One of the tax increases buried in Obamacare was an onerous and intrusive “1099” scheme that would have required businesses to collect tax identification numbers for just about any vendor and then send paperwork to the IRS whenever they did more than $600 of business.
-
o Send one of your sales people to New York for a couple of nights? They would have to get the tax ID for the hotel and submit a form to the IRS.
o Buy a printer for the office? The printer company would need to provide a tax ID and the purchaser would have to submit a form to the IRS.
o Have a retirement dinner for somebody in the accounting department? Get the restaurant’s tax ID and submit another form to the IRS.
This system was seen as a nightmare, even leading to rather amusing cartoons mocking the law and showing how it would expand an already abusive IRS. And in a rare fit of common sense, the 1099 requirement was repealed earlier this year.
That’s the good news. The bad news is that an international version of Obamacare’s 1099 scheme also was enacted early last year. But since the burden is largely falling on foreigners, there’s no groundswell among voters to repeal the law – even though it will impose far more damage on the American economy.
Known as the FATCA (the acronym for the Foreign Account Tax Compliance Act), this law was included as a revenue-raising provision to pay for one of Obama’s failed stimulus bills.
But while the bill didn’t create jobs, it has created a giant nightmare for all sorts of people and firms – including foreign financial institutions that may now decide that it’s no longer worth the trouble to invest in America.
Consider these excerpts from a shocking story in the Financial Times.
…one of Asia’s largest financial groups is quietly mulling a potentially explosive question: could it organise some of its subsidiaries so that they could stop handling all US Treasury bonds? Their motive has nothing to do with the outlook for the dollar. …Instead, what is worrying this particular Asian financial group is tax. In January 2013, the US will implement a new law called the Foreign Account Tax Compliance Act. …the new rules leave some financial officials fuming in places such as Australia, Canada, Germany, Hong Kong and Singapore. …implementing these measures is likely to be costly; in jurisdictions such as Singapore or Hong Kong, the IRS rules appear to contravene local privacy laws. …Terry Campbell, head of Canada’s banking association, points out, the rules are essentially akin to “conscripting financial institutions around the world to be arms of US tax authorities”. …the IRS is threatening to impose a withholding tax of up to 30 per cent on sales of US assets by groups that it deems to be “non-compliant” – and the assets could include US shares or US Treasury bonds. Hence the fact that some non-US asset managers and banking groups are debating whether they could simply ignore Fatca by creating subsidiaries that never touch US assets at all. “This is complete madness for the US – America needs global investors to buy its bonds,” fumes one bank manager. “But not holding US assets might turn out to be the easiest thing for us to do.” …“Right now my board is probably as concerned about political risk in America as Indonesia, from a business perspective – perhaps more so,” says the head of one large global bank. It is a complaint that American politicians ignore at their peril.
Many people, when hearing about foreign banks resisting demands by the IRS, might automatically assume the issue involves jurisdictions with strong human rights laws with regards to financial privacy, such as Switzerland or the Cayman Islands.
There are plenty of those stories, to be sure, but American tax law has become so bad that the IRS is causing headaches and anger even in nations with high taxes and weak protection of client data.
Here’s an excerpt from an article from the Financial Post in Canada.
Toronto-Dominion Bank is putting up a fight against a new U.S. regulation that would compel foreign banks to sort through billions of dollars of deposits to find U.S. citizens who might be hiding money. According to Bloomberg News, TD has complained that the proposed IRS rule is unreasonable because it would require the bank to make US$100-million investment in new software and staff. Other lenders resisting the effort include Allianz SE of Germany, Aegon NV of the Netherlands and Commonwealth Bank of Australia, Bloomberg said. Now the Canadian Bankers association has joined the fray. In an emailed statement the CBA called the requirement “highly complex” and “very difficult and costly for Canadian banks to comply with.” …According to the New York-based Institute of International Bankers, major global banks would end up spending US$250 million or more to comply with the regulation in terms of new technology employee training.
The vast majority of Americans are very fortunate that they don’t have any personal interactions with the IRS’s onerous international tax rules. But that doesn’t mean they shouldn’t care. The tax treatment of cross-border economic activity can have enormous implications for America’s prosperity, as I’ve already explained in my discussions of a reckless IRS regulation that could drive more than $100 billion of capital out of American banks.
But that’s just the tip of the iceberg. FATCA is far more onerous and extensive, so the damage will be much greater. Not surprisingly, the law utterly fails to satisfy any sort of cost-benefit analysis.
From the perspective of politicians, the “benefit” is more tax revenue. So how does FATCA score on this basis? During the 2008 campaign, Obama claimed this policy would generate $100 billion of additional revenue every year. When it came time to score the legislation, however, the Joint Committee on Taxation predicted that the law will generate only $870 million per year. That’s a big drop-off, even by the shoddy standards of Washington.
Yet for this tiny amount of revenue, the law imposes a giant regulatory burden on all individuals, companies, and institutions that meet two criteria: 1) They have some form of cross-border economic activity, and 2) They have a business or citizenship relationship with the United States.
Americans living overseas are one of the groups that will be severely penalized. Simply stated, foreign financial institutions are treating U.S. citizens like lepers because they don’t want to deal with the IRS and be deputy enforcers of terrible American law. Here are comments from some of Americans living in other nations (all of whom wish to remain anonymous because they fear being targeted by a thuggish IRS).
o From an American with a spouse working in Germany – “…when he went to create an account, he discovered that the bond fund could not be sold to US citizens.”
o From a non-profit group operating in Europe – “…we received notification from [bank redacted] that they were terminating our account.”
o From an American working in Switzerland – “I’m in the process of having my…accounts with [bank redacted] forced closed, except for the mortgage. I’ve been unable to open an account with any other Swiss bank.”
o From an American living in Belgium – “…my portfolio of investments held at their bank was blocked. …He advised me that as of that
date, I could no longer trade, but could only hold, sell or transfer my portfolio. I was banned from trading in either US stocks or all others.”
o From a retired teacher in Germany – “I was denied the policy because I am an American citizen. My agent very clearly said that he could sell the policy that I wanted to any other nationality, except me-because I was American!”
o From an American working in Saudi Arabia – “As a resident of Saudi Arabia, I have twice been rejected as a customer, purely on the basis of my US citizenship. In both instances, I was told that increased administrative and compliance burdens imposed by US authorities have led the banks in question to refuse to open securities accounts for American citizens.”
o From an American in Japan – “All of these banks and institutions are cutting me off from participation in any but the most simple of basic bank account. Why? Because they do not want to take the time and instill the systems and carry the cost of reporting the income of each of their US citizen clients to the US government.”
o From an American married to a European – “I have been unable to gain legal advice in Switzerland regarding US Wills and Guardianships because [bank redacted] lawyers are ‘not permitted to speak to Americans about legal, tax or banking matters in specific terms.'”
o From an American married to a European – “The company who has been holding my modest UK share portfolio wrote to me in September 2010 saying they were closing my account. They were removing all US persons from their client base due to the increased reporting and audit costs placed on them by the Fatca legislation.”
o From an American in Europe with a foreign spouse – “They sent me a letter saying: Our records show that you are an American citizen. Because of various strict new American rules regarding securities accounts held by American shareholders, we are closing such accounts including yours.”
o From an American assigned overseas by his company – “I was extremely surprised and outraged by the fact that not one bank (including foreign branches of US banks!) would allow me to open a simple savings account to pay my rent and bills. All of the banks cited my US citizenship and the difficulties they experience with the US government.”
o From an American in Spain – “I have been forced to close a U.S. bank account due to being an overseas citizen and cannot open new bank or brokerage accounts in the U.S. I am also being denied the opening of new brokerage accounts in Spain.”
Last but not least, another set of victims are foreigners who legally reside in the United States. That makes them tax residents according to American tax law, which means that they also are lepers from the perspective of foreign financial institutions.
Let’s close this lengthy post by including this letter from a Danish bank to a Danish citizen living in the United States. Once again, identifying information is redacted because the person did not want to suffer IRS persecution (it should disturb all of us, by the way, that there is such universal fear of IRS thuggery).
[…] collected some of the statements from these overseas Americans. I encourage you to visit this link and get a sense of what they have to […]
[…] she’s not an outlier. Because of America’s bad worldwide tax regime (and especially because of FATCA, which makes enforcement of that bad system especially painful), an ever-growing number of overseas […]
[…] been criticizing this awful legislation from the beginning. Hopefully Congress and the Trump Administration will give me one less thing to […]
[…] This language is vacuous, but it’s nonetheless noteworthy that even the Democrats feel compelled to say bad things about one of Obama’s worst laws. […]
[…] This language is vacuous, but it’s nonetheless noteworthy that even the Democrats feel compelled to say bad things about one of Obama’s worst laws. […]
[…] you can see, America’s worldwide tax system is bad policy, and it’s a nightmare for millions of innocent people thanks to ill-considered laws such as […]
[…] you can see, America’s worldwide tax system is bad policy, and it’s a nightmare for millions of innocent people thanks to ill-considered laws such as […]
[…] you can see, America’s worldwide tax system is bad policy, and it’s a nightmare for millions of innocent people thanks to ill-considered laws such as […]
[…] true that both Obamacare and FATCA grant new powers and obligations to the IRS, but we can solve that problem by repealing those […]
[…] a chilling account in his blog, Dan Mitchell, senior fellow at the Cato Institute, points out, “…since the burden largely […]
[…] Americans are not exactly happy that federal law is making their lives so miserable, so I’m not surprised that they seem to be the ones who put together this great […]
[…] a chilling account in his blog, Dan correctly points out that while some of us in America who understand its impact are alarmed by […]
[…] He already is playing a very substantive role on policy, ranging from his actions of big-picture issues, such ashis proposed budget that would significantly shrink the burden of government spending, to hiswillingness to take on lower-profile but important issues such as repealing the Obama Administration’swretched FATCA law. […]
[…] you probably don’t understand that this already is happening. The IRS’s awful FATCA legislation, for instance, is basically designed for exactly the purpose of coercing other nations into […]
[…] you probably don’t understand that this already is happening. The IRS’s awful FATCA legislation, for instance, is basically designed for exactly the purpose of coercing other nations into […]
[…] Switching gears, I’ve written a couple of times about the intrusive and destructive Foreign Account Tax Compliance Act. Well, we have some good news on that front. The Republican National Committee has endorsed the […]
[…] Switching gears, I’ve written a couple of times about the intrusive and destructive Foreign Account Tax Compliance Act. Well, we have some good news on that front. The Republican National Committee has endorsed the […]
If you want to be free, don’t be American.
A while back, Senator Reed spouted off about the “greatness” of the United States, although other than spouting self-righteous hypocrisy, I’m not sure what it is that the United States is supposed to be so great at.
If you think you’re going to get out of discrimination in banking and employment markets by losing American citizenship, it may not be so simple – Reed, Schumer, and others can barely conceal their zeal when talking about the measures they sponsor to punish people who expatriate from the US, expatriation being one of the rights in the Universal Declaration of Human Rights (to which the US is a signatory), and which is called a “natural and inherent right of all people” under US law. But people like Schumer and Reed are perfectly willing to punish people exercising “natural and inherent” rights if they think they can make money doing it.
US immigration/emmigration policy is very simple – don’t let any poor people in, and don’t let any rich people out. Furthermore, the definition of “rich” is expanding to anyone who has a bank account.
If you don’t have American citizenship or residency, but do have a lot of money, don’t even think about moving to the US – you’ll wish you hadn’t. Once you’re in, you can never get out. Even if you don’t have a lot of money, I’d think long and hard about going. If you do go, and decide to leave, you’ll discover that as an expatriate American, you have fewer rights than an expatriate North Korean.
There are lots of the countries in the world with more freedom and better economic opportunities than the US, and which unlike the US, respect human rights. I’m in one of them. I have petitioned the government here not to print birthplaces on passports, because those with US birthplaces are likely to face lifelong discrimination and harassment because of their association with the land of the unfree.
If you love freedom, stay away from America.
AT
[…] But in the grand scheme of things, it’s just another in a long line of policies (such as FATCA) designed to increase the power of governments to impose and enforce bad tax […]
This administration and its megabucks backers have one aim and one aim only: To take down the United States of America. By the time most people catch on, it will be–as planned–too late.
[…] collected some of the statements from these overseas Americans. i encourage you to visit this link and get a sense of what they have to […]
[…] 1. Our first option deals with the Orwellian Foreign Account Tax Compliance Act (FATCA), which seeks to impose bad American tax law on things that happen outside America’s borders. […]
[…] He already is playing a very substantive role on policy, ranging from his actions of big-picture issues, such ashis proposed budget that would significantly shrink the burden of government spending, to hiswillingness to take on lower-profile but important issues such as repealing the Obama Administration’swretched FATCA law. […]
[…] He already is playing a very substantive role on policy, ranging from his actions of big-picture issues, such as his proposed budget that would significantly shrink the burden of government spending, to his willingness to take on lower-profile but important issues such as repealing the Obama Administration’s wretched FATCA law. […]
[…] The good news, by the way, is that Senator Rand Paul has introduced legislation to repeal the worst parts of FATCA. […]
[…] FATCA is predicted to collected less than $1 billion per year, and it probably will lose revenue once you include Laffer Curve effects such as lower investment […]
Another example of the effects of FATCA: Last week, VIA MAT, the world’s biggest gold storage company announced they’re dropping all their US customers due to “rapid and substantial changes in the general regulations within this business”.
[…] But in the grand scheme of things, it’s just another in a long line of policies (such as FATCA) designed to increase the power of governments to impose and enforce bad tax […]
[…] But in the grand scheme of things, it’s just another in a long line of policies (such as FATCA) designed to increase the power of governments to impose and enforce bad tax […]
[…] course, but keep in mind that the federal government already has ventured into this territory with Orwellian laws such as “FATCA” that create a global reach for bad American tax […]
[…] investment is a big net plus for the American economy. Indeed, this is why I’m so critical of laws such as FATCA that discourage foreigners from making job-creating investments in the United […]
Here are some links to sites that discuss the unwanted effects of US extraterritorial tax policies:
http://www.isaacbrocksociety.com
http://mopsicktaxlaw.blogspot.com/2012_04_01_archive.html
http://www.aca.ch
http://www.aaro.org
http://www.hodgen.com
The reality is, US policies especially crush middle class USPs (US Persons = Green Card or US Citizenship) Abroad whether they are tax compliant to the US or not. The reporting requirements of FATCA and FBAR (FATCA having apparently been passed as a rider to the HIRE act without much real open Congressional debate on the issue) are causing US Persons abroad, many of whom are dual nationals of their country of residence or a third country, to lose their jobs, be refused even basic bank accounts, and be shunned by prospective non-USP business partners who don’t want to deal with dual-reporting and taxation requirements to the IRS.
Most working and middle-class “minnows” abroad pay local, regional, and national taxes in the countries where they live, as well as VAT, excise and other taxes and fees. Whether these taxes are lower or higher that what they would pay as “homelanders” (USPs resident in the US) is immaterial. They all pay their fair share where they live according to the local system negotiated through whatever political means extant. They have to deal with the advantages and the drawbacks of their local countries’ system and do not need and often cannot survive with the additional variables imposed by the IRS.
US extraterritorial taxation policy does not take into account the disparities caused by the shift in exchange rates (thanks perhaps largely to US “quantitative easing”) that pushes people into higher US tax brackets despite no increased local purchasing power, the cost of living in each foreign country, as well as the tax structure in the foreign countries (for example, some countries have a much higher VAT than the US sales tax, but VAT paid outside the US is not eligible for a Foreign Tax Credit in the US).
US Double Taxation also takes money rightfully earned in a foreign country out of the local economy, where USPs should be free to spend or invest their money. Non-USP family members of USPs are also adversely affected, despite having no allegiance to the US.
Working and middle-class USPs have recently reached retirement age to discover that they have outstanding US tax liability, or while having no US tax liability due to the (limited) Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC), might owe confiscatory penalties on foreign tax-deferred or tax-exempt retirement plans that were not reported to the US (see FBAR). Many USPs abroad renounce nationality because their pensions would not count as “Earned Income” and they could not survive if they paid US double taxes. Nonetheless, the renouncement process is time consuming and costly.
[…] that’s saying something, because with each passing day, it is more and more obvious that FATCA is a destructive law that will significantly harm the American economy. But at least it’s a law, one that was approved by Congress and signed by the President. And the […]
[…] that’s saying something, because with each passing day, it is more and more obvious that FATCA is a destructive law that will significantly harm the American economy. But at least it’s a law, one that was approved by Congress and signed by the President. And the […]
[…] that’s saying something, because with each passing day, it is more and more obvious that FATCA is a destructive law that will significantly harm the American economy. But at least it’s a law, one that was approved by Congress and signed by the President. And […]
[…] that’s saying something, because with each passing day, it is more and more obvious that FATCA is a destructive law that will significantly harm the American economy. But at least it’s a law, one that was approved by Congress and signed by the President. And […]
[…] But that legislation is a disaster, imposing crippling burdens on overseas Americans and driving investment out of the American economy. If that’s an indication of how a new wealth tax would be enforced, then we can all look […]
[…] the HIRE Act legislation created the inane Foreign Account Tax Compliance Act in 2010, the congressional Joint Committee on Taxation estimated that the new law would raise only […]
[…] latest example of this process involves the Foreign Account Tax Compliance Act, a piece of legislation that was imposed in 2010 because politicians assumed they could collect […]
[…] latest example of this process involves the Foreign Account Tax Compliance Act, a piece of legislation that was imposed in 2010 because politicians assumed they could collect […]
[…] latest example of this process involves the Foreign Account Tax Compliance Act, a piece of legislation that was imposed in 2010 because politicians assumed they could collect […]
[…] Americans are not exactly happy that federal law is making their lives so miserable, so I’m not surprised that they seem to be the ones who put together this great […]
Perhaps we should wonder why seemingly sovereign nations put up with the overreach of the IRS and US FedGov.
[…] Americans are not exactly happy that federal law is making their lives so miserable, so I’m not surprised that they seem to be the ones who put together this great […]
[…] Americans are not exactly happy that federal law is making their lives so miserable, so I’m not surprised that they seem to be the ones who put together this great […]
[…] to a punitive “worldwide” approach to taxation, we have needless conflicts with other nations, leading the United States to side with high-tax governments and persecute low-tax […]
[…] to a punitive “worldwide” approach to taxation, we have needless conflicts with other nations, leading the United States to side with high-tax governments and persecute low-tax […]
[…] https://danieljmitchell.wordpress.com/2011/06/20/fatca-law-is-an-international-version-of-obamacares-… […]
[…] approach was tried already, as part of HIRE Act of 2010 (which was infamous for the FATCA provision), and it obviously didn’t generate great results. Simply stated, giving special tax breaks to […]
[…] have been well articulated by American Citizens Abroad. Additional examples have been identified by Daniel Mitchell of the CATO […]
[…] [8] International Liberty, “FATCA Law Is an International Version of ObamacareÕs 1099 Provision, a Nightmare for Cross-B… […]
[…] approach was tried already, as part of HIRE Act of 2010 (which was infamous for the FATCA provision), and it obviously didn’t generate great results. Simply stated, giving special tax breaks to […]
[…] a chilling account in his blog, Dan Mitchell, senior fellow at the Cato Institute, points out, “…since the burden largely […]
[…] In a disturbing account in his blog, Dan Mitchell of the Cato Institute correctly points out that while some of us in America who understand its impact are alarmed by FATCA “…since the burden is largely falling on foreigners, there’s no groundswell among voters to repeal the law, even though it will impose far more damage on the American economy.” […]
[…] a chilling account in his blog, Dan correctly points out that while some of us in America who understand its impact are alarmed by […]
[…] In a chilling account in his blog, Dan correctly points out that while some of us in America who understand its impact are alarmed by this law “…since the burden is largely falling on foreigners, there’s no groundswell among voters to repeal the law, even though it will impose far more damage on the American economy.” […]
There’s no doubt that FATCA is absurd. We can only hope that it will suffer from the law of unintended consequences. When foreign banks and funds refuse to buy Treasuries, who will buy them to support our profligacy? For the time being, there are still some banks and wealth managers willing to do business with Americans: JGAM, Euram Bank, WHVP, & BFI are a few that I know of. I believe HSBC and Citibank will, also. I have an account in South Africa with First National Bank, and so far they haven’t said anything about closing my account. So hopefully “this too shall pass”. As with other contributors, I’d rather not leave my real name for fear of Big Brother.