5 New Ways the IRS Is Screwing America
Dumb disclosure laws, xenophobic banking regs, and worse
As the nation staggers toward the April 17 tax-filing deadline—otherwise known as National Crash Your Car Day—the immovable object of a debt-financed $3.8 trillion federal budget is incentivizing the irresistible force of rapacious government to scrounge for any and all spare change in the country's cushions.
Some of these desperate collection measures are new, internationally unprecedented, and already damaging to innocent individuals and institutions. Others are mere proposals so far, or accumulations of water torture-style outrages that comparatively tax-compliant Americans have tolerated for too long. What they have in common is an utter lack of demonstrated concern for the time, privacy, and freedom of U.S. residents.
In handy list form, here are five ways Uncle Sam's tax collectors are screwing America.
5. Preposterous Foreign-Income Disclosure Rules
The IRS wants everyone with more than $10,000 in foreign-based financial institutions to cough up every last detail of every last account. Let's say (just for the sake of argument) that in 1997 you married a French woman who had previously written a few articles for a soon-to-be-defunct UK newspaper, and had opted to park her checks in a London bank for walking around money on future visits. Let's say further that she has earned enough European-based income over the ensuing 15 years to exceed that five-figure savings threshold.
Result? As of 2012, that London savings account, and every single other foreign based account you and your wife may have, must now be divulged in full—complete with your estimation of its highest value during the previous year—to the Internal Revenue Service.
Good luck figuring out form TD 90-22.1, by the way. My tax professional (who charged me more than $1,000 for her services, though it was worth every penny), shrugged, and gave me a yellow highlighter so that maybe I could shed light on the relevant verbiage of TD 90-22.1 and its rich cousin, form 8938. Even the Government Accountability Office has trouble; "Extent of Duplication Not Currently Known, but Requirements Can Be Clarified" was the subtitle on its recent paper on the dueling FBARs (foreign bank account requirements).
The important thing to realize is that by failing to cough up each and every detail of accounts that are filled with your legitimately earned and (in my case) already taxed money, you are subjecting yourself to a $100,000 fine and up to five years in prison.
If you happen to have some money overseas, and are nervous about the U.S. government's ability to harass or imprison you, you're probably better off burying the cash in a can. Or depositing it in a country that doesn't care about playing by Uncle Sam's rules. Which brings us to….
4. Scaring Away Foreign Banks
This isn't a new IRS rule, it's a new consequence of a lousy new law, called the Foreign Account Tax Compliant Act (FATCA … get it??).
This 2010 law, which was passed in an effort to increase tax collections on Americans using shelters abroad, is estimated by its supporters to maybe bring in an extra $8 billion in receipts over the next 10 years, or less than $1 billion per year. This for a federal government that spends $1 billion every two and a half hours.
Uniquely in the world, the United States government is demanding that all foreign financial institutions disclose the details of all U.S.-based accounts and withhold 30 percent in potential taxes from accounts held by other institutions that don't disclose. Let's see, what do you suppose might happen when Washington makes life a living hell for every foreign bank that dares do business with Americans?
Shocker: "Banks no longer want American clients." So if you are one of the estimated 6.6 million Americans living abroad, you can forget about opening or even maintaining that bank account. Sorry! Those 150 minutes of federal spending won't pay for themselves!
And of course it gets worse: U.S.-based companies are discovering to their horror that foreign talent, no matter how executive, is getting caught up in Washington's greed. Expatriates from Switzerland—a country whose remarkable financial sector was built on the notion of banking secrecy—are getting their accounts closed by FATCA-spooked banks back home.
3. Occupational Licensing Abuse
Speaking of your friendly neighborhood tax professionals, the IRS has found a new way to to harass them as well. Last year the agency introduced an arbitrary new set of occupational licensing requirements that force tax preparers to pay a host of new fees, pass a government exam, and sit still through 15 hours of classes every year. It's worth remembering that Congress already heavily regulates the tax preparing industry to prevent fraud and other crimes, but this is the first time tax preparers have been required to get the government's permission before they could set up shop in the first place.
The Institute for Justice, a public interest law firm, recently challenged the new rules in federal court. But in the meantime, independent operators and other small-scale entrepreneurs (and their customers) face the burden of sometimes crippling compliance costs. Their bigger, more established competitors, on the other hand, stand ready to reap the state-sanctioned benefits. As The Wall Street Journal reported, "Cheering the new regulations are big tax preparers like H&R Block, who are only too happy to see the feds swoop in to put their mom-and-pop seasonal competitors out of business."
2. Seizing Passports
The United States Senate on March 14th passed a transportation funding bill that contained a slipped-in section authorizing the "denial, revocation, or limitation of a passport" for anyone with "a seriously delinquent tax debt in an amount in excess of $50,000."
The "revocation" bit is especially heinous: Even the outrageous and barely-known State Department provision denying passports to those who owe $2,500 in back child support only deals with issuances and renewals. Now the feds are apparently willing to actively hunt you down and take away your getaway card.
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1. Wasting Your Time and Money
The tax code is now 3.8 million words long, according to The Tax Foundation. "Over the last ten years," the organization claims, "there have been about 4,428 changes to the tax code, or more than one a day, including about 579 changes in 2010 alone."
The results of that complexity are not surprising: Some 7.64 billion hours of paperwork, according to government statistics cited by the National Taxpayers Union one year ago. "This massive time expenditure adds up to a whopping $227.1 billion, when calculated with the most recently reported average employer cost for civilian workers by the Bureau of Labor Statistics: $29.72 per hour," the NTU wrote.
As Reason Senior Editor Jacob Sullum recently put it,
Yet in the same speech where [President Barack] Obama condemned the "loopholes and shelters" that rich people use to avoid paying their "fair share," he promoted policies that compound the complexity, including special breaks for college students, "companies that hire vets," "small businesses," "high-tech" manufacturers, "clean energy," energy-conserving building improvements, and "companies that choose to stay here and hire here in America." This insistence on using taxes for economic meddling and social engineering has made the system the hideous mess it is today.
The fever dream of central planners everywhere is that the only obstacle to a perfectly balanced budget is insufficient citizen compliance. As we ready our annual humiliation, it's worth remembering that Uncle Sam's desperation for cash, which has already encroached too far on our freedoms, may have only just begun.
Matt Welch is editor in chief of Reason and co-author (with Nick Gillespie) of "The Declaration of Independents: How Libertarian Politics Can Fix What's Wrong with America" (PublicAffairs).