July 17, 2012
WSJ: The FATCA Cliff
Wall Street Journal: Obama's IRS Snoops Abroad, by William McGurn:
Within the United States, almost no American has heard of it. Save for the occasional article, it's gone largely uncovered. And just like ObamaCare, the nastiest, job-killing aspects will not hit until after this November's election.
It's called the Foreign Account Tax Compliance Act, and it's a doozy. With little debate, Fatca was tucked into the Hiring Incentives to Restore Employment Act of 2010—a jobs bill dominated by tax breaks designed to get businesses to hire unemployed Americans.
Fatca was the revenue side of that bill. The theory was that we would pay for the tax breaks by making fat cats hiding money in their overseas accounts pay their "fair share." The reality is that the tax breaks did little to dent unemployment, and the legislation's penalties may end up killing more U.S. jobs than all the call centers in India combined. Delayed once already, Fatca is set to take effect in January 2013.
Strictly speaking, Fatca isn't a new tax—it's a new requirement for reporting overseas financial accounts, backed up by heavy fines. It requires foreign financial banks, investment houses, insurance companies, etc. to identify any Americans among their customers and turn over information about their accounts to the IRS (or to the local government, if that country has a sharing agreement with Uncle Sam). ...
[I]ndeed, in a paper called "Leveling the Playing Field," the White House says "the IRS will hire nearly 800 new employees devoted to international enforcement." It's safe to say that while we will see only a fraction of that $100 billion in revenue, we will bear the full price that a globally empowered IRS can inflict. ...
Whatever the ills of ObamaCare, we are at least now having a debate on the merits. How much better we'd all be if we could say the same about the Foreign Account Tax Compliance Act.
TrackBack URL for this entry:
Listed below are links to weblogs that reference WSJ: The FATCA Cliff:
Oh noes!!!! The executive branch is actually enforcing the law!
Posted by: the real anon | Jul 17, 2012 6:34:26 PM
What an amazingly vacuous op-ed! Absolutely zero on how this is "snooping", how it will kill jobs, or any other discussion of the merits except that it will cost a little bit in salaries.
Posted by: Eric Rasmusen | Jul 18, 2012 1:21:28 AM
There is plenty on the internet to evidence the 'snooping' aspect of this legislation. 'It will cost a little bit in salaries' eh? it will cost a huge amount of money worldwide for everyone in the world help the IRS terrorise US citizens abroad.
Posted by: p33t | Jul 18, 2012 3:12:54 AM
This is a very insidious law. Overseas banks are dropping Americans as customers because the paperwork is too much trouble, and the penalties are onerous. It costs $1,000 or more to have an accountant compile your taxes, even if you have no income other than a salary and thus pay no US tax (because you paid tax to the country you live in). The overseas tax form is WAY too complicated to do on your own.
Why should you have to report pension and other accounts, that are tax free until you bust into them? Would a terrorist have a pension? You're not avoiding tax on your pension, since you don't owe tax until you draw on your pension, which could be 40 years away.
It's not a partisan issue, despite the WSJ slant, it passed both houses overwhelmingly. Just heedless to the fact that many Americans live overseas.
Posted by: john q public | Jul 18, 2012 4:44:50 AM
One could conceive (IMHO) that the amounts being spent by businesses (here and outside the US) on 1) tax advisors needed to help translate and interpret this dense law, 2) the massive systems changes needed for compliance with the law, and 3) implementing fundamental change to well-established and otherwise efficient operations (etc etc) is going to cost way more than the Gov't will earn in tax revenue generated by FATCA.
Posted by: jh | Jul 18, 2012 9:56:17 AM
So it is OK to snoop if they think you are a terrorist, or a drug runner or a internet pirate. But if you are a tax cheat it is Oh the Horror! And just how that particular piece of legislation is going to "kill jobs" is a mystery known only to the WSJ. I think it is a reflexive response to anything done on Obama's watch. When the Bush Bubble popped jobs were lost and they are not coming back anytime soon. FATCA(T) aside.
Posted by: George W | Jul 18, 2012 11:30:15 AM
How FATCA kills jobs is because it makes Americans legitimately working overseas uncompetitive. They can't get bank accounts, join pension plans or buy insurance products because financial institutions do not want the reporting requirements or the IRS oversight. If they can't have these financial tools, they can't compete and work overseas. How do you think the American export market works without people on the ground? Because of FATCA an American will also not be able to engage in partnerships overseas. Any foreign partnership with an Americans holding 10% interest will need be reported to the IRS. Foreign partners are simply finding other non-American investors. Foreign investors are also dumping US securities. The reporting requirements for anyone holding a US security overseas; Americans or otherwise, is just too onerous. The global financial options are just to numerous and there are simply too many other options to choose from. Already some German insurance portfolio managers have moved completely away from investing in US securities. This is how FATCA will kill jobs. It makes the US less attractive to investors and makes those Americans overseas trying to create business and job opportunities uncompetitive. Living and working overseas doesn't make you a tax cheat, the vast majority of Americans overseas are working there, paying taxes just like the rest of America. Educate yourselves by visiting http://www.aca.ch/fatcapp.pdf
Posted by: Serrato | Jul 19, 2012 3:53:17 AM
Let's do the math:
I am a Japanese citizen married to an American and living in the U.S. I have $50,000 in an account in Japan. I get 0.02% interest, i.e. $10. Of course, I can and do declare that income the the IRS and pay the $3 in taxes (which is on top of the $2 paid in Japanese taxes).
Let's say I forgot to file my TDF form, or didn't even know about the requirement, because most green-card holders don't. That exposes me to 5 years in prison and a 50% ($25,000) fine, which is 8000x the amount of the taxes due (which actually were declared and paid to the IRS anyway), a hugely disproportionate penalty.
Also, this year an entirely new form, IRS form 8938, may have to be submitted as well, with all kinds of info duplicating what is on the TDF.
Now FATCA comes along and imposes all kinds of reporting requirements on me and my local Japanese bank, in order to be sure to capture the $3 in taxes that I am paying anyway. But the compliance costs are huge, and I am only one of a handful of "US persons" who are customers of the bank, so they drop us, at a huge inconvenience for me. And all for $3 in taxes which I was paying anyway. It's insanity.
Posted by: JM | Jul 20, 2012 2:35:38 AM
It may be seen to be OK to snoop for terrorists, drug runners or internet pirates, but who defines what they are? As for 'tax cheats', just using that label prejudges everyone with offshore accounts as guilty until proven innocent. I thought that was directly opposing the principles of a 'free' America?
Posted by: p33t | Jul 20, 2012 2:59:56 AM