The first thing that came to mind when I read the hidden provisions starting on page 27 of the new H.I.R.E Act – short for “Hiring Incentives to Restore Employment” – was the phrase “Get Your Money Out of the Country, Before Your Country Gets Your Money out of You.”
That expression was coined years back in one of the classic offshore investing books. Today, it appears more vital than ever – not just for our American cousins but for anybody with assets held in the global financial system, which is still dominated by the US dollar. If the HIRE Act is not a wake-up call to those without a detailed exit strategy in place, then I don’t know what is. The US government today is ‘defaulting in silence.’
The offending legislation in a nutshell? Many transfers of money from the US to overseas entities are subject to a new tax equal to 30 percent of the total amount of the payment – unless the payment is sent to a foreign bank that has agreed to report all American-owned accounts automatically and electronically to the US government, and/or unless the beneficiary agrees to disclose voluntarily its ownership information to the IRS.
The HIRE Act sounds harmless enough, right? It sounds like something to do with job creation… yet another round of incentives. Yet, hidden starting on page 27, is America’s widest reaching attack yet on offshore banks.
“It couldn’t have happened to a nicer country,” writes analyst Tyler Durden on zerohedge.com “… 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.”
I think he’s absolutely right that nobody read it. The mainstream media didn’t pick up on it, any more than they gave any indication of what Obama’s much hyped healthcare bill actually says.
A few days later, however, Mark Nestmann, on his nestmann.com blog,invest in brics currency writes that Durden’s article is “highly misleading.” The HIRE Act, says Nestmann, isn’t about capital controls, at least not directly. It’s about enforcement of existing IRS rules.
So, there’s some debate about whether this is really about currency controls, or just the taxman doing his job. I guess it all boils down to your definition of currency controls.
As it happens, in my humble opinion, Dryden and Nestmann are both right. The HIRE Act is certainly not a typical old-fashioned exchange control mechanism. But then, the stealth devaluation of the dollar is no typical devaluation! The US Treasury and Fed officials who are doing this are much more sophisticated than, say, Hugo Chavez of Venezuela with his currency controls and devaluations. Perhaps a better word is sly.