FATCA

I sometimes wonder if the United States hasn’t gone stark raving mad. (And with that opening sentence I’ve probably just placed myself on the NSA watch list. Take it easy, guys. I’m not saying anything, I’m just talking here.) Now, I’m not referring to the most recent political brinkmanship that the whole world witnessed between Democrats and Republicans and that madder-than-a-Mad-Hatter Tea Party sect. I’m not talking about the absurdly-overpriced and defective medical system that the U.S. so stubbornly clings to, placing it waaay behind every other industrialized nation on earth. I’m talking about the Foreign Account Tax Compliance Act, or FATCA, the new, even more effective tax law that has crept up behind every law-abiding American citizen who lives abroad and slapped them upside the head.

A lot of Americans in the U.S. think that all Americans who live abroad get a free ride on taxes. They couldn’t be more wrong. The United States is the only country in the world that believes in citizenship-based taxation, and taxes its citizens on their worldwide income no matter where they reside. Oh, no . . . excuse me. There are two countries with citizenship-based taxation: the United States and Eritrea. Eritrea? Go figure. So American citizens all over the world must pay income tax to the country in which they are residing, as well as to the U.S., unless the countries share a tax treaty, but that’s not even totally true since the tax treaty regulations are complicated. Everyone has to figure out their own obligations, and the great majority of American citizens abroad do just that.

I get it . . . FATCA, fatcat . . . hmmm

But the U.S. Congress decided it was high time to go after wealthy Americans who hide their money in overseas accounts, thereby successfully dodging the tax bullet. Hey, I’m all for it. Offshore tax evasion is a bad thing. I pay my taxes, always have, always will (are you listening, NSA?) and I don’t like tax dodgers any more than the next guy. But in throwing this huge net over tax-dodging Americans who live in the U.S., but who have accounts overseas, the IRS has caught millions of honest, hard-working Americans who live overseas and maintain accounts in "foreign" banks for no more nefarious purpose than to pay their utility bills. That account may be foreign to the United States government, but in my mind, if it’s down the street, it’s domestic.

In an unprecedented instance of bullying, the U.S. is manipulating foreign financial institutions into become policemen for the IRS. Under threat of penalty, these institutions will now have to turn all data and information about their American clients over to the IRS. In doing so, the foreign institutions will end up breaking constitutional law in their own countries. But the U.S. sees no problem there, because it has utter contempt for other countries’ traditions, values, and Constitutions. In addition, there’s going to be a tit for that tat. If you’re a non-American resident of the U.S., listen up. In order to convince, let’s say, some German financial institution to hand over the information that the IRS wants about that institution’s American clients, the IRS will hand over to the German authorities whatever financial information it has on German citizens residing in the U.S. That is outright creepy.

Well, that’s the Truth of the new law, and here are the Consequences: FATCA is affecting the very foundations of the lives of Americans residing abroad. It is turning innocent people, some of whom are "American" only because one or both parents are, but who may never even have set foot in the U.S., into tax criminals. It is turning Americans living and working abroad into pariahs. Why? Because the cost to foreign financial institutions of complying with FATCA is staggeringly high. More and more companies are reluctant to hire Americans, to deal with Americans, to open bank accounts for Americans. On the one hand the American government wants its full share of global economic influence, but on the other hand it has shot itself in the proverbial foot with FATCA. Is nobody capable of thinking these things through anymore?