FATCA Needs To Go, But Unfortunately, The FATCA “Refugees” Are Never Coming Back
Posted by Tyler Durden on February 1, 2017 2:00 am
Tags: 111th United States Congress, citizenship, Dubai, Economy, Eritrean government, FATCA, Foreign Account Tax Compliance Act, Internal Revenue Service, International Law, International taxation, Italian government, italy, Law, Middle East, Netherlands, obama administration, OBAMACARE, Offshore bank, Social Issues, spy, tax, Tax avoidance, Taxation in the United States, U.N. Security Council, United Nations, United States nationality law, US Federal Reserve, US government
Categories: 111th United States Congress Citizenship Dubai Economy Eritrean government FATCA Foreign Account Tax Compliance Act Internal Revenue Service International Law International taxation Italian government italy Law Middle East Netherlands Obama Administration obamacare Offshore bank Social Issues SPY tax Tax avoidance Taxation in the United States U.N. Security Council United Nations United States nationality law US Federal Reserve US government
GotNews posted an article yesterday about a “refugee problem” America has, referring to approximately 20,000 Americans who have renounced their citizenship under Obama’s leadership, and suggesting America “repatriate” said citizens:
America has a refugee problem. Not the Syrian refugees. No, not the Afghan ones. No, not even the Cuban refugees. I’m talking about the born-and-raised American citizens who got fed up, gave up their U.S. citizenship, and escaped Obama’s America while they still could.
Yes, that’s right: nearly 20,000 American citizens left Obama’s America and forfeited their American citizenship while Obama was President.
Nearly 20,000 U.S. citizens voluntarily gave up their rights to vote, run for office, and the freedom to pursue “life, liberty, and the pursuit of happiness”, while Obama was in office.
We shouldn’t be allowing anyone from the violent and dangerous Middle East, including so-called “refugees”, into the United States right now. The only refugees who should be entering the United States are the American refugees who fled Obama’s America. Not only do we have that duty to our fellow Americans, but they pose no threat to us like Middle Eastern “refugees” do.
What was missing from the article? Discussion of the Obama-sponsored law that caused many citizens (mostly expats) to renounce their citizenship: FATCA (Foreign Account Tax Compliance Act).
FATCA has been beaten to death by other sources, but surprisingly, very few people are aware of what it does. The whole purpose of the law was to “crack down” on overseas tax evasion. Simon Black of Sovereign Man did an excellent job of summarizing the net effect:
Deep within its bowels fell the Foreign Account Tax Compliance Act, or FATCA for short. It was a sort of ‘law within a law’, and one of the dumbest in US history.
FATCA effectively commanded every single bank on the planet to enter into an information-sharing agreement with the IRS.
(Well, not so much ‘information sharing’. More like ‘information giving’. Because the US government doesn’t share anything with anyone.)
It all started based on a phony assumption that millions of Americans were hiding trillions of dollars in secret offshore accounts. And given how broke the US government is, they wanted every penny they were entitled to.
So the plan was to turn every bank in the world into a global spy network.
Any bank that didn’t comply was threatened with a crippling 30% withholding tax on every dollar that went in, out, and through the Land of the Free.
In a nutshell, if you are an American expat living abroad, you just had to jump through thousands of hurdles to prove to the IRS that you aren’t evading any taxes, report all this information correctly, and within a confusing legal framework that leaves even the best accountants stumped, often triggering audits for “violation” of FATCA, even if it was not violated at all.
Unsurprisingly, since the law was enacted, the amount of expatriates who renounce their citizenship has risen exponentially:
FATCA forces any American opening a bank account overseas to be in compliance with the law, by having the IRS punish foreign nations that do not comply. Because of FATCA, the majority of foreign banks quickly turned to outright refusal of US clients. Good luck finding one that doesn’t charge a ridiculous litany of fees.
Obviously, you need to live abroad to renounce your citizenship. But who is doing the renouncing? For the most part, permanent expats who have no intention of ever moving back. Eduardo Saverin, the Facebook co-founder whose story was on full display in the movie The Social Network, is the biggest name of the group. However, billionaires like Saverin aren’t most people. A more pertinent real-world example is Rachel Heller:
This state of affairs comes about because the US bases its taxation system on citizenship, unlike the rest of the world, where taxation is residence-based. In other words, while I live in the Netherlands, pay taxes in the Netherlands, and receive services in return for my taxes from the Netherlands, I was also expected to pay in the US, despite the fact that I received no services for my tax dollars.
The Foreign Account Tax Compliance Act (FATCA), passed in 2010 and in effect since 2014, was intended to catch “tax cheats”: billionaires living in the US who send their money abroad to hide it from the IRS. The problem is that people like me, who have moved abroad for jobs or for love, are persecuted as a consequence of that effort.
This does not mean that I was trying to avoid paying my “fair share,” the misleading phrase often used by politicians and repeated by the press. Because of a treaty between the US and the Netherlands (and many other countries), I only had to pay US taxes if my income was higher than about $100,000, which, as a teacher, it will never be. Instead, I pay where I live. I am in the 42 percent tax bracket here in the Netherlands, and my husband’s income puts him in the 52 percent bracket. That is much higher than it would be in the US, so I cannot be accused of avoiding taxes. If I wanted to do that, the Netherlands would be the last place I would live.
Nevertheless, I had to fill out US tax forms every year, plus extra forms to claim my foreign tax exemption, all to prove that I in fact do not owe any US taxes.
I repeat: I love the US. But I had to fill out lengthy forms (or rather, I spent almost a thousand euros a year to pay an accountant to do them for me), exposing my and my husband’s accounts to US government scrutiny, and I risked losing the ability to do the sort of banking that any middle-class American would normally take for granted.
Yes, it is true, the majority of US expats are willing to give up their citizenship. It’s not because they aren’t American. It’s because by not living in America, FATCA has effectively rendered them second-class citizens.
The USA is one of only two countries in the world that has this system of taxation. The other is Eritrea, which levies a simple 2% flat tax on its citizens who live abroad. And still, the media, and even the UN have weighed on Eritrea’s simple regime, calling it “authoritarian”:
Nearly every country in the world bases its tax system on residency rather than citizenship. If you’re an Italian citizen, and you leave Italy to live and work in Dubai, you don’t have to pay taxes on the income you earn abroad to the Italian government.
But Eritrea levies a 2% flat tax on its citizens who live abroad. If you’re an Eritrean citizen, you have to pay taxes to the Eritrean government, no matter where you live and work.
The media has condemned this as “extortion” and a “repressive” measure by an “authoritarian” government.
The UN has even weighed in. In Resolution 2023, the UN Security Council condemned Eritrea for “using extortion, threats of violence, fraud and other illicit means to collect taxes outside of Eritrea from its nationals.”
FATCA is far more onerous, costly, and authoritarian than anything Eritrea does. But don’t hold your breath expecting the UN to condemn what the USA is doing to its own citizens.
Rachel Heller went into detail on how difficult the renunciation process is in her above linked article, but even after months and months of interviews, the USA piles on a $2,350 “renunciation fee” and an exit tax on your net worth, in addition to a “doxxing” of your name and personal details in a Federal register, done to “name and shame” you for renouncing your citizenship.
It is sad that Americans have been forced to renounce their citizenship to comply with the onerous restrictions on their rights as a result of the Obama administration’s FATCA law. But they didn’t give up their citizenship because they all of a sudden became un-American; no, they did it because of a law that has turned living and/or working abroad into an expensive, onerous, bureaucratic nightmare for the ordinary American citizen. Repealing FATCA should be almost as high on Trump’s list as repealing Obamacare, but unfortunately for the citizens living abroad, a repeal of this law is not likely anytime soon, as Trump seems quite preoccupied with other affairs at the moment.
What is even more sad, however, is that these citizens who have renounced will not be coming back, or re-applying for citizenship anytime soon. Most were already living abroad permanently, and had no interest in ever moving back. Because of FATCA and the IRS, and nothing else, they will no longer enjoy the protections of afforded to them when they were born. FATCA and its ridiculous system has ensnared law-abiding American expats into a constant battle with the IRS, all over the day-to-day activities all citizens engage in.
Regrettably, no new legislation can change that fact, undo all of the damage FATCA has already caused, or magically bring back the citizenship rights of those who have chosen to give it up, solely to avoid FATCA’s unjust burden.