Sound tax policy is hard to find these days. As CF&P has extensively covered, Congress included the Foreign Account Tax Compliance Act as part of the HIRE Act, passed in March 2010. FATCA takes a fundamentally wrong-headed approach to tax policy. Rather than looking at how to make the U.S. tax system more hospitable to foreign capital, more conducive to economic growth, and easier for everyone involved to understand, Congress decided to engage in the fools errand of trying to track down and collect every last dollar of possible unpaid tax, even though the U.S. has relatively high compliance rates compared to the rest of the world. Unfortunately, in doing so they have added costly regulatory burdens onto foreign financial institutions, which is resulting in damage to the U.S. economy and severe headaches for U.S. citizens abroad.
In a segment from a radio interview with Republicans Abroad Radio, CF&P President Andrew Quinlan explains how FATCA is harming the U.S. through loss of foreign investment, and leading to a situation where many Americans living abroad can no longer find banks that will take them as clients.
In the next section of the interview, Quinlan talks about another example of bad tax policy. Specifically, he addresses Senator Coburn’s recent attempt to eliminate the Section 911 exclusion for income earned overseas. The provision is designed to avoid double taxation on income earned overseas by carving out an exemption for income under a certain threshold. The U.S. government is one of the few in the world which even attempts to tax labor income earned overseas. The ideal reform would be to move to a territorial system instead of the current uncompetitive worldwide tax system, but absent that, Section 911 should be preserved or expanded.
