Time to Close the Foreign Investors Tax Loophole

Congress will put together a tax reform bill with the goal of eliminating tax loopholes, simplifying the tax system and reducing tax rates.  One loophole that they should eliminate is the most self-destructive tax loophole ever enacted, the Foreign Investors Tax Loophole [Sections §871(h,i,k) and §881(c,d,e) of the Internal Revenue Service code]. Enacted in 1984, it lets foreigners earn interest in the U.S. tax free, so long as they don’t reside in the United States. Negative Effects upon Economy Previous to this loophole, foreigners paid 30% withholding tax on interest income earned in the United States. After the loophole, they paid zip, zero, nada. Even worse, the bill directly harmed the U.S. economy in four ways: Hurt U.S. Manufacturing. It drove up the dollar in foreign exchange markets which made American products less competitive in world markets, thereby decreasing American income. Discouraged American Savings. It gave foreign savers...(Read Full Article)

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