( Washington , D.C. , Tuesday, February 21, 2012) The Center for Freedom and Prosperity Foundation, joined by 23 of the country’s most influential free market and taxpayer rights organizations, sent a letter to Treasury Secretary Timothy Geithner urging withdrawal of an Internal Revenue Service (IRS) regulation that would discourage capital from the U.S. economy and weaken the American financial system.
The rule (REG-146097-09), proposed in January 2011, would force U.S. banks to report deposit interest paid to nonresident aliens – even in the face of 90-plus years of law designed to attract such funds and despite bipartisan Congressional opposition. Text of the letter can be found below.
Link to Coalition for Tax Competition Letter:
(Note: link removed due to Word Press restrictions… You will need to google the title to the full letter or read below.)
The letter from the Coalition for Tax Competition expresses the frustration felt by many who would be impacted by a regulation that “will do considerable damage to the U.S. economy and its already fragile banking system,” while serving no domestic tax purpose. The letter also highlights the failure of the IRS “to conduct a cost-benefit analysis on the rule,” most likely “because there is no benefit and they are unwilling to address the considerable evidence regarding the regulation’s high costs.”
In addition to the arguments cited in the letter, the regulation would have serious human rights implications for many living overseas, who turn to the U.S. banking system as a source of security, stability and safe keeping. Exposing the deposit information of citizens from countries such as Venezuela and Mexico to their home governments is often tantamount to placing them and their families in harm’s way.
The IRS has continued to pursue implementation of the rule despite strong bipartisan opposition from Congress, organized under the leadership of Senator’s Rubio, Nelson, Cornyn and Hutchison, as well as Rep. Posey in the House of Representatives.
“The only people who support this regulation are international tax bureaucrats and tax-and-spend zealots in Washington ,” notes Andrew Quinlan , President of the Center for Freedom and Prosperity Foundation. “Lawmakers of both parties who are elected to serve the interests of American taxpayers are overwhelmingly against this regulation.”
“This proposed regulation would be the camel’s nose under the tent,” warned Dan Mitchell of theCato Institute, who added that, “the IRS, if successful with this proposal, will doubtlessly demand reporting of other forms of interest, as well as capital gains.”
Additional comments from Coalition for Tax Competition Signers:
John Berlau, Director, Ctr. for Investors and Entrepreneurs, Competitive Enterprise Institute:
“All at once, this rule would (A) Reduce U.S. competitiveness in attracting foreign capital; (B) harm the safety and soundness of U.S. banks and credit unions; (C) threaten the privacy and safety interests of individuals throughout the world by putting sensitive information in the hands of governments with lax data security systems, in which criminal gangs could access the data to target victims for kidnapping; (D) empower corrupt dictators by giving them access to financial information of dissidents who may hold U.S. accounts.”
Pete Sepp, Executive Vice President, National Taxpayers Union:
” America ‘s prosperity already suffers because of an uncompetitive tax system, and this interest reporting regulation would make the pain much worse. While Congress must do the heavy lifting on tax reform, the Treasury can and should keep from adding to the burden by canceling this unnecessary and unproductive rule.”
J. Bradley Jansen, Director, Center for Financial Privacy and Human Rights:
“It is no secret that tyrannical regimes in history have used bank and tax information for gross violations of human rights. The IRS simply cannot guarantee that information will not be shared with any country that will now or in the future abuse the information, and thus must rescind the proposal.”
Palmer Schoening, Director of Federal Affairs, American Family Business Institute:
“Pushing capital overseas will harm the family businesses which rely heavily on its availability. At a time when the economy is still struggling to recover and generate jobs, it is foolish to make it harder for family businesses to expand and add workers.”
Bill Wilson, President, Americans for Limited Government:
“The IRS is creating a mountain of paperwork to report interest income of foreign persons that is not even taxable under current law. There is simply no upside for a regulation that will have the same effect as a tax on such income, which is to drive foreign investment out of the U.S. What was the IRS thinking?”
Seton Motley, President, Less Government:
“We have spent the last sixty plus years ratcheting up the taxes and regulations on businesses. We then act surprised when they leave for other, more friendly countries in which to do business. President Obama’s answer to this government-induced problem is – more government. Preventing this latest reporting regulation from being effected is an important step towards returning to tax and regulatory sanity – and increased domestic employment.”
Text of Letter and List of Signers
February 20, 2012
Hon. Timothy F. Geithner
Secretary of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington , D.C. 20220
Dear Secretary Geithner:
We are troubled by the Treasury Department’s failure to withdraw a rule that faces near universal opposition, provides no benefit to the U.S. , and threatens to drive billions in much needed foreign investment out of the economy. We are therefore writing again to express our opposition to the nonresident alien deposit interest reporting regulation (REG-146097-09), and ask that it be withdrawn.
As has been argued by both members of Congress and financial experts, the regulation will do considerable damage to the U.S. economy and its already fragile banking system. There is no requirement under existing tax treaties that this information be reported, nor any obligation to impose regulatory burdens for the purpose of enforcing other nations’ laws.
Moreover, the IRS has failed to conduct a cost-benefit analysis on the rule, presumably because there is no benefit and they are unwilling to address the considerable evidence regarding the regulation’s high costs.
At a time when lawmakers remain focused on increasing employment, it is imprudent for the IRS to consider regulations that would drive job-creating investment out of the country. We ask again that this regulation be withdrawn.
Andrew F. Quinlan ~ President, Center for Freedom and Prosperity Foundation
Grover Norquist ~ President, Americans for Tax Reform
Pete Sepp ~ Executive Vice President, National Taxpayers Union
Phil Kerpen ~ Vice President for Policy, Americans for Prosperity
R. Bruce Josten ~ Executive Vice President Government Affairs, U.S. Chamber of Commerce
J. Bradley Jansen ~ Director, Center for Financial Privacy and Human Rights
John Berlau ~ Director, Ctr. for Investors and Entrepreneurs, Competitive Enterprise Institute
Karen Kerrigan ~ President & CEO, Small Business & Entrepreneurship Council
Terrence Scanlon ~ President, Capital Research Center
Eli Lehrer ~ National Director and Vice President, The Heartland Institute
Erika Nolan ~ Executive Director, The Sovereign Society
Wayne Brough ~ Chief Economist and Vice President of Research, FreedomWorks
David Williams ~ President, Taxpayers Protection Alliance
Carrie Lukas ~ Managing Director, Independent Women’s Forum
Jim Martin ~ Chairman, 60 Plus Association
Tom Giovanetti ~ President, Institute for Policy Innovation
Lew Uhler ~ President, National Tax Limitation Committee
Thomas A. Schatz ~ President, Citizens Against Government Waste
Bill Wilson ~ President, Americans for Limited Government
Stephen J.. Entin ~ President and Executive Director, Institute for Research on the Economics of Taxation
Seton Motley ~ President, Less Government
Palmer Schoening ~ Director of Federal Affairs, American Family Business Institute
Mario H. Lopez ~ President, Hispanic Leadership Fund
Charles Sauer ~ President, Market Institute
This is irony incarnate.
This bipartisan coalition of members of both the Congress and the Senate has risen up in unison to protest to the Treasury Secretary this proposed regulation which would obligate US banks to provide detailed information to the IRS on their accounts held by non-resident foreign citizens to be forwarded to foreign governments, because it would constitute a gross violation of the human rights of these persons.
This would be for the purpose of supplying incriminating information to Venezuela, Iran, Cuba, Nicaragua, Ecuador, Syria, etc. and every other despotic regime on the face of the earth so they could act to destroy the human rights of their own citizens who have been enticed by US and have trusted our privacy laws and deposited their assets in US banks.
Yet these same Congressmen and Senators are totally silent about the US law FATCA, which they themselves enacted, which obligates every foreign bank on the face of the earth to violate the privacy laws, and often the constitutions, of their own countries by providing this same information, and much more, to the IRS on their accounts held by all US citizens who live in the US as well as in a foreign country. Yet they raise not even an eyebrow to the fact they themselves are the persons who enacted FATCA which, together with even more draconian extraterritorial tax laws of the United States, constitutes the most major violation of the basic human right of our own citizens of being able to freely leave or to even survive as a US citizen residing in a foreign country.
Clearly what is sauce for the goose is not sauce for the gander. What ever happened to that jewel known as consistency? It sure does matter whose ox is being gored.
Let me add the additional irony with respect to US Ambassador to the UN Susan Rice having “led the charge” in convincing the United Nations Security Council to approve Resolution 2023 (2011) on December 5, 2011. This resolution, which was approved by by 13 yes votes, no nay votes and with the abstention of Russia and China, condemned Eritrea for violating the human rights of its citizens resident abroad by subjecting their foreign incomes to a Diaspora Tax. How ironic that this is exactly what the US does through our identical citizenship-based income tax that subjects all US citizens resident abroad to US income taxes just as if they never left home. US citizens whose income is $9.350 (single person) are required to file US tax returns no matter where in the world they reside. And the non-filing penalties are truly draconian, even though had the person filed, the foreign earned income exclusion and foreign tax credits might well have left them owing zero to the IRS.
When Eritrea does this it is a violation of basic human rights, but when the US does exactly the same thing to its citizens resident abroad nobody in Washington seems to give a hoot.
This may be the end of “reciprocity” championed by Emily McMahon of IRS recently.
Yes, the Fat Lady has yet to sing on the “reciprocity” issue, and if this gets derailed by Congress, then what will they do?
This is a fight that might actually get some MSM plubicity. Nah!
The cost benefit analysis is a real problem as some of these same groups have gotten other government regulations thrown out at the US Court of Appeals for this. This happened in the District of Columbia recently, because a cost benefit analysis was not done. Notably as I have mentioned before though the proposed rules already exist for accounts in the US held by Canadian “residents.”
Here is the exact language related to Canada:
Under the 2002 regulations currently in effect, reporting of U.S. bank deposit interest is required only if the interest is paid to a U.S. person or a nonresident alien individual who is a resident of Canada. These proposed regulations withdraw the 2002 regulations and provide new proposed regulations that extend the information reporting requirement to include bank deposit interest paid to nonresident alien individuals who are residents of any foreign country.
DATCA is a big threat to the local economies of Florida, Texas, California, Arizona because of the large Spanish populations in these states. Given the demise of the housing markets in each of these states it would be fool hardy to enact a law that would see capital leave their baking sectors also.
Watching this government operate, but especailly the Congress, has been like watching the political version of The Keystone Cops. They have all been given more power than any of them have the maturity to know how to handle.
If this coalition is successful in killing the domestic version of FATCA then hopefully the other nations of the world will jump off the FACTCA band wagon, once they see that there is nothing in it for them.
Just as a reference, in case you forget where they are, here are links to the other 3 letters that I know of that have been written in opposition to DATCA (will keep adding to this list as I hear of more.)
Charles Boustany, Jr., MD Chairman Subcommittee on Oversight
Bi-partisan Florida Delegation-all of them
Ron Paul’s letter to Geithner
This posting and the responses to it so far have been from the conservative or libertarian point of view. Let me observe that one can oppose FATCA without subscribing to the libertarian point of view. I have no interest in trying to dislodge anyone from their settled political philosophy. I am pretty set in my own. However, one can oppose FATCA and also be, for instance, a social democrat, as I am.
The US has for a very long time been a tax haven. This has been achieved by allowing “nonresident aliens” (i.e. “foreigners” who live outside the US) to establish investment accounts in the US in which most interest, dividends, and capital gains were tax-free.
At some point, the US realized that US citizens were putting money into foreign tax havens, and then reinvesting in the US, i.e. masquerading as nonresident aliens. In order to put a stop to that, in order to prevent their evading US tax, the US set up the Qualified Intermediary program, intending to identify these US investors operating through tax havens. FATCA is the next step, insofar as it seeks to capture income from foreign as well as US investments made by US persons using foreign accounts.
The DATCA regulations would feed data on accounts held by nonresident aliens to the IRS, who could use it as in a data swap for data on US persons. It is a successor to a program proposed, and dropped, by the Clinton administration.
Throughout, the US has tried to capture taxes from US tax evaders without discouraging persons persons investing in the US in order to evade taxes in their own countries. DATCA has been contentious because it threatens that system. Local and regional banks in Florida and southern California have been opposed because massive withdrawal of monies from foreign accounts could push them to insolvency.
From a social democrat point of view, FATCA can be opposed on two grounds:
First, it is unwieldly. If this is the new standard, then Canadian banks, for example, would have to collect information not only on “US persons”, but “German persons”, “Japanese persons”, etc. and report them, with varying degrees of detail or other requirements and in all the languages of the world to the various countries involved.
Second, one can object to the predatory implementation of FATCA, which makes no distinction between a rich US citizen seeking to hide money in the Cayman Islands and a retired school teacher in British Columbia with a little pension and a RRSP.
That being said, taxation is the life blood of the social contract, and tax evaders should be caught. If this is the intent, then first of all the US and other OECD countries should stop being tax havens themselves by eliminating the kinds of practices just described. If that is accomplished, and if the will is present, the more well-known tax havens such as Guernsey and Cayman Islands can be plugged. It is inconceivable that these two bit little countries should bring the international financial system to its knees. That’s how one can deal with tax havens and tax evaders, not with FATCA or the band-aid DATCA.
By the way, don’t cry over investors from Mexico or Venezuela. Transparency International in its Corruption Index puts Venezuela at number 172, in virtual tie with Haiti, Iraq, Sudan, Uzbekistan, Somalia, Afghanistan and a few others. Significant investment from Venezuela is basically illicit money coming from corrupt officials and elites. Mexico is not a lot better.
As I said, I don’t expect to persuade anyone subscribing to the libertarian point of view. I think it worth noting that what is held in common among us is a sense of unfairness and injustice in FATCA, which is part of a US tax system that is with respect to “US persons” abroad predatory and opportunistic. Persons can oppose FATCA while subscribing to a wide range of political views.
Thanks, and have a good day!
Thank you. you said very eloquently what i have been thinking for a while, and much better than I could have done.
Your point is well taken, but I have yet to hear voices on the Social Democrat progressive side of the political equation in America that are speaking up on these issues. It is definitely a bi-partisan one, in my opinion, but I fear that those progressives in America that are partisans for the Dems are silent right now. However, if this was a Bush Administration doing this, they would be railing.
It discourages me.
Except for the letter from the bi-partisan delegation from Florida, the issues related to FATCA are not being raised in Progressive media anywhere that I can find. I do fear this just becoming a partisan Conservative or Libertarian issue, as during an election year, all rationale discussion will end as sides try to out “Talking Point” each other. All listening stops.
I would be happy to be shown to be wrong and that Progressives are uniting against this too. James Fallows at the Atlantic is one that did bring the subject up at the new year, (after my hounding him on the subject) with his FATCA chronicles, but since then I haven’t heard any other progressive opinion maker weigh in. Please show me examples of where I am wrong, because I really do want to be wrong.. 🙂 I can not get anyone at NPR, PBS, PRI interested. I could produce a long list of commentators on the Progressive side that I have tried to get their attention, but understand that emails from the “ether” can easily be dismissed as just another nutcase crying in the wilderness. 🙂
We desperately need progressives in America to make the case that you have made so well above.
Thanks for your contribution to the discussion.
@CanuckDoc Thank you for you kind comments
@Just Me Let me separate out a couple of different issues.
First, the Cato Institute and the other organizations cited in the original post are mostly libertarian in orientation. They are broadly opposed to taxes for all but the most rudimentary of government services. Some of them look kindly upon foreign tax havens as a way citizens can protect their money from profligate, tax-and-spend liberals/progressives, etc. This is not my point of view. I hope I am presenting it fairly. I believe some participants in the IBS take this point of view. I was making a point of distancing myself from that.position.
It would be a mistake to dismiss opposition to FATCA as essentially libertarian. I oppose FATCA because it is grotesquely unfair. I am not opposed in principle to taxation, and in fact I think we need to ensure that we have tax systems that are fair and equitable. Discouraging tax havens is part of that.
Now, where are the US liberals who should be opposing FATCA, at least the use of a weaponized FATCA for stealth attacks upon the financial assets of ordinary, law-abiding people?
Good question. In fact, FATCA and similar legislation has been sponsored above all by the Democrats and opposed by Republicans. In 2007 then-Senator Obama and Senators Levin and Coleman introduced the Stop Tax Haven Abuse Act, which was not passed but was the parent for FATCA, passed a couple of years later. Information on the bill can be found here:
Republicans have by and large defended tax havens. In response to FATCA, here is reporting of the Republican response in Huffington Post Canada: http://www.huffingtonpost.com/2009/05/04/republicans-defend-tax-ha_n_195617.html
So why does no one in the US care what is happening to law-abiding persons who stand to be victimized?
I don’t know. Here are a couple hypotheses:
– They know but don’t care, as these persons don’t have vote
– They don’t know what they are doing
– They see us as collatoral damage, which they are prepared to accept
– They did not intend what is happening, but IRS has moved on its own
I have come across only three reports in US media that address our concerns: the piece by James Fallows, an article in the NY Times, and an article published by Reuters.
Anyway, I do not mean to discourage opinion for libertarians on this issue. I just want to register that it is not intrinsically libertarian and I don’t want to see opposition to FATCA dismissed for the wrong reasons.
I think there. are 2 reasons there is nothing coming from the social democratic side.
First there is partisan politics. But more importantly, this whole debate is not in the least about us. It is about the whales and “fishing” in general. We are a by catch of a system to get the “Whales” So the argument against fishing, which seems to be the main libertarian argument, may seem on the surface to be fighting for us. . A sort of “The enemy of my enemy is my friend” argument
I don’t for a minute think that any of them are really interested in our plight, although if they can use us to support their argument they will.
Unfortunately, arguing in favor of going after the whales, but going easy on the minnows is a complex message, and is not likely to get much interest, especially since most Americans don’t understand minnows, if they even believe we exist. Those in power, if they even care, are not going to want to complicate the “important ” message which is about the whales.
It is indeed very discouraging. But I feel our interests are best served by focusing on the “minnow” issue. While me may have different opinions about the whales, if the blog seems too overtly political, it will alienate many with different political leanings who still have common cause with us and our particular problems.
I would look to the work the ACA has done. They have steadily repeated the same message over and over about citizenship based taxation and the problems of expat Americans without appearing to take sides politically
I understand all your points, and find nothing to argue with! Darn!
The issue is a natural for the Libertarians, but is not natural for Progressives, and they need help in seeing why this particular application of policy is bad for America.
@Canuck. Regarding ACA, my observation is that they work very hard at keeping things non partisan. Of those in leadership I know, I can not say that I know any of their political party preferences or how they would vote, and I like it that way.
Like you say, keeping this blog from becoming too overtly political is important, but energy is needed, in my opinion, to reach out to the side of the spectrum that doesn’t seem to be concerned about these issues. They should be… for all the reasons that Northern Shrike points out..
The ACA is doing good work, and more power to them. However, I have been a naturalized Canadian for more than 30 years and I identify with my adopted country. Therefore, I don’t feel I can get involved with them directly.
@ Northern Shrike, CanuckDoc, Just Me This is an interesting discussion, and I think it important to address it. I have said when asked that the Isaac Brock Society is political but non-partisan. Thus, most of us are affected deeply by the issues, and we come from all the major political parties in Canada, and many others from countries around the world who come from most of the different sides of the political spectrum.
I see this as nothing less than an invasion of American extra-territoriality into the lives of all Expats that intimately affects the lives of all Canadians and residents of all the other countries of the world. We will fight together and when it is over, we will have the leisure to return to our political differences.
If we take the example of Canada: the Isaac Brock Society should put so much pressure on all three major political parties in Canada that they will try to outdo each other in defending our interests. This is because our interests are caught up in the interests of Canada: If I am shaken down, my 100% Canadian wife will be poorer–you see what I mean? If she and I become poorer, because of the IRS, we may have to lay off some of the people we employ. We must all defend Canada for the good of Canada. The Whales and Minnows alike, who are resident in Canada belong to Canada, and we should not let the United States shake them down for money. This is about defending the rights of Canada as a sovereign country, not about which party, be it NDP, Tory, or Liberal, is better. So far I am very pleased with the manner in which we have moved forward: each respecting the views of the other even when we disagree, and all of us focussing on the main issues at hand. Bravo to everyone!
@northern Shrike- it would be nice if this could be approached in a non-partisan manner but that would mean asking the politicians to do the “right” thing. When it comes to politics though doing the “right” thing is always defined by the ability of an issue to fit into your party’s platform. If an issue does not fit nicely into any party’s platform then the issue will suffer from either neglect or else continued decay of its position. In sailing terms you would say that expats are stuck in the “doldrums”. There is no wind that would take us to our desired destination.
As expats there is no one in the U.S. who can gain anything by supporting our position. After all we can’t vote in any meaningful way. The truth is that any support that a party or politician should throw our way would actually cause harm. This is because of the twisted way that the issue has been presented to the minds of the American people. The fact that American citizens have a visceral hatred for those who leave the country to live elsewhere, doesn’t help either.
The intellectual level at which the average American citizen and politician is able to understand our plight is an embarrassing revelation of the poor level of American comprehension. It also shows how desparately the American mindset is determined to blame the country’s problems on anyone but themselves. There are not enough U.S. tax cheats in existence, to rescue the American economy from the fiscal mismanagement that for too long has been the hallmark of Washington.
I believe that we may even purposely deceive ourselves and our cause if we constantly say that we are unintended collatoral damage. In the American mindset if you are not in “compliance” then you are equally as guilty as is the deliberate tax evader. Our position gains nothing if we divide ourselves into two groups of expats- one being innocent and one being guilty, because the IRS doesn’t look upon us that way.
As has been said before- it is better to let a few guilty people go free then to falsely imprison one innocent person. It is only when the IRS adopts this philosophy that us minnows will be safe from unjust and draconian laws.
“In addition to the arguments cited in the letter, the regulation would have serious human rights implications for many living overseas…”
FATCA implies serious human rights implications as well, which nobody but “US persons” abroad themselves seem to care about. As of this time next year, people who never knew anything about FATCA, citizenship-based taxation or FBAR reporting will be hit with potentially ruinuous fines from a country that they probably thought they no longer had any attachment to or, at the very least, thought was like every other country in the world and did not have a worldwide taxation system. Many will be asked to close bank accounts that they had for decades or sign away their privacy and right to data protection to a foreign government intent on stealing money earning in a different country to which they have no moral claim.
I find this to be extortion, simple as that, and the US lawmakers who passed FATCA are probably thrilled that European and other banks are refusing US clients, because this will mean that many of them will have to use US subsidiaries in their country of residence which can be easily violated and accessed by the IRS.
This is a sham and I only hope that this website and other sources of information reach as many of the 6 million “US persons” globally in the next 10 months as is possible in order to get this warning out there!
“”lawmakers who passed FATCA are probably thrilled that European and other banks are refusing US clients, because this will mean that many of them will have to use US subsidiaries in their country of residence which can be easily violated and accessed by the IRS.””
From what I hear, subsidiaries of most banks are just that, and there’s not a lot of communication between the subsidiaries and the parent bank.
But I do think US Politicians are thrilled that Americans can’t open up accounts and then have to go back to America. I think this is the US attempt to solve the problem of the world becoming a smaller place.
Everyone knows that Roger Federer is Swiss. What if he also had an American, French, and Belgian passport. What would be BE?
Well, as long as Federer in that situation never travelled outside of France or Switzerland then he would be immune from being deported to the US for not paying his “US dues”. Bit hard to manage that as a tennis player he could manage that though of course!
Great example however, since taxation is already a huge issue for most tennis players playing in the UK, even for just a week. See this about Nadal:
And the bank subsidiaries might not be working much with their home bank, but they will be the first the sign up to FATCA, if they haven’t done so already. I wouldn’t personally feel comfortable leaving any money in a US bank or subsidiary overseas after FATCA comes into place, and that is even if I had no US connections whatsoever.
More hypocracy, along the lines of the Eritrea condemnation.
Reblogged this on Stop Unconstitutional Double Taxation and commented:
Hypocracy. Center for Freedom and Prosperity Foundation condemns a reverse FATCA requirement (reporting US bank interest payments to non-residents.)
No worries Mate. Won’t bother anything… 🙁
Here’s an nfuriating Letter to the Editor published in the Miami Herald today from the acting assistant secretary for tax policy of the U S Treasury Department, Emily McMahon. It is on today’s Opinion Page with a bold print title.