Below we continue slicing through the smoke and mirrors on the disturbing issues surrounding the US’s FATCA law.
In case you missed Part I, you can find it here.
This article was written by MuzzledNoMore, a pseudonym for a 60-year-old retired woman who has lived in Canada since the age of 5. She, like the literally millions of others in her position, has been profoundly affected by a little-known law signed into law by the Obama Administration.
The final part of this article is below.
Until next time,
Whom does FATCA affect?
The short answer is: just about everybody.
At the top of the list are those who carry US indicia (see Part I) and who live outside of the United States.
In Canada these are estimated to represent approximately 3% of the Canadian population. Add to that their spouses and family members with whom they share accounts, and a much larger figure is indicated (perhaps, as has been suggested by some, as great as 12%.)
Publicity about FATCA has served to educate not only “overseas US Persons” about citizenship-based taxation (CBT) and the Foreign Bank Account Report (FBAR), but also those who employ them or otherwise associate with them.
US Persons are being asked to vacate positions with signing authority.
Some couples are reconsidering marriage plans and getting divorced due to the understandable unwillingness of non-US spouses to have their personal and financial information shared with the government of a foreign country.
Banks, particularly in Europe, are refusing services, including such basics as mortgage renewals, to “US Person” customers.
The list of abuses is lengthy.
In addition, there will be a risk of FATCA fallout to all bank customers outside the United States.
FATCA and the response to it by the world’s financial institutions (FIs) puts everyone with a bank account at risk of scrutiny for evidence of US indicia. This is a violation of everyone’s financial privacy, particularly if a third party is hired by the FI to perform this work, as is apparently a possibility in the United Kingdom.
In addition, it’s estimated that implementing the systems necessary to comply with FATCA is costing every single FI in the world somewhere in the neighborhood of $100 million. This cost will undoubtedly be passed on to all their customers in the form of higher banking fees.
Taxpayers of intergovernmental agreement (IGA) signatory nations will be on the hook for implementation costs to comply with the terms of a FATCA IGA.
Immigrants to the United States who still have bank accounts in the countries from which they came are also in serious positions with regard to FATCA. Immigrants are welcomed to the United States every day, but immigration officials don’t tell them about the requirement to file FBARs. With FATCA, the people who may hold accounts in their homelands for no worse a purpose than to help support elderly parents are now in danger of being penalized several times the value of each account that they’ve neglected to report.
Finally, America itself will feel the unintended backlash of FATCA and the CBT tax policy it has exposed and is now enforcing.
The effects may take a great deal longer to be felt in America, but already around the world, people and institutions are divesting themselves of US content in their portfolios. They are seeking alternative markets and investigating alternative reserve currencies.
The world may have agreed in large part to FATCA, but it has done so grudgingly and at financial gunpoint.
On a personal level, many people like me are now frightened of traveling to the United States. In the past, cross-border shopping, winter vacations in the southern states, and just visiting relatives were a way of life. Now we spend our money elsewhere and are estranged from our families. The list goes, on and none of it bodes well for the future prosperity of the United States and her people.
The Negative Consequences of FATCA
All told, FATCA is a lose-lose situation on a massive scale.
The many costs of FATCA are felt at the national, the corporate, and the personal level. The costs are legal, financial, emotional, and integral.
First and foremost, FATCA uses the language of threat and intimidation to coerce submission from the rest of the world.
Canada, for example—the closest and most stalwart friend of America—has been coerced into destroying the carefully knit fabric of its inclusive society. Thanks to FATCA, Canada now has a law that allows Canadians of a certain national origin to be treated as foreigners by their banks.
Canada stands to lose a significant percentage of its tax base to FATCA as penalty money, back taxes, fines, and fees (as well as $2,350 for every dual citizen who wishes to renounce her or his US citizenship) are levied against Canadian citizens who have unwittingly run afoul of a US tax law they didn’t know existed.
A large number of affected citizens are retired people who came to Canada as babies or young children and have lived their entire lives here having organized their financial affairs like any other Canadian. Now in their “golden years,” they’re discovering that as “US Persons,” they’re invested in all the wrong vehicles and stand to lose much of their hard-earned and hard-saved nest eggs in order to pay a government to which they had no idea they had any financial responsibility.
One of the things that make a nation sovereign is its right to determine its own laws within its own borders.
FATCA rides roughshod over Canada’s Charter of Rights and Freedoms, as it transforms a significant number of Canadians into second-class citizens—citizens who have now lost their financial privacy, their right to a full range of investment options, and even their right to have a bank account. FATCA has resulted in the insertion into Canadian law discrimination based on national origin, which is strictly forbidden by our Charter.
Meanwhile, our compatriots “down under” will have to contend with these words penned on page 6 of the FATCA Regulatory Impact Statement issued by the government of New Zealand: “U.S. persons: Any avenues they may have to take action against financial institutions for breaches of the Privacy Act or Bill of Rights Act may be extinguished.”
With the signing of its FATCA IGA, Canada is forcing me and hundreds of thousands like me to impale ourselves upon one of three prongs of a “Morton’s Fork”:
#1) apply for a Social Security Number and start filing US tax returns at enormous annual cost of time and money;
#2) be literally forced to officially renounce or relinquish my relationship with the land of my birth, at enormous cost, both financial and emotional. This is a huge issue, adequate discussion of which is beyond the scope of this article; or
#3) become a financial nonperson with less than $10,000 in my own name, take my name off the title to my house, etc.
(Editor’s Note: Here’s a firsthand story of how and why a former US citizen decided to renounce his US citizenship. It's packed with practical advice and priceless insights into this momentous decision.)
For the “free world,” FATCA, as the handmaiden of CBT, ushers in George Orwell’s Nineteen Eighty-Four just a few decades late. Sadly, the list of the world’s “Big Brothers” now includes Uncle Sam.
This article was written in response to a request for a step-by-step explanation of FATCA that would help Americans understand what it is all about.
I would like to conclude with an illustration similar to the one with which I began.
If you were born in California but moved to Massachusetts in your 20s and lived there the rest of your life, should you have to pay state taxes to California until the day you die?
If you lived in Denver at one time and then moved to Atlanta, should you have to keep paying municipal taxes to Denver for the rest of your life?
Your answer to both questions, I’m sure, would be a resounding, “No! That’s ridiculous!”
Of course it’s ridiculous—and so is having to pay taxes to a country in which you no longer live.
FATCA is actually only the “second-worst law nobody has ever heard of.” It’s but a symptom of the real disease. CBT is the issue that needs to be addressed by the American people, their Congress, and their president.
CBT is unAmerican at its profoundest root.
The revolution that created the United States of America was, to use modern terminology, an anti-CBT revolt that threw off the yoke of taxation by the mother country.
Not long after she lost her colonies, Great Britain (and later, most of the rest of the world) adopted the principle that residence in a country is the only criterion on which an income tax can be fairly imposed. Only residents receive the benefits of the tax dollars they pay.
(Editor’s Note: We would dispute the notion that an income tax could ever be fairly imposed, as we view it as morally indistinguishable from theft. But that’s a story for another day.)
Differently put, this is why you pay taxes:
- to pay the cost of services that the government provides to you and your community. My services are provided to me by the government of Canada. I have chosen to live in Canada and to become a full-fledged member of Canadian society. As such, the community with which I share my tax dollars is Canadian. Although I am considered by virtue of the 14th Amendment to be an American citizen and am happy to be associated with the United States as the land of my birth and heritage, I am not a member of American society. Since the age of 10, I haven’t spent more than 30 consecutive days in that country at any one time.
Conversely, this is not why we pay taxes:
- for some possible potential use of services that one is highly unlikely to ever require.
- to qualify to exercise one’s rights. Rights are free and available to all at no cost. They are not privileges afforded only to the few who can pay for them.
As it is, FATCA has already managed to waste billions of dollars worldwide, as well as an incalculable measure of human energy that would have been put to far better use some other way in this sorry world.
The upheaval of innocent lives through financial loss, marital discord, emotional stress, and loss of health is FATCA’s legacy to the community of “Americans overseas” and those they love.
In the 1960s, I was taught that prevention from leaving one’s country was one of the most infamous hallmarks of everything that was wrong with communism.
Yet America has effectively adopted a very similar and practical application of the same principle.
CBT is an invisible ball and chain around the ankles of every American. FATCA is its enforcer.
The solution is simple.
The United States needs to abandon CBT and adopt residence-based taxation as its principle of income taxation like the rest of the world. This and only this will allow Americans to have real freedom in the 21st-century mobile world.
Editor’s Note: That so few people understand FATCA is perhaps not surprising. Often, otherwise offensive government actions and institutions are given dull and opaque names to obfuscate their true purpose. This is what International Man is all about: helping you cut through the smoke and mirrors while making the most of your personal freedom and financial opportunities around the world. The free IM Communiqué is a great place to start.