Re: How Tax on FX Works
The sole purpose of money is to be spent. If you cannot spend it, then it is not worth the ink used to print it. All the current tax schemes are subject to huge manipulations. The only thing that is not subject to manipulation (unless you intentionally introduce loopholes) is purchasing i.e. spending the money. Think of a FX tax as a sales tax on the sale/purchase of USD.
Here's an example. Apple successfully paid nearly zero taxes by splitting its profit and cost centers around the world. They did research in the US and patented that research in Ireland. Then the Irish division licenses those patents to Apple USA which in turn expenses it against the sale (income) of the phones it sells in the US. In the process, Apple has shifted the income that would have been taxed in the US to income that is taxed in Ireland at a much lower rate. A similar shell game happens in manufacturing and other operations.
Here is the catch. You cannot pay the Irish subsidiary or Chinese factory in USD (ok, you could but at some point eventually they and their suppliers and employees and employees of their suppliers will have to spend the money in their local currencies). When that conversion to/from USD to something else happens, then you tax it. Because the US government has a monopoly on USD and there are only few choke points, it is practical to watch all the FX transactions.
So what happens with the accumulated wealth? Well, it depends on where it is accumulated. If it is outside the US, as was the case before Trump, it will eventually get taxed when it is spent because eventually you'd have to convert the USD to buy whatever it is you want to buy (or else, as I said in my first sentence, the money becomes worthless). If it is in the US, then either it gets deposited in money centers and in the process lower the cost of investment and lead to economic boom in the country, or it will get taxed when the company/person wants to pay out their offshore branches and outsourced manufacturing.
Either way, it is the most pragmatic way to address many of the grievances of the Left (and Right). |
