In the most comprehensive and detailed take-down I’ve yet seen of the Obama administration’s destructive FATCA law, Herman Bouma offers “11 Reasons Why FATCA Must Be Repealed.” Bouma is a Senior Tax Counsel at Buchanan Ingersoll & Rooney PC, and an international taxation expert. Here are the 11 arguments he makes along with my own summaries:
- The Height of Arrogance. FATCA unilaterally imposes requirements on every foreign financial institution (FFI) in the world.
- Blatant Violation of the Golden Rule. The US does to other nations what it would not tolerate in return.
- Bullying at the Nation-State Level. With the world’s largest economy, the US realizes it can exert tremendous pressure on foreign banks to comply with the onerous rules.
- Disruption of International Relations. Rather than follow appropriate governmental channels, FATCA makes the US a bad neighbor by demanding that the institutions of another nation – which ought to have legal jurisdiction – negotiate directly with the IRS.
- Direct Conflict with Many Foreign Laws. FATCA requires many banks to violate local privacy laws, compelling the IRS to enter into intergovernmental agreements (IGA’s) with countries whose privacy laws prohibit compliance. The agreements and the burdens created on the entire world are a highly inefficient way to deal with offshore tax evasion.
- Negative Impact on the US Economy. FATCA penalties might lead some number of foreign institutions to stop investing in the US economy.
- Immense Burden on Foreign FIs to Comply. The proposed FATCA regulations are 400 pages and the final regulations are unlikely to be any shorter. For a small foreign bank, poring through so many US regulations no doubt written in legalese is an immense burden. As if the burden of understanding the regulations aren’t enough, compliance will come at tremendous cost even if subject to an IGA.
- Burden on U.S. Individuals Residing Abroad. FATCA is proving to be a substantial burden on Americans living overseas even though it is not yet in effect. Because of the law, foreign institutions no longer wish to deal with Americans.
- Waste of Treasury and IRS Resources. The IRS is using immense resources better spent elsewhere in pursuit of raise very little in revenues.
- Efficient and Effective Enforcement Tools Already Exist. The IRS commissioner is claiming success in combating tax evasion using existing tools. And in addition to those placed on foreign financial institutions, FATCA places burdens on the IRS in requiring it to deal with 600,000 FFIs.
- The United States Is Not Willing to Provide the Same Information on a Reciprocal Basis. The US is not willing to subject domestic FIs to the same types of reporting burdens as they are foreign FIs. Treasury requires foreign governments to amend their laws if necessary to comply with FATCA, but the US is making no commitment to do the same even under its “reciprocal” agreements.
This is a great list and Bouma goes into much more detail with his research. In our own commentary on FATCA, including my recent op-ed in Forbes, CF&P makes many of the same points, emphasizing 5-8 in particular. And to add to #9, we like to point out that not only is FATCA a waste of resources, but that the complicated and convoluted tax code creates waste across the board, including in enforcement. Ideally the money spent implementing FATCA should remain in the private sector. Finally, it’s also worth highlighting that the amount of revenue projected to be raised by FATCA over ten years (about $8 billion) would not even fund the government for a single day at today’s spending levels.
In fact, we can add 3 more points to this superb list:
- Although the US is not willing at this time to provide reciprocal information, FATCA may lead Treasury to try. The rest of the world is understandably put off by US hypocrisy and demands for information while offering little in return, ut the way to correct this problem is to stop making unreasonable demands on the rest of the world, not to apply the same policies at home. Such policies would compound the negative economic effects of FATCA, and are like responding to accidentally shooting yourself in the foot by shooting your other foot for balance.
- Congress did not explicitly authorize Treasury to negotiate IGA’s. Congress misguidedly created FATCA and deserves the blame, but Treasury is going above even its dictates in trying to commit the US to a change in domestic policy to placate understandably upset foreign governments. Treasury has no authority to change the direction of US policy, which currently does not involve sharing the kinds of information with foreign governments that FATCA demands. To do so will saddle US banks with the tremendous compliance costs of FATCA.
- Revenue projections are probably optimistic. Even the small revenues projected to be raised by FATCA are likely to be overstated. Government projections are notoriously bad, and in this case likely failed to account for the degree to which FFIs would abandon the US market and otherwise find means to avoid the need to comply with the costly law.
Treasury has so far benefited from FATCA’s perceived inevitability. That myth is now punctured. FATCA has been exposed as a failed law, and in light of Edmund Burke’s famous admonition that, “All that is necessary for the triumph of evil is that good men do nothing,” it’s time to for all liberty loving people to stand up in opposition to fiscal imperialism.