On April 26, the House Ways and Means Committee will hold a hearing on legislation to repeal FATCA. While not widely known in the United States, this legislation places an unprecedented burden on Americans living abroad by spying on their international banking operations.
It is a complex system whereby foreign banks are compelled by the Department of the Treasury to issue reports on bank accounts held by U.S. citizens who reside abroad. There is no comparable scrutiny of Americans living in the U.S.
The Wall Street Journal reported in July 2014 that FATCA worsens the already profoundly unjust tax treatment of millions of middle-class Americans living abroad. Many of those Americans may have never resided in America, because they are simply the children of Americans who were born and have resided outside the United States their entire lives.
The Guardian reports that these Americans living abroad feel financially terrorized by FATCA requirements. A survey shows that overseas Americans see their financial accounts summarily closed, their relationships with their non-American spouses put under strain, promotions or partnership in business denied — all because of onerous FATCA reporting requirements. According to a survey reported by Forbes, “5.5 million Americans eye giving up U.S. citizenship.” It should be kept in mind that most of these people do not use the roads, the schools, and the other facilities of the United States, they do not receive Medicare or Medicaid, and other than getting a new passport every ten years, are no burden.
Americans overseas find themselves a disadvantaged minority group. They are not the object of racial or social discrimination but of the federal government itself, the perpetrator of their disadvantaged status.
Last week on April 3, Senator Mark Meadows and Rand Paul, who are sponsoring the repeal of the law, sent a letter to the White House and Treasury department characterizing FATCA as “a massive wasteful regulatory mandate that has failed in its ostensible purpose of recovering tax revenues hidden offshore.”
But why should problems created for a small faction of U.S. citizens be of concern to Americans in general and their representatives in Congress?
The short answer is that the U.S. federal government steamroller, once fired up, tends to keep going. Where there is unequal treatment, now being contested in court cases, it is possible this same reporting requirement could soon apply to all Americans. This scenario is not science fiction because although America is unfair in its treatment of residents abroad, it has not until now adopted the intrusive methods used by many governments to access all resident and non-resident bank accounts. Many of these countries tax assets!
The more complete answer is that Americans advance the interests of the United States and, irrespective of the slippery-slope danger for American taxpayers at home, benefit from America’s involvement overseas. They are the bulwarks of American public diplomacy. For example, the presence in Europe of many of the 8 million Americans living abroad is the legacy of one of the greatest victories in American history where our fathers and grandfathers fought to free France and the rest of Europe from Nazi Germany. Of course we fought for freedom. But we also fought for free trade and for the ability of America to thrive in a capitalist market environment where U.S. goods and services would be judged based on quality rather than political factors.
The American descendants of our fighting men in many cases help to advance American business and financial interest through their expertise in science, technology, commerce, marketing, financial operations, law, academic excellence, and diplomacy. The 320 million U.S. citizens should be delighted that a small number were adventurous and like the Yankee Traders of years past trading abroad. The young Americans who travel to teach English or Computer Science should be encouraged, not discouraged. They are legions of ambassadors at no cost to the country. Take the case of Amazon, with world-wide staff of 200,000, soon to be 300,000, and its warehouses that sell outside the U.S., are placed outside the U.S. But under the shadow of FATCA, they are not likely to hire a “U.S. Person,” however qualified, to run Amazon in France (the current President of Amazon France is Frederic Duval).
Energy technology is an area where the United States reigns supreme and companies like Halliburton, Baker, and Hughes Tool are quintessentially American, but generally run by non-Americans abroad because of FATCA.
The heavy burden that only Americans are double taxed became intolerable when the Obama administration began the road toward FATCA by lobbying for a set of OECD regulations to force the banks in the 35 member countries to spy on the citizens of the other countries! That way revenue could be raised from the millions of individuals who do not reside in the country where they were born.
Those who orchestrated this marvelous way of enabling foreign banks to spy on citizens of foreign countries should be awakened to the fact that effectively only U.S. taxpayers are targeted and that furthermore their efforts have produced a negative bottom line for the U.S. Treasury. Other OECD members may have adhered to the principle of international spying but have been slow and reluctant to put into effect the blackmail that if a bank didn’t do their bidding the bank would be penalized. The result is that most foreign banks would no longer want clients who were “U.S. Persons.” Of all the countries who were very upset by these ill-formed regulations, Canada was the most vehement. It seems that 2,000,000 Canadians are “U.S. Persons” since they were the holders of two passports.
A key theme in the Republican platform is to limit government, and especially where individual economic and personal rights are abused. In fact, the Platform singled out FATCA as a law that should be repealed. This is one position in the party platform that can be, and should be, a priority measure given that there is an across the board consensus against federal government intrusion, violation of individual liberties, and promotion of measures that encourage, not defeat, American economic interests in the world. This is why the outcry to repeal or seriously reform FATCA has been intensified since the Trump election. The Trump constituency and majority in Congress are opposed to federal government intrusion into individual liberties.
It should also be noted that because the Republicans have the presidency, FATCA can begin to be dismantled even without repeal of the legislation. The law has never been voted as a treaty but implemented simply as a series of contracts that can be cancelled by President Trump. The Meadows-Paul letter specifically suggests that even before repeal, the Treasury Department cease implementation of international agreements designed to enforce FATCA. Sadly, U.S. citizens abroad have no representatives in Congress and therefore the very real problems they face may not make it to the top of the agendas of politicians who count in Washington.
Finally, American post-WWII predominance in the world depends on the dollar as the standard worldwide currency for commercial and financial transactions, not to be confused with a strong dollar exchange rate. Obstacles to bank and industry reliance on the dollar are obstacles to American influence in the world. An inevitable result of the continuation of FATCA is the decline in the power of the U.S. Dollar: countries like China, India, and Russia are already turning to using other currencies for trade to avoid the United States banking system altogether and 14 of the top 20 banks in the world are based outside the U.S.
For years, the U.S. Passport was a magical document that conveyed prestige and power. This prestige is shrinking as we speak.