America is the only major country in the world to have an extraterritorial tax system, demanding its expatriate citizens pay tax on their foreign earnings. For many years this rule was obeyed more in the breach than the observance, but in 2010 the Congress, looking for new sources of revenue to shore up America’s teetering finances, passed the Foreign Account Tax Compliance Act – FATCA. This law has empowered the IRS to demand extraordinary compliance from expats and those who provide banking services for them, at home and abroad, to demonstrate their incomes and pay taxes on them.
The consequences have been devastating. Families have been broken up, passports cancelled, citizenships have been revoked, and dictators have been given a glimpse into dissidents’ finances. Expat Americans have found it increasingly difficult to find anyone willing to offer them banking services. FATCA amounts to a fine levied by the U.S. on any of its citizens who have the temerity to live abroad.
It is time for the law to go, as a simple matter of justice. That’s why I signed this coalition letter along with 22 other leaders from think tanks, taxpayer groups, and grassroots organizations, calling for the repeal of FATCA. As the Center for Freedom and Prosperity, which organized the letter, says:
The letter makes 5 key points:
1) FATCA fails in its primary goal to catch wealthy tax cheats;
2) It ensnares innocent Americans with excessive reporting requirements and draconian penalties for the slightest oversights;
3) It makes U.S. citizens living and working abroad toxic assets in the eyes of both financial institutions and employers;
4) Its compliance costs far outstrip the revenue it collects; and
5) It encourages other nations and international organizations to pursue aggressive tax grabs that threaten American businesses and the global economy.
Dan Mitchell of the Cato Institute said, FATCA may be “the worst provision in the entire tax code.” He’s right. Moreover, if other governments start thinking FATCA is a good idea, we could start seeing large numbers of people in this nation of immigrants taxed by foreign powers. Extraterritoriality was a bad idea to begin with. It should end before it gets any worse.