Last week the Treasury Department finally released the oft delayed final rules for the Foreign Account Tax Compliance Act. The 544 pages of rules seem to offer little in the way of surprises, but they do confirm that FATCA remains “the worst law most Americans have never heard of,” as recently dubbed by James Jatras. It’s time for more Americans to hear about FATCA and the damage it is preparing to do – if not already doing – to the world economy.
Media Gets FATCA Wrong
The media and industry response to the rules has been predictably sycophantic and short-sighted. The typical media report starts by asserting that FATCA was created to “crack down on tax evasion,” cites the entirely made up “estimate” that there is $100 billion in uncollected taxes from evasion, and then fails to note the obvious disconnect between the law’s estimated revenue collection of less than $1 billion per year, which is not even 1% of the money the law supposedly was designed to target. So either the estimated tax evasion figure is vastly overstating the problem, in which case the law should not exist, or FATCA utterly fails at its job, in which case the law should not exist.
Real Reason Is To Grow Government
Though there is another possible explanation we should consider, and it’s that the purpose of FATCA might not be to crack down on tax evasion at all. Based on what the law actually does, the purpose may well simply be to expand the power and scope of government.
Furthermore, another reason to suspect that FATCA is not actually designed to crack down on tax evasion is that it does nothing to target actual tax evaders. It targets everyone living, working and investing overseas, rather than simply those individuals and accounts that pose a real risk of engaging in tax evasion.
Tax Lawyers Offering Bad, Self-Serving Advice
While the media coverage has been bad, the response from industry has arguably been worse. Tax lawyers have completely sold out their clients, soliciting untold sums to comply with an unjustifiable and unconscionable law, all the while pretending that there’s nothing at all that can be done about it.
Given the extensive costs associated with bringing institutions into compliance – estimated at upwards of $100 million for larger organizations – investing even a tiny sum in comparison in the hopes of developing more sane tax policies and undoing FATCA ought to be a no-brainer. Yet few have shown the courage so far to speak out against US fiscal imperialism, much less muster significant resources to engage in opposition.
Time To Fight Is Now
The impact once FATCA is implemented will be unquestionably bad. Billions of dollars will be diverted away from productive activities in order to pay accountants and lawyers to comply with a law that promises according to the government’s own estimates to raise less than a day’s worth of spending at present levels even after ten years of collection. The law will also drive investment out of the US economy, while turning Americans living abroad into toxic assets.
But as bad as FATCA itself will be, I worry even more about what comes next. Since FATCA doesn’t come close to capturing the $100 billion in supposed loses to tax evasion each year, what’s to stop them from trying again with an even more onerous law? And if the motivation is actually just to expand the scope of government, there are no limits to politicians’ greed for power. If we allow FATCA to go forward instead of drawing a line in the sand, the next battle will be over an even more destructive law, and we’ll be fighting from an even weaker position. It’s truly now or never.