Donald Trump could be the worst president ever if he follows through on his promises to bust the federal budget and crack down on civil liberties.
But there’s one thing Trump could do that would be extremely positive for the US – and for every American living, investing, or doing business internationally. That would be to get rid of the Foreign Account Tax Compliance Act (FATCA).
FATCA is probably the worst law most Americans don’t know about. The idea behind FATCA is simple: Demand that other countries enforce America’s imperialistic tax laws. And do so by the confiscation of foreign-owned assets, if necessary.
FATCA arrogantly presumes that foreign financial institutions will enforce US tax laws. And if they refuse? Any US-source income they’re holding in the form of interest, dividends, rents, and similar payments are subject to a 30% withholding tax.
The definition of a “foreign financial institution,” or FFI, is very broad. It includes banks, broker/dealers, insurance companies, hedge funds, and private equity funds. The only way that foreign banks and other international financial institutions can avoid this tax is to act as unpaid IRS informants.
Not surprisingly, FATCA made US clients very unpopular at FFIs. Since its enactment, many Americans have found it impossible to open legitimate accounts overseas and faced closure of existing ones simply based on their nationality.
However, the estimated nine million Americans living overseas face worse problems. Indeed, we worked with several US citizens living abroad who not only found themselves unable to maintain accounts in their adopted countries, but also faced cancellation of mortgages and life insurance policies. And one client was told that he needed to give up his US citizenship simply to keep his job.
FATCA was spearheaded by Democratic President Barack Obama, who promised to shut down “offshore tax havens.” Donald Trump will be a Republican presiding over a Republican-controlled Congress. And FATCA has long been in the crosshairs of Republican strategists. Indeed, the 2016 Republican Platform calls for the repeal of FATCA and a change to residence-based taxation for US citizens living overseas. However, President-elect Trump hasn’t commented on FATCA.
Outright repeal of FATCA would be a huge step in the right direction, especially for Americans living abroad. But is Congress up for the challenge?
Congressman Mark Meadows (R-NC) has already introduced a bill calling for FATCA’s repeal. Last year, Senator Rand Paul (R-KY) filed a federal lawsuit against the Treasury Department, the IRS and the US Financial Crimes Enforcement Network (FinCEN). Among other claims, the lawsuit asked the court to declare the reporting and withholding requirements of FATCA to be unconstitutional. Unfortunately, the suit was dismissed.
But Republicans are in for a showdown with Democrats if they try to repeal FATCA. According to Senator Elizabeth Warren (D-Mass.A):
The US Treasury may be losing more than $100 billion in tax revenues every year as a result of offshore tax havens. I believe measures like FATCA clamp down on overseas tax evasion and help make sure that everyone pays their fair share of taxes.
The $100 billion tax-loss claim of course is a lie. One of my colleagues actually tracked down the man who made this claim (at the time, it was “only” $70 billion) and asked him on the record where he came up with this number. His response? “I guessed.”
I kid you not. The centerpiece of the US Treasury’s “War on Offshore” is based on a guess! But that doesn’t bother Warren or other FATCA apologists.
Of course FATCA isn’t the only obstacle Americans face living, investing, or doing business abroad:
- The USA PATRIOT Act allows the Treasury to confiscate US correspondent accounts of foreign banks suspected of offering services to individuals who have violated US money laundering laws under federal civil forfeiture laws. If your money happens to be in one of these banks, you could lose it all.
- The Dodd-Frank Act requires foreign asset managers that deal with US clients to register with the Securities and Exchange Commission (SEC). This requirement led many asset managers (including the wealth management services of many large foreign banks) to stop offering services to US clients.
There’s also the question of what rules, if any, will replace FATCA. There’s already a global version of FATCA championed by the intrepid bureaucrats at the Organisation of Economic Co-operation and Development, who never met a tax they didn’t love. It’s called the “Common Reporting Standard,” and more than 100 countries have already signed up for it. The US didn’t, though, because it already had FATCA.
In other words, even if a future President Trump signs legislation ridding the world of FATCA, many challenges will remain for Americans who aren’t content with an all-US lifestyle or investment portfolio.
Your Plan B is as important as ever. Today would be a great time to start putting it in order.