The Right Way to Encourage Foreign Investment

In today’s Chairman’s Report, Steve Hayes explains the importance of foreign investment to the US economy. Then he shows how the income/payroll tax system is a foreign investor’s worst nightmare and how the FAIRtax would make the United States a haven for foreign investment.

Americans for fair taxation presents the weekly chairman’s report written by steve hays president of americans for fair taxation and recorded by bob paxton a volunteer with the florida fair tax educational association and now this week’s chairman’s report hello i’m bob paxton with the aff t chairman’s report for friday march 6th 2020 a look at foreign investment in

The united states select usa is a federal program under the commerce department whose purpose is quote to promote and facilitate business investment in the united states end of quote the agency has produced a fact sheet which discusses the amount and the importance of foreign direct investment or fdi in the united states there’s more fdi in the united states than

In any other country seven million three hundred fifty seven thousand seven hundred us workers were employed by foreign owned firms in 2017 foreign owned firms in the us invested sixty two point six billion dollars in research and development foreign owned businesses accounted for three hundred eighty two point seven billion dollars in us exports and in 2018 over

50% of the fdi was from the united kingdom canada japan germany ireland and france only 1.4 percent of the fdi in 2018 was from china now these numbers don’t reflect the amount of black money invested through offshore entities who exist solely to hide the source of their money not only from the us but also from their own country of origin however these numbers do

Illustrate how important foreign investment is to the growth of the us economy now what’s the biggest barrier to foreign investment the income payroll tax system as shown on the irs site the us has a number of tax treaties with other countries these treaties govern the tax treatment of investors residing in the us making investments in foreign countries as well as

Residents of foreign countries making investments in the united states now basically these tax treaty provide that foreign investors be taxed in a way similar to the way a u.s. resident would be taxed in the same investment of course these tax treaties apply only to the federal income tax in a us state with a state income tax is not bound by the terms of the treaties

Now about seventy countries currently have tax treaties with the us but only mexico and venezuela in latin and south america currently have tax treaties in place now is anyone living in florida or other southern states knows there are many people in latin and south america who want to invest in the us but because of the lack of a tax treaty they are often forced to

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Invest and pay very high income taxes both in the united states and in their home country these income taxes greatly reduced the net return to these investors and are a significant deterrent to investment now most foreign investment is made through a u.s. corporation created by a foreign investor now even investors from countries with whom the united states does

Have a tax treaty are still paying federal income taxes and in many cases these taxes are at a higher rate than us citizens pay now regular corporation has investment returns taxed at the corporate rate of 21 percent and then that money is taxed again as ordinary income when it’s distributed as dividends to the owners of the corporation this creates a situation

Where income taxes reduced the investment returned by 40 to 60 percent when the 79 percent being distributed is reduced by another 40 percent in ordinary income taxes the investor is left with a net of just 47 point four percent of what was originally earned this is why most us investors and small business owners use subchapter s pass-through entities which means

That the corporation’s income is not taxed at the corporate level but is taxed only at the individual owners level now subchapter s is the title of the provision in the income tax code dealing with these corporations now this means that using a subchapter s corporation hundred percent of a corporation’s earnings are taxed only at the individual level assuming

A forty percent income tax rate the investor would have sixty percent of the amount of corporate earnings not forty seven point four percent problem is if you’re a foreign investor from a country with which the us has no tax treaty you can’t take advantage of the provisions of subchapter s tax reform presents opportunities for foreign investors in us businesses

That’s the title of an article written by seth anton for the holland and night law firm the article explains how a foreign investor from one of the countries which does not have a tax treaty with the us can take advantage of us tax law by becoming eligible for subchapter s treatment the foreign investor can combine portions of the us tax code with a provision of the

2017 tax act which almost no one else has ever heard of of course this benefit comes at a price you have to hire sophisticated tax advisors like mr. hinton and his firm to create electing small business trusts that will own shares of a corporation and thus allow the corporation to elect subchapter s status complicated of course but this provision further enriches

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Tax professionals and makes the income tax code even more difficult it’s also like the rest of the income tax code totally unnecessary now as we know the way you calculate the rate of return on an investment is to look at what the investment yields to you after paying any applicable income taxes if there’s a 10 percent return but the effective federal tax rate is

30 percent then the actual return is not ten percent but seven percent now the obvious question is why would anyone seeking foreign investment in the united states continue to support the income pay roll tax system that punishes foreign investors well the reason is obvious the ruling class and their minions want to retain their control over us and they want to keep

Their income stream flowing anyone who thinks that they’re maintaining the income payroll tax system for any other reason is just deluding themselves just because you can’t conceive of something being that evil doesn’t mean that these evil people are not out there now let’s look at the real solution the fairtax now if you’re a foreign investor we’re looking at the

Complicated morass of income tax laws and countries around the world you evaluate a number of factors to determine where you want to invest now in many cases the safety of the investment is more important than the return on the investment they follow the maxim stated by will rogers the cowboy philosopher of the last century who advised don’t worry as much about

The return on your investment as the return of your investment in other cases foreign investors will look at factors like the exchange rate of their currency related to the currency of the country in which they’re considering investing if the currency of their country like the currency of venezuela for example is rapidly losing value than the idea of investing

In a country with a more stable currency is very attractive these and other factors are why the u.s. is attracting so much foreign investment however how much more investment could be attracted to the us if investors were receiving not fifty to sixty percent of the return on their investments but a hundred percent with the fair tax no citizen or foreign investor

Would ever have to hire expensive tax professionals and with the fair tax there is no fear that the ruling class and their minions will eliminate a tax benefit or dramatically raise the income tax rates and confiscate their money this is why the fair tax will create a huge increase in foreign investment in the united states this investment will lower interest

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Rates and make more money available to small business owners many more jobs will be created and the competition for labor will create higher and higher incomes for everyone in the us and this increase in income will create more retail consumption and result in more income to the us treasury in conclusion the above scenario on the effect of the fair tax on foreign

Investment is not some vague theory it’s simple logic if you reward something you get more of it the difference is that the fairtax does not reward the ruling class and their minions like the present income payroll tax system does when the fair tax becomes law and the corrupt income payroll tax system is gone future generations will ask how could a small group of

Greedy people convince their parents and grandparents to let them make huge profits at everyone else’s expense and how could this greedy group do this to the people who trusted them well maybe the answer to that is as simple as this when a man who had swindled millions of dollars from retired people was brought before the judge for sentencing the judge asked him

How could you swindle all those nice people who trusted you the swindler answered your honor people who trust you are the only people you can swindle well it’s time to examine not just the words but the actual deeds that the ruling class of their minions are doing as despots have learned throughout history when people look at actions rather than words the enormity

Of the fraud being perpetrated against them becomes evident and when that happens the ones committing that fraud can never stand against the people’s anger it’s time to take back control of our income and our lives and demand a sane tax system to fund the federal government demand that congress passed the fair tax the only truly fair tax this has been the weekly

Chairman’s report written by steve hays president of americans for fair taxation check back every week for news and information about the fair tax and learn why the fair tax should replace our antiquated federal income tax system if you’d like to receive a copy of the chairman’s report in your inbox every week sign up at fair tax dot org you

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The Right Way to Encourage Foreign Investment By FairTax