President Obama promised he would unite the world…and he’s right.
Representatives from all parts of the globe have bitterly complained about an awful piece of legislation, called the Foreign Account Tax Compliance Act (FATCA), that was enacted back in 2010.
They despise this unjust law because it extends the power of the IRS into the domestic affairs of other nations. That’s an understandable source of conflict, which should be easy to understand. Wouldn’t all of us get upset, after all, if the French government or Russian government wanted to impose their laws on things that take place within our borders?
But it’s not just foreign governments that are irked. The law is so bad that it is causing a big uptick in the number of Americans who are giving up their citizenship.
Here are some details from a Bloomberg report.
Americans renouncing U.S. citizenship surged sixfold in the second quarter from a year earlier… Expatriates giving up their nationality at U.S. embassies climbed to 1,131 in the three months through June from 189 in the year-earlier period, according to Federal Register figures published today. That brought the first-half total to 1,810 compared with 235 for the whole of 2008. The U.S., the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside.
I’m glad that the article mentions that American law is so out of whack with the rest of the world.
We should be embarrassed that our tax system—at least with regard to the treatment of citizens living abroad and the treatment of tax exiles—is worse than what they have in nations such as France.
And while there was an increase in the number of Americans going Galt after Obama took office, the recent increase seems to be the result of the FATCA legislation.
Shunned by Swiss and German banks and facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act, more of the estimated 6 million Americans living overseas are weighing the cost of holding a U.S. passport. …Fatca…was estimated to generate $8.7 billion over 10 years, according to the congressional Joint Committee on Taxation.
I very much doubt, by the way, that the law will collect $8.7 billion over 10 years.
And it’s worth noting that President Obama initially claimed that his assault on “tax havens” would generate $100 billion every year. If you don’t believe me, click here and listen to his words at the 2:30 mark.
So we started with politicians asserting they could get $100 billion every year. Then they said only $8.7 billion over ten years, or less than $1 billion per year.
And now it’s likely that revenues will fall because so many taxpayers are leaving the country. This is yet another example of how the Laffer Curve foils the plans of greedy politicians.
You may be tempted to criticize these overseas Americans, but I’ve talked to several hundred of them in the past few years and you can’t begin to imagine how their lives are made more difficult by the illegitimate extraterritorial laws concocted by Washington. Bloomberg has a few more details.
For individuals, the costs are also rising. Getting a mortgage or acquiring life insurance is becoming almost impossible for American citizens living overseas, Ledvina said. “With increased U.S. tax reporting, U.S. accounting costs alone are around $2,000 per year for a U.S. citizen residing abroad,” the tax lawyer said. “Adding factors, such as difficulty in finding a bank to accept a U.S. citizen as a client, it is difficult to justify keeping the U.S. citizenship for those who reside permanently abroad.”
Imagine what your life would be like if you had trouble opening a bank account or conducting all sorts of other financial activities. Things that are supposed to be routine, but are now nightmares.
I 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 endure.
And then keep in mind that all of these problems would disappear if we had the right kind of tax system, such as the flat tax, and didn’t let the tentacles of the IRS extend beyond America’s borders.
P.S. Based on people I’ve met in my international travels, I’d guess that, for every American that officially gives up their citizenship, there are probably a dozen more living overseas who simply drop off the radar screen. Many of these people can’t afford—or can’t stand—to deal with the onerous requirements imposed by hacks, bullies, and lightweights in Washington.
P.P.S. Remember the Facebook billionaire who moved to Singapore to escape being an American taxpayer? Many of us—including me—instinctively find this unsettling. But if we believe that folks should have the freedom to move from California to Texas to benefit from better tax policy, shouldn’t they also have the freedom to move to another nation?
The same is true for companies.
If our tax law is bad, we should lower tax rates and adopt real reform.
Unless, of course, you think it’s okay to blame the victim.