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May 25, 2009
Actions have consequences
President Obama bad mouthing "tax shelters" overseas was a blunder. The common business practice in other countries that allows for the free flow of capital around the world may seem "unfair" to our president but others don't quite see it that way.
Take British banks, for instance. They do not plan to sit idly by while Obama trashes their business. This piece in the Telegraph by Louise Armistead shows what the big banks in Britain plan to do about it:
The decision, which would make it hard for Americans in London to open bank accounts and trade shares, is being discussed by executives at Britain's banks and brokers who say it could become too expensive to service American clients. The proposals, which were unveiled as part of the president's first budget, are designed to clamp-down on American tax evaders abroad. However bank bosses say they are being asked to take on the task of collecting American taxes at a cost and legal liability that are inexpedient.
Andy Thompson of Association of Private Client Investment Managers and Stockbrokers (APCIMS) said: "The cost and administration of the US tax regime is causing UK investment firms to consider disinvesting in US shares on behalf of their clients. This is not right and emphasises that the administration of a tax regime on a global scale without any flexibility damages the very economy it is trying to protect."
One executive at a top UK bank who didn't want to be named for fear of angering the IRS said: "It's just about manageable under the current system - and that's because we're big. The danger to us is suddenly being hauled over the coals by the IRS for a client that hasn't paid proper taxes. The audit costs will soar. We'll have to pay it but I know plenty of smaller players won't."
Does the president have a clue that actions are never taken in a vacuum, that there is a possibility that American companies and individuals will actually be injured by his desire to soak the rich?
The Brits have no illusions about tangling with the IRS which means other foreign banks won't either. All it will end up doing is making us more uncompetitive in the financial world.