You are currently viewing the printable version of this article, to return to the normal page, please click here.

EDITORIAL: Tax-haven wars

Congress is scheming to export IRS meddling overseas

Question of the Day

Is it still considered bad form to talk politics during a social gathering?

View results

It's bad enough that U.S. citizens have to deal with the Internal Revenue Service and its incomprehensible rules, but Congress is about to export much of this bureaucracy overseas. In the name of taxing away a bit of profit made by Americans living overseas, much more costly harm will be done to the U.S. economy.

Thanks to the Foreign Account Tax Compliance Act (FATCA), law-abiding American expatriates are in for a rude shock as they find it increasingly difficult to access banking services overseas. This obnoxious statute imposes sweeping and privacy-invading reporting requirements on every financial firm operating outside the United States.

The idea was to prevent Americans from using hidden offshore trusts to evade taxes - never mind that Americans should be free to move their funds as they see fit. Under FATCA, every foreign financial institution, and every foreign firm that has American taxpayers as beneficial owners, must now verify the American-held accounts are in compliance with the legislation. Failure to comply results in a withholding charge of up to 30 percent on any income and capital payments the company might receive from the United States.

The cost of compliance is astronomical, as foreign banks must re-tool their computer systems. One Swiss expert estimates implementation would run $200-500 billion just so the IRS can collect $870 million a year, by the Joint Committee on Taxation's estimate.

Like most taxes, the Treasury isn't likely to get what it expects. Foreign banks aren't just going to spend that kind of cash if it would be cheaper to dump U.S. accounts. That would mean Americans living abroad wouldn't have access to bank accounts to pay their rent and utilities or cash their paychecks. These law-abiding expats, already burdened by double taxation, will find it increasingly hard to access financial services.

At a higher level, foreign banks may respond by spinning off subsidiaries that won't deal with U.S. financial instruments at all. If this happens, the inevitable long-term effect on the U.S. financial industry will be negative. Wall Street became a global financial powerhouse, just as London and Hong Kong have, because of its open and fair regulatory and legal frameworks. As the U.S. environment becomes more hostile and rapacious, financial transactions will move to more open markets. The result will be loss of the comparative advantage we've long enjoyed in the provision of financial services.

Congress is causing all this disruption for a few million a year, what passes for chump change in Washington. There is still time to stop this train wreck from happening. FATCA does not go into effect until June 30, 2013, under the most recent extension granted by the IRS, which is still struggling to cope with this act. It would be better to scrap the law entirely before the damage is done.

The Washington Times

© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.

blog comments powered by Disqus
TWT Video Picks
You Might Also Like
  • Maureen McDonnell looks on as her husband, former Virginia Gov. Bob McDonnell, made a statement on Tuesday after the couple was indicted on corruption charges. (associated press)

    PRUDEN: Where have the big-time grifters gone?

  • This photo taken Jan. 9, 2014,  shows New Jersey Gov. Chris Christie gesturing as he answers a question during a news conference  at the Statehouse in Trenton.  Christie will propose extending the public school calendar and lengthening the school day in a speech he hopes will help him rebound from an apparent political payback scheme orchestrated by key aides. The early front-runner for the 2016 Republican presidential nomination will make a case Tuesday Jan. 14, 2014, that children who spend more time in school graduate better prepared academically, according to excerpts of his State of the State address obtained by The Associated Press. (AP Photo/Mel Evans)

    BRUCE: Bombastic arrogance or humble determination? Chris Christie’s choice

  • ** FILE ** Secretary of State Hillary Rodham testifies on Capitol Hill in Washington, Wednesday, Jan. 23, 2013, before the Senate Foreign Relations Committee hearing on the deadly September attack on the U.S. diplomatic mission in Benghazi, Libya, that killed Ambassador J. Chris Stevens and three other Americans. (AP Photo/Pablo Martinez Monsivais, File)

    PRUDEN: The question to haunt the West

  • Get Breaking Alerts