Monday, August 26, 2013

China's Shadow Banking System a Growing Concern

Recently, several media outlets, including the Wall Street Journal, Reuters, and Bloomberg, have drawn attention to the problem of China’s “shadow” banking system. China’s official deposit rate is the interest rate Chinese banks pay on deposits. Because Chinese inflation tends to run well above American rates, Chinese savers worry that the official deposit rate will fail to keep pace with inflation, in which case their savings would effectively be eroded. China’s shadow banking system is essentially a system in which businesses (often small and lacking political connections) and individuals obtain loans from banks, trusts, and securities brokerages at high rates of interest. The interest rates on these loans greatly exceed the official deposit ate because they are purportedly not deposits. For instance, a person might deposit their money with a brokerage company with the expectation that the brokerage company will pay a high interest rate on it. The brokerage company might justify exceeding the official deposit rate on the ground that the person’s deposit is actually a private wealth management investmen

The shadow banking system is especially popular at the local level, because the regulated banking system often favors large, centralized enterprises or politically-connected individuals. However, China’s Politburo, the group that oversees the Communist Party of China, is unhappy with shadow banking because it believes the system fuels a misallocation of resources and “bubbles,” especially in real estate. Many Chinese savers, wary of the value of currency against inflation, purchase real estate, not so much as an investment as a store of value.

To combat the shadow banking system, China’s central bank withheld funds from the country’s banking system in June. The ensuing liquidity mini-crisis drove overnight lending rates between banks up to more than 13 percent, a jump of more than 10 percent from the previous month. However, the Politburo evidently meant only to issue a stern warning rather than a permanent policy change, as that rate fell to 3.4 percent in early July as the central bank resumed lending.

More News: Dallas Tax Attorney Joe B. Garza

Monday, August 12, 2013

Exodus of Wealthy as U.S. Tax Protesters Relocate Abroad

Given the recent IRS scandals that have been prevailing, the world’s largest collection agency went from being loathed in the eyes of Americans to being detested. So much so, in fact, that an unprecedented exodus of the nation’s wealthiest citizens has fomented as a result, seeing tax protesters unhappy with the currently overly complex tax code instead relocating to countries that have more lucrative income tax options, or in some cases, none at all.

Such a decision is not one that should be taken lightly. After renouncing your citizenship, provided that you find a country of refuge that will grant you permanent citizenship, you must also turn over your passport. Forever after, you will be required to be approved for a visa when visiting the U.S. and you will no longer enjoy the freedoms or protection of this great nation. Yet for some that’s worth it when it equates to reducing their annual tax liability.

The most recent of the wealthiest to depart our nation is Facebook cofounder Eduardo Saverin, who did so much to the dissent of fellow Americans. Some other well known persons have recently followed suit, including celebrity Tina Turner. The primary reasons are a lower tax rate and a less complex system. For example, Russian actor GĂ©rard Depardieu will likely remain in his home country because he only pays a 13% effective income tax rate; he’d pay 75% in France; 55% in the UK; and 45% in the U.S.

There is tax costs associated with leaving the U.S. for such reasons. Firstly, citizens must demonstrate that they have been compliant in their taxes for at least five years. Furthermore, and most importantly, if you earned more than $155,000 per year over the past five years, and or, have a net worth greater than $2,000,000, you will pay an Exit Tax.

Texas Lawyer Joe Garza (B) is a prominent and respected attorney that provides asset protection, estate planning and complex business tax litigation services nationally. He enjoys writing about recent events that relate to taxes as well as providing a variety of essays on topics relative to all issues of taxation.