For the last four years we’ve been railing against the Foreign Account Tax Compliance Act as one of the dumbest, most arrogant laws ever passed in the history of the world.
FATCA, as it’s known, was signed into law in 2010 in an effort to ‘clamp down’ on tax evasion. That’s the official story.
There’s no shortage of statistics out there which say there’s anywhere from $21 to $32 TRILLION ‘hidden in offshore accounts.’
I always retain a healthy skepticism of these numbers.
I mean, that’s 30% of the entire WORLD GDP. It’s more than TEN TIMES the amount that Google, Apple, and all the big tech companies are hoarding in cash (also overseas).
It’s more than SEVEN TIMES the size of the US Federal Reserve’s balance sheet. And it’s TWO THOUSAND TIMES the current M2 money supply of US dollars.
These estimates are seriously unrealistic, and I’m throwing the bullshit flag.
Regardless, FATCA was passed, and the claim was there would be no more tax evasion as a result due to the two main provisions in the law.
The first provision requires all US taxpayers to make yet another disclosure to the IRS via form 8938 of certain foreign financial assets and foreign financial accounts they may be holding overseas.
Nevermind that US taxpayers already make these disclosures in other forms (FBAR, 1040 Schedule B, etc.) So this is really just a waste of time and resources.
But the really insidious part of FATCA is the second provision. It requires EVERY single bank on the planet to enter into an information-sharing agreement with the IRS.
So even some bank in rural Bangladesh that’s never seen a foreigner before has to jump into bed with the IRS and agree to share information.
(Bear in mind– this is a one-way street. The IRS is RECEIVING information from banks, but not sharing any itself. Nice.)
What’s more, banks which don’t sign up effectively get blackballed from the US banking system via a 30% tax levied on all funds that non-compliant banks route through New York.
The really absurd part is that every bank in the world is supposed to simultaneously keep track of whether or not every other bank in the world is compliant. Non-compliant banks are supposed to be shunned by the rest of the community like bad little boys and girls in time out.
This is so adolescent and puerile; the US government is drawing dividing lines and putting banks into little cliques to see who will be the teacher’s pet.
Ever since the law got passed, foreign banks have been rightfully freaking out. What the US government is asking is borderline impossible.
And at this point, now that most of the provisions have kicked in, no one has any idea what they’re supposed to be doing, and what they’re supposed to be reporting to whom. It’s a total disaster.
Enter the scam artists.
Some very clever identity thieves have figured out that this is a goldmine. They’re ringing up banks all over the world pretending to be IRS agents and soliciting blanket information on account holders.
Foreign banks are intimidated enough by even the mention of those three letters that many of them are coughing information.
The IRS has just admitted as much, sending out an urgent fraud alert that “scam artists posing as the IRS have fraudulently solicited financial institutions seeking account holder identity and financial account information.”
Needless to say, none of this would have happened if FATCA hadn’t been passed.
These people have spent so much time, energy, and resources to combat tax evasion. They’ve created a new enemy– a faceless rich man hiding $21 to $32 trillion offshore. To me this is as mythical and absurd as men in caves who hate us for our freedom.
All that said, if they had just spent a tiny fraction of that energy on overhauling the tax system, none of these steps would even be necessary.
Their only tactics are to whine, complain, make up statistics, and intimidate people. Now, with the latest tax issue due jour being corporate inversions, they’ve taken to circumventing the law altogether and issuing royal decrees.
It’s a far cry from actually trying to govern responsibly and intelligently.
Estonia is awash with cash with minimal debt. Yet they have some of the lowest, friendliest taxes in the world. They attract businesses. And, go figure, there’s no problem with evasion. They don’t have to waste a penny chasing down Estonian tax evaders.
There are other examples all over the world. As a sad testament, even Russia has a low 20% corporate tax and a flat 13% individual tax rate.
There’s a simple rule here: governments can choose to be smart, or they can choose to be scary. The Land of the Free has very clearly decided on its path. And the consequences are piling higher by the day.
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