Doubling down on Americans living and working abroad is a way for the Internal Revenue Service to squeeze the turnip a little harder in pursuit of a little more blood. The Obama administration, which has never met a tax it couldn’t love, included something called the “Foreign Account Tax Compliance Act,” or FATCA, in the so-called stimulus package in 2010. FATCA requires foreign banks to spy on the bank accounts of American citizens working abroad and report what it finds to the IRS.
FATCA was enacted without a single Republican vote in either the House or Senate. The United States is one of only two nations that taxes its citizens who live and work abroad as if they live at home, even though they pay taxes in the country where they live and work. According to most analysts outside the Obama administration, the act is a continuing disaster. It produces less revenue than it cost to enforce, though the reporting requirements shift most of the costs of enforcement to the banks. These costs have led many banks to refuse to open accounts for Americans.
This makes life difficult for Americans working abroad, usually to represent American companies. The IRS has found taxpayers to consider American citizens for tax purposes (is there any other purpose for American citizens in the eyes of the U.S. government?) who didn’t know they were subject to U.S. tax law. One of these is Mayor Boris Johnson of London, born in New York City to English parents and who held joint U.S.-British citizenship until he was hit by the IRS for capital gains taxes on money made on the sale of his London residence. Like thousands of others since the passage of FATCA, he renounced his American citizenship.
Many of the Republicans who opposed FATCA in 2010 have gone over to the dark side. They voted for legislation, now just clearing a Senate-House conference, that will enable the State Department to cancel the passports of Americans working abroad who fall afoul of this unique view of the government’s power. The new law will allow the U.S. government to cancel the passport of any citizen living abroad deemed to owe $50,000 or more in taxes, penalties and interest to the IRS. The only legal travel allowed once the passport is canceled is to get back home to work out something with the IRS.
Even a small dispute from years ago can cost an American his job requiring overseas travel. The government will have destroyed the career and disrupted the family of the taxpayer who gets his job back after long and costly appeals. This significantly increases the power of the tax collector and would open the law to abuse by an agency without the high moral and ethical standards of the IRS. It’s power that Congress should not have granted. Every member of the House and Senate, Republican and Democrat, should be ashamed.