playing Field of Dreams

Simon Johnson suggests in a post Foreign Money, National Security, And The Midterm Elections that there is a equality among nations in their investment strategies, leading the US to gain significant inflows of foreign investment, while US companies invest outside the US:

We finance our current account deficit with capital inflows from abroad or, to put that more plainly: Foreigners buy and hold financial assets in the United States.  Some of those assets are US government obligations but traditionally and increasingly non-US people have also acquired claims on corporate entities – including common or preferred stock.There are good economic reasons to allow foreigners to buy financial assets in the United States.  We like to invest around the world and a high degree of reciprocity is only reasonable.

This is a false equality. There are self inflected actions which are changing this drastically against America. The current Administration, despite campaign promises to create a level playing field for Americans to compete internationally, has continued and intensified IRS persecution of overseas Americans and so-called US persons.

  1. Americans abroad are the only nationality who are subject to dual taxation – once in the country where they work and once in the US. Germans, Japanese and Chinese workers outside their countries do not have this distinct disadvantage.
  2. Foreign investors who are designated “US persons” may be subject to US taxes even if they no longer reside in the US. Think foreign students who once came to the US for graduate studies and went home
  3. Estate taxes of these US persons may be due on the TOTAL estate of the family. So if one German member of a family went to Harvard to study, all of her brothers and sisters may be liable for US estate taxes on their German family home when the pater familias dies.

This is going to chill the desire of individual foreign investors to invest in the US. They will invest in China, India, Russia and other growing economies. And of course they will travel, work and sell their goods and services elsewhere in the world without fearing unknown tax liabilities.

This will not chill the Sovereign Wealth Funds investments, since they are corporations that will never pay estate taxes of course…And note that the true investors behind SWF’s are anonymous, they cannot be traced to real people. Just one more weird twist of the knife for us “natural persons.”

1 comment to Level Playing Field of Dreams

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