Is It Time to Repeal FATCA?

It's often described by some of its victims as a license for IRS imperialism.

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Rand Paul
Bill Clark/CQ Roll Call/Newscom

I've previously argued that the Trump administration should stop funding the Organization for Economic Cooperation and Development because of its advocacy of higher taxes and tax harmonization. At the time, I was told that my position could be perceived as hypocritical because our government is responsible for the adoption and enforcement of the hideous Foreign Account Tax Compliance Act. Let me address this omission.

FATCA, which was passed in 2010 by a Democratic Congress and enacted by President Barack Obama, requires law-abiding Americans with legitimate bank accounts outside the country and foreigners working in the United States to turn over information about their overseas holdings of more than $50,000.

Under new treaties with the United States, some 100,000 foreign financial institutions in more than 100 countries must report to the Treasury on an account of any so-called "U.S. person"—a U.S. citizen or someone with a green card or U.S. work permit—with $50,000 or more in it, or they risk being hit with a 30 percent withholding tax on their U.S. earnings.

This law is another attempt to force lower-tax nations to change their tax laws and give up their commitment to financial privacy for the sole purpose of serving higher-tax countries' craving for more revenue. This explains why it's often described by some of its victims as a license for IRS imperialism.

Not surprisingly, FATCA compliance costs are large. Various reports by the Chamber of Commerce, foreign governments and banks show that as of 2016, compliance costs were anywhere between $200 billion and $1 trillion.

For what benefit? Though those pushing for the law in 2010 claimed that there was between $100 billion and $150 billion a year in lost revenue offshore because of tax evasion, study after study has shown that the actual amount is nowhere near that estimate. Even Congress' nonpartisan Joint Committee on Taxation estimated in 2010 that between then and 2020, lost tax revenue from evasion offshore won't reach more than $8.7 billion, an average of $870 million annually.

Whatever the actual amount may be, issues of cross-border tax enforcement only exist because we have bad tax policy. If the United States had a simple and fair system, such as a flat tax, the government would tax your income one time—when first earned—and there would be no double taxation on interest, dividends or capital gains if you decided to save and invest your after-tax income. In that ideal system, the IRS wouldn't care whether your bank account is in Geneva, Illinois, or Geneva, Switzerland.

That said, even the IRS recognizes the problem. In a January report to Congress, the IRS taxpayer advocate noted that FATCA is being implemented "despite a lack of comprehensive statistical data establishing the existence of widespread noncompliance or fraud" and "despite (Taxpayer Advocate Service) analysis indicating that the vast majority of these taxpayers actually appear to be substantially more compliant than a comparable portion of the overall U.S. taxpayer population."

In other words, this ill-conceived law is targeting the financial privacy of millions of people who haven't done anything wrong at heavy costs to foreign financial institutions that have to do the reporting. What could go wrong? Well, considering the downsides, some financial institutions have stopped accepting accounts from certain clients because of the tougher regulations. Unfortunately, the first victims of this inane law are foreign nationals who live in the United States and U.S. nationals living abroad who have had their bank accounts in Europe shut down.
Not surprisingly, the law is partly responsible for increasing the speed at which Americans living abroad are giving up their U.S. citizenship. With the IRS chasing their accounts to force them to pay U.S. taxes they don't even owe, some 5,411 people gave up U.S. citizenship in 2016, nearly four times as many as in 2010, according to Treasury reports.

Adding insult to injury, the Treasury promised reciprocal information-sharing to persuade nations to overturn the domestic privacy laws that were making FATCA unenforceable as written but has not followed through. As a result, our international partners are getting impatient and may start targeting the United States in various ways as payback—until we cough up info on their citizens.

Many Republicans, led by Sens. Rand Paul of Kentucky and Mike Lee of Utah, have expressed their desire to repeal FATCA. Indeed, Paul will be testifying alongside some of the victims of the law and may persuade his colleagues to end this Obama-era abuse.

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15 responses to “Is It Time to Repeal FATCA?

  1. Save a trillion here, a trillion there, pretty soon you have a lot of money.
    To answer the question; yes.

  2. Time to see if President Trump will put America first or if he’s just another in a long line of globalists!

    1. Globalist. If this is any indication:

      http://classicalvalues.com/201…..he-casino/

      1. The mere fact that we’re still doing drug czars.

  3. That said, even the IRS recognizes the problem.

    Of course that doesn’t mean they have any intention or desire to actually fix the problem. They just recognize that it’s there.

    They’re like the South Park cable company:

    “Oh, FATCA is causing problems with compliance costs for little to no gain and makes life hell for overseas Americans and foreign born workers with assets overseas?” *starts tweaking nipples* “Oh, gee, that’s terrible!”

    1. Go on…

  4. Look, if you’re going to advocate for a flat tax why not just advocate for no income tax at all? It would be more reasonable.

    Either way it’s insane for the United States to double tax American businesses over sea’s (or in the case of Death Taxes).

    A few good reforms on the back of more tariff’s isn’t a good deal though. Any ‘savings’ to the individual could very well be offset by higher prices depending on what ends up with higher tariffs. Lumber isn’t a great idea though since it’s a pretty basic input to virtually all construction. >.

  5. I’m not sure how this article managed to fail to mention that a big part of the issue here is the US is basically the only country to tax based on citizenship and not residency/where you earn your money. (Likewise, we’re the only country to tax businesses based on where they’re headquarted and not where the money was earned.) People love to cite the exemption for something like $100k like that makes it okay, ignoring the fact that it’s not cheap or easy to find someone who can reconcile, say, Swiss and American taxes, let alone the fact that the US may try to tax you on something that Switzerland doesn’t tax you for. So it’s middle/upper-middle class expats who get screwed, while the super-rich this is supposedly intended for already have the lawyers and accountants to handle it.

    Fun fact: Eritrea tried to impose a 2% tax on citizens worldwide, and the US denounced Eritrea on the floor the United Nations for trying to extort its citizens…because you know, it’s only fine when Uncle Sam does it.

  6. Only the U.S. Government is so efficient it can recover $8.7 B in lost revenue for the small cost of $200+B.

  7. In fact the FATCA rules apply to any US person with foreign bank accounts (ie US citizens who actually live in those foreign countries) that are more than $10,000, not $50,000. Even if you make less than the threshold for reporting taxes to the IRS , you still are required to fill out the FBAR (Foreign Bank Account report), a truly tiresome form that requires the address of the institution, the number of each bank or investement account, and the largest sum that was in each account in the calendar year. This results in reporting the same money twice if you transfer anything from one account to another during the year.

    Most Americans hear all this and have no sympathy for US citizens who live elsewhere and have to undergo this ridiculous exercise. They seem to think its just fine for the US to tax you because of the (non-existent) advantages of having US citizenship. They don’t get the fact that it would be like a second-generation US citizen of parents who are German or Mexican or Arab immigrants to the US, having to pay German or Mexican or Arab taxes on all their US -earned income, every year for the rest of their lives.

    1. Thank you. I was gonna say… And also, it’s not even $10 grand in one account, it’s $10 G’s cumulative total in any overseas account, forcing a person to report on all. Yeah right. The land of the free.

  8. compliance costs were anywhere between $200 billion and $1 trillion.

    lost tax revenue from evasion offshore won’t reach more than $8.7 billion, an average of $870 million annually.

    Look, when you’re a government that can create a dollar in private sector red tape costs to help you track down that four cents you’re owed, you do it every time. That’s just common sense!

  9. The US has built a virtual Financial Berlin Wall to keep US persons in by punishing harshly those who have left ? even those gone decades. FATCA is part of this new Berlin Wall.

    JFK famously said in Berlin ‘we don’t need to build walls to keep our people in.’ Fast forward to the present day, and the US has done precisely that with its compliance and tax laws assuming all US persons live in the US (even the ~9 million who live overseas), with extra penalties restrictions and disincentives for money, accounts, and investments in countries other than the US; even if you live permanently overseas and this money, earned income, accounts, and investments, are local to you.

    In an increasingly global and mobile world the US should not punish US persons living, working overseas, and expanding US influence and trade overseas. This is in complete contrast to all other OECD nations, thus disadvantaging those with US Citizenship.

    US citizenship should be about the greatest liberty in the world. Yet the truth is US persons living overseas are tremendously disadvantaged by the US government compared to nationals from all other OECD countries.

    Any US persons living overseas caught up in this must visit the message boards of The Isaac Brock Society, Facebook Citizenship Based Taxation and American Expatriates Groups, citizenshiptaxation dot ca and FixTheTaxTreaty dot org.

    1. Exactly.

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