Wednesday, May 13, 2015
FATCA: An American Tax Nightmare
New York Times op-ed: An American Tax Nightmare, by Stu Haugen:
No one likes tax cheats. They should be pursued and punished wherever they are hiding. But recent efforts by the United States Congress to capture tax revenues on unreported revenues and assets held in foreign accounts are having disastrous effects on a growing number of Americans living abroad.
The Foreign Account Tax Compliance Act, or Fatca, signed into law in March 2010 but only now coming into full effect, has been a bipartisan lesson in the law of unintended consequences. Pressure is growing to halt its pernicious impact.
Intended to crack down on people who stash taxable income abroad, the law requires foreign banks to identify American clients and report all of their financial account information, including transaction details on checking, savings, investment, pension, mortgage and insurance accounts, to the United States government. Banks and financial institutions that do not comply are subject to a 30 percent withholding tax on revenues generated in the United States, a crushing penalty in today’s cross-border financial markets.
The bureaucratic burden of identifying, verifying and reporting has caused many banks to regard American clients, particularly those of moderate means, as more trouble than they are worth. Middle-class Americans living abroad are losing bank accounts and home mortgages and, in some cases, having their retirement savings exposed to debilitating taxes and penalties. ...
Worse yet, the law has spawned a potentially more intrusive program known as the Global Account Tax Compliance Act, or Gatca. The proposal, developed by the Organization for Economic Cooperation and Development, calls for data from accounts opened by a foreign national to be automatically reported to that person’s homeland tax authorities. While Gatca is in an early stage of negotiation and implementation, observers believe that as many as 65 countries will ultimately be involved.
Fatca, and by extension Gatca, are forming more links in the chain of global government snooping into the lives of innocent individuals under the guise of identifying criminals and tax cheats. For Americans, it is a massive breach of the Fourth Amendment, which forbids unreasonable search and seizure.
The repeal of Fatca is the only way to end this dangerous and growing government overreach. A bill has been introduced in the United States Senate to repeal provisions of the law but, in the heat of the approaching presidential campaign, congressional repeal is not going to happen.
The only viable option is legal action to challenge the law’s constitutionality in the courts. We, a bipartisan group of Americans living overseas, have formed a group called Fatca Legal Action to fund and mount this challenge. The Republican National Committee and Republicans Overseas have endorsed the legal repeal of Fatca. To date, neither Democrats Abroad nor the Democratic National Committee has done so, but there is strong and growing support among rank-and-file Democrats living overseas, several of whom have agreed to be named as plaintiffs when the lawsuit is filed in the next few weeks.
If the law is voided in the United States on constitutional grounds, it is likely that Gatca, without the support of the world’s largest financial community, will not survive either.
The NY Times op-ed staff must know expats who have been mugged by the reality of unintended consequences. They should know by now that hardliners never care about unintended consequences, which are after all just a few broken eggs for the cause of a great omelet.
Posted by: AMT buff | May 14, 2015 8:49:52 AM
"and, in some cases, having their retirement savings exposed to debilitating taxes and penalties"
That's the point of FATCA: to discover tax cheats and punish them. If we don't think dishonest rich people shoudl pay taxes, we should just pass a law exempting them, rather than repealing FATCA so they can keep hiding their assets in foreign accounts.
Posted by: Eric Rasmusen | May 17, 2015 1:31:27 PM