What’s the interest equalization tax’
The percentage of the tax equal to Federal tax on the purchase of foreign shares and bonds bought by Americans. The tax on interest, the equations also known as the IET, was created in 1963 as the domestic rate of tax of President John F. Kennedy. The IET was abolished in 1974. The IET was designed to reduce balance of payments deficit the United States to reduce investment in foreign securities and investment in national securities. It was also meant to reduce the Federal budget deficit in balance of payments by reducing the ratio of capital outflows.
Breaking down the interest equalization tax’
The tax percentage was equal to different amounts of tax depending on the type of shares and debt attached to it. For example, the interest equalization tax rate was 15% in foreign stocks and ranged from 1.05% to 22.5% on bonds depending on their maturity. The shortest maturity bonds had the lowest tax rate and longest maturity of the bonds was the highest bid. Debt, which was from 3 to 3.5 years, while the amount of maturity was to be taxed at 2.75% of the purchase price, while the debt from 28.5 years maturity on them, the original 15 percent tax rate.
This tax was one of the consequences of the growing influence of foreign economic activity in the United States. The tax has also led to unintended consequences, increasing activity in the market of Eurodollars.
History of tax on interest Equalization
Tax on interest alignment should not be prolonged to the measure of the tax. It was meant to be temporary and actually lasted longer than previously thought. When the Institute first signed the act of 18 July 1963, it contains end date of 1 January 1966, but it was extended and re-extended several times until its final abolition in 1974. The IET was supposed to raise the approximate amount of $ 30 million for each year he was in reality. Based on the estimated amounts because the tax was created as a way to reduce balance of payments deficit, overall, the IET, is believed to have worked for its intended purpose.
Before the Institute was established in the period between 1961 and 1964, the balance of payments the U.S. deficit averaged about $ 2.5 billion. In the years immediately after graduation was enacted, the deficit declined significantly to $1.1. billion by 1966. Next year the deficit increased even more, up to $3.5 billion, and by 1968 the IET was completely abolished the deficit and replaced it with a surplus of $ 93 million.