The Foreign Account Tax Compliance Act (FATCA) arguably is the worst feature of the internal revenue code. It’s an odious example of fiscal imperialism that is based on a very bad policy agenda.
But there is something even worse, a Multilateral Convention on Mutual Administrative Assistance in Tax Matters that has existed for decades but recently has been dangerously modified. MCMAATM is a clunky acronym, however, so let’s go with GATCA. That’s because this agreement, along with companion arrangements, would lead to a Global Tax Compliance Act.
Or, as I’ve argued, it would be a nascent World Tax Organization.
And the United States would be the biggest loser. That’s because FATCA was bad legislation that primarily imposed heavy costs on – and caused much angst in – the rest of the world.
GATCA, by contrast, is an international pact that would impose especially heavy costs on the United States and threaten our status as the world’s biggest haven for investment.
Let’s learn more about this bad idea, which will become binding on America if approved by the Senate.
James Jatras explains this dangerous proposal in a column for Accounting Today.
Treasury’s real agenda is…a so-called “Protocol amending the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.” The Protocol, along with a follow-up “Competent Authority” agreement, is an initiative of the G20 and the Organization for Economic Cooperation and Development (OECD), with the support, unsurprisingly, of the Obama Administration. …the Protocol cannot be repaired. It is utterly inconsistent with any concept of American sovereignty or Americans’ constitutional protections. Ratification of the Protocol would mean acceptance by the United States as a treaty obligation of an international “common reporting standard,” which is essentially FATCA gone global—sometimes called GATCA. Ratifying the Protocol arguably would also provide Treasury with backdoor legal authority to issue regulations requiring FATCA-like reporting to foreign governments by U.S. domestic banks, credit unions, insurance companies, mutual funds, etc. This would mean billions of dollars in costs passed on to American taxpayers and consumers, as well as mandating the delivery of private data to authoritarian and corrupt governments, including China, Saudi Arabia, Mexico and Nigeria.
The Foreign Relations Committee unfortunately has approved the GATCA Protocol.
But Rand Paul, like Horatius at the bridge protecting Rome, is throwing sand in the gears and isn’t allowing easy passage by the full Senate.
…the senator is right to insist that the OECD Protocol is dead on arrival.
Taxpayers all over the world owe him their gratitude.
In a column for Investor’s Business Daily, Veronique de Rugy of the Mercatus Center warns that this pernicious and risky global pact would give the IRS power to collect and automatically share massive amounts of our sensitive financial information with some of the world’s most corrupt, venal, and incompetent governments.
During a visit to the World Bank this week, I got a sobering lesson about the degree to which the people working at international bureaucracies, including the Organization for Economic Cooperation and Development, dislike tax competition. For years, these organizations — which are funded with our hard-earned tax dollars — have bullied low-tax nations into changing their tax privacy laws so uncompetitive nations can track taxpayers and companies around the world. …they never tire of trying to raise taxes on everyone else. Take the Organization for Economic Cooperation and Development’s latest attempt to impose a one-size-fits-all system of “automatic information exchange” that would necessitate the complete evisceration of financial privacy around the world. A goal of the Convention on Mutual Administrative Assistance in Tax Matters is to impose a global network of data collection and dissemination to allow high-tax nations to double-tax and sometimes triple-tax economic activity worldwide. That would be a perfect tax harmonization scheme for politicians and a nightmare for taxpayers and the global economy.
But she closes with the good news.
Somehow the bureaucrats persuaded the lawmakers on the Senate Foreign Relations Committee to approve it. Thankfully, it’s currently being blocked by Sens. Rand Paul, R-Ky., and Mike Lee, R-Utah.
Actually, all that’s being blocked is the ability to ram the Multilateral Convention through the Senate without any debate or discussion.
John Gray explains the procedural issues in a piece for Conservative Review.
Senators Rand Paul (R-KY) and Mike Lee (R-UT)…aren’t blocking these treaties at all. Instead, they are just objecting to the Senate ratifying them by “unanimous consent.” The Senate leadership has the authority to bring these tax treaties to the floor for full consideration – debate, amendments, and votes. That is what Senators Paul and Lee are asking for. …Unanimous consent means that the process takes all of about 10 seconds; there is no time to review the treaties, there is no time for debate, and not a second of time to offer amendments. They simply want them to be expedited through the Senate without transparency. …As sitting U.S. Senators, they have the right to ask for debate and amendments to these treaties. …These treaties are dangerous to our personal liberties. Senator Paul and Senator Lee deserve the transparency and debate they’ve requested.
For those of us who want good tax policy, rejecting this pact is vital.
An ideal fiscal system not only has a low rate, but also taxes income only one time and only taxes income earned inside national borders.
Yet the OECD Protocol to the Multilateral Convention is based on the notion that there should be pervasive double taxation of income that is saved and invested, and that these taxes should be levied on an extraterritorial basis.
But this isn’t just a narrow issue of tax policy. On the broader issue of privacy and government power, Professor Niall Ferguson of Harvard makes some very strong points in a column for the South China Morning Post.
I should be a paid-up supporter of the campaign to close down tax havens. I should be glad to see the back of 500-euro bills. …Nevertheless, I am deeply suspicious of the concerted effort to address all these problems in ways that markedly increase the power of states – and not just any states but specifically the world’s big states – at the expense of both small states and the individual.
He cites two examples, starting with the intrusive plan in the U.K. to let anybody and everybody know the owners of property.
The British government announced it will set up a publicly accessible register of beneficial owners (the individuals behind shell companies). In addition, offshore shell companies and other foreign entities that buy or own British property will henceforth be obliged to declare their owners in the new register. No doubt these measures will flush out or deter some villains. But there are perfectly legitimate reasons for a foreign national to want to own a property in Britain without having his or her name made public. Suppose you were an apostate from Islam threatened with death by jihadists, for example.
He also is uncomfortable with the “war against cash.”
…getting rid of bin Ladens is the thin end of a monetary wedge. …a number of economists…argue cash is an anachronism, heavily used in the black and grey economy, and easily replaced in an age of credit cards and electronic payments. But their motive is not just to shut down the mafia. It is also to increase the power of government. Without cash, no payment can be made without being recorded and potentially coming under official scrutiny. Without cash, central banks can much more easily impose negative interest rates, without fearing that bank customers may withdraw their money.
He’s right. The slippery slope is real. Giving governments some power invariably means giving governments a lot of power.
And that’s not a good idea if you’re a paranoid libertarian like me. But even if you have a more benign view of government, ask yourself if it’s a good idea to approve a global pact that is explicitly designed to help governments impose higher tax burdens?
Senators Paul and Lee are not allowing eight treaties to go forward without open debate and discussion. Seven of those pacts are bilateral agreements that easily could be tweaked and approved.
But the Protocol to the Multilateral Convention can’t be fixed. The only good outcome is defeat.