Latest Delay Exposes FATCA's Fatal Flaws
Since its passage in 2010, implementation of the Foreign Account Tax Compliance Act has been delayed multiple times. Most recently the Treasury Department pushed back six months the beginning of FATCA's withholding penalty for noncompliant institutions, from January 1, 2014 to July 1, 2014. This newest delay is further proof that FATCA is poorly conceived and unworkable and should be repealed.
Under the guise of catching tax evaders, a dubious claim given that the law lacks any targeting of people or places prone to evasion, FATCA treats anyone who invests overseas as a criminal. Without need for a warrant, the government demands that foreign institutions spy on their U.S. clients, while expecting individuals to report their entire holdings to the government.
In light of the ongoing backlash over multiple instances of government invading citizens’ privacy rights, the complete erosion of financial privacy rights of anyone working or investing overseas should be cause for similar uproar.
Fighting the FATCA Menace
FATCA's requirements that foreign financial institutions act as deputy tax collectors for the U.S. government were flawed from the start. The U.S. government lacks the moral and legal authority to justify the legislation, much less the resources to enforce the law as written. It relies instead on the nation’s dominant position and a might-makes-right mentality to strong-arm foreign governments into enforcing the law on their own institutions.
Specifically, the federal government has sought to sign "intergovernmental agreements" (IGAs) to outsource the invasion of privacy of U.S. citizens to foreign governments, through whom the Treasury Department seeks to launder the sensitive information of Americans.
Intergovernmental Agreements Falter
Scrambling to get FATCA implemented before Congress realizes the extent of its error and reverses course, Treasury officials have done their best to con foreign governments into relinquishing their sovereign authority. They've relied heavily on disinformation to give the effort an air of inevitability, and they have been feeding international media dubious claims such as that there are 50 IGAs just around the corner. But the truth is far different.
As James Jatras of RepealFATCA recently noted, Treasury "expected to sign 17 IGAs by the end of 2012. Instead, they had four. Here we are more than halfway through 2013, and they only have nine—barely half of their 2012 year-end target."
Opposition Gaining Ground
The latest delays provide yet more time for opposition to FATCA to solidify. As awareness of the law grows, so too does the backlash against the government's radical overreach.
In the last few months, the Center for Freedom and Prosperity spearheaded a coalition of 22 free-market, taxpayer-protection and grassroots organizations that endorsed legislation introduced by Sen. Rand Paul (R-KY) to repeal FATCA. Congressman Bill Posey (R-FL), a member of the House Financial Services Committee, sent a letter to Treasury Secretary Jacob Lew questioning the legitimacy of the IGA process and calling for a moratorium on FATCA enforcement. And on July 17, Colleen Graffy, a former deputy assistant secretary of state, blasted FATCA in a Wall Street Journal op-ed.
Tax collectors at the Treasury Department will never openly admit the unprecedented power and authority granted by FATCA was ill-advised, but their repeated delaying of the law speaks louder than words. FATCA is a mess, and Congress needs to step in and spare the world from its disastrous consequences.
Andrew F. Quinlan (email@example.com) is president and CEO of the Center for Freedom and Prosperity.