The destruction caused by the Foreign Account Tax Compliance Act (FATCA) has been well covered by CF&P and others. Among other things, the law is scaring foreign investment out of the economy, turning US citizens abroad into toxic assets, and redirecting significant funds away from productive investments toward excessive compliance costs, all in the pursuit of extremely limited new revenues.
As the BBC reports, added to all of that is a tremendous loss of human talent:
The number of expatriates renouncing their US citizenship surged in the second quarter of 2013, compared with the same period the year before – 1,131 cases to 189 in 2012.
…Unlike other countries, Americans are taxed not only as residents of the US but also as citizens, wherever they live.
Suddenly, some expats are waking up in a cold sweat. They have always had to file tax returns and disclose foreign accounts on a form called the FBAR, although in practice many didn’t. But now Fatca means they have to be more rigorous or face huge fines…
…[C]ritics say that in trying to track down the wealthy tax-dodgers, ordinary people are being dragged into an expensive and time-consuming form-filling nightmare. And for some, it’s become too much.
…Bridget, who asked the BBC not to use her real name, gave up her US citizenship in 2011, 32 years after leaving for a new life in Scandinavia.
“This has nothing to do with avoiding taxes. I was never in danger of having to pay taxes in the US since I pay more here. The issue for me was that it was becoming harder and harder to follow the tax code and comply. It was difficult already but when I knew Fatca was coming, I thought, ‘Do I want to go through with it anymore?'”
…It became so complicated to do her tax return that she turned to professionals, at an annual cost of nearly $2,000 (£1,250), with the prospect of Fatca raising the price to $5,000. Also, fewer tax lawyers were taking on American clients, she says, and some banks were even turning away American money.
“In the end, I sleep better now knowing that I no longer have to worry about the US requirements. I will never be able to live or own property in the US but I can visit and that’s enough for me.”
Another expat quoted in the piece adds:
“I don’t know any Americans abroad who aren’t thinking about giving it up…”
What an outrageous, self-inflicted wound it is for a country that once thrived on attracting talent from all over the world to decide in a fit of tax-obsessed rage to drive away human talent. It’s a tragic reversal of everything America once stood for, which explains why some in Congress, like Sen. Rand Paul, are taking steps to undo the damage.
What has also not gone unnoticed in this whole debacle is the inherent hypocrisy of the US position, as demonstrated by the following piece passed along by longtime CF&P friend and dedicated advocate for free markets Dr. Eduardo Morgan Jr., partner at Morgan and Morgan and former ambassador of the Republic of Panama to the United States:
Latin American elites, rich Asians, and a surprisingly large number of moderate income Europeans have long used U.S. banks as a place to hide their wealth from the grabbing hand of home-country tax collectors. With $3 trillion of deposits in U.S. banks held by non-residents, America is by far the world’s biggest “off-shore” banking center.
The first shot across the bow came in the form a letter to President Obama signed by the entire congressional delegation of Florida condemning the IGAs as reaching beyond the scope of congressional intent. Then, much more ominously, on July 3, 2013, Representative Bill Posey (R-Florida) wrote a strongly worded letter to the new Treasury Secretary Jack Lew insisting that Treasury was exceeding its authority in negotiating IGAs. The letter goes on to say that the need for the IGA reflects deep flaws in FATCA itself and that the law “must be either substantially amended or repealed.”
Given Posey’s role in the House Financial Services Committee, his voice represents a significant new and potentially fatal blow to the whole FATCA project. These developments should be encouraged as FATCA itself is one of the most stunningly arrogant pieces of legislation to come out of Congress in years.
