Wednesday, December 17, 2014
Wall Street Journal op-ed: Why Does Uncle Sam Hate American Expats?, by Neil Gandal (Tel Aviv University, Department of Economics):
It’s not easy to be an American living abroad these days, and some are even giving up U.S. citizenship. The reason is ill-considered legislation most people never heard of: the Foreign Account Tax Compliance Act.
Here’s the background: The number of Americans living abroad increased from 70,000 in 1966 to between three million and four million in 1996 and more than seven million today, according to several estimates. There are many reasons Americans have moved, including the globalization of the economy and increased cross-border migration generally.
The U.S. is the only developed country in the world that requires citizens who live abroad to file tax returns. This is so complicated that it is virtually impossible to do without an accountant, and that can cost more than $1,000 a year, even for very simple tax returns.
But that’s only the beginning. There are additional reporting requirements for Americans who live abroad. The FBAR (Foreign Bank Account Report) requires holders of foreign financial accounts to report detailed information about all such accounts each year. It can take many days to obtain and compile the information and then prepare the form.
The Foreign Account Tax Compliance Act of 2010 made matters worse. Fatca compliance costs for foreign banks are so high that many banks have closed the accounts of Americans living abroad. Joining the ranks of the “unbanked” is becoming the straw that breaks the camel’s back. The Economist has reported that approximately 3,000 expats gave up their U.S. citizenship or green cards in 2013; prior to Fatca it was only a few hundred a year. A recent survey by the deVere Group suggests that a large majority may have done so because of the law. ...
Fatca was passed without any consideration of costs or benefits. Congress’s Joint Tax Committeeestimated that it would raise approximately $8.5 billion over a 10-year period. But data from Australia and the U.K. indicate that compliance costs for foreign financial institutions world-wide could reach $200 billion. And that doesn’t take into account what it costs U.S. citizens to comply with the law.
It’s time for Congress to carefully analyze Fatca and repeal the law if the costs outweigh the benefits. In any case, Fatca should be immediately modified to ensure that Americans abroad do not face the dilemma of either giving up their U.S. citizenship or not having modern banking services.