#FATCA: A Taxing Law Made by a Whole Bunch of Zeroes.
A new US tax law raises only $9,000,000,000 for the USA. However the world pays $200,000,000,000 to implement that tax law. That means that 9 zeroes were made by 11 zeroes.
The 2010 Congress’ HR 2847 Jobs for Mainstream Act, a domestic jobs bill, was funded by the Foreign Account Tax Compliance Act (FATCA). FATCA’s mechanism is to force all of the world’s banks to identify their resident customers who might be suspected of being dual US citizens or US green card holders. The law takes advantage of US’ globally-unique taxation system, which is allowed to tax any dual citizens or US visa holders even when such persons do not reside in US. The only two countries of the world practicing this type of taxation is US and Eritrea. To better understand this method, envision being born in Iowa and paying lifelong taxes to Iowa even while living in Georgia or Ohio.
Of course, there is limited relief to this taxation. A dual citizen living in Sweden, via the use of a complicated set of forms, might be able to offset most of the US taxes with exclusions and credits for having paid Swedish taxes. Unfortunately, his Swedish pensions and Swedish unemployment benefits could still be taxed by USA. He could also be subject to self-employment taxes and (if qualified) could also not escape the Obamacare tax upon the rich. FATCA will make its revenue gains by ensuring that dual US/Swedish citizens in Sweden are identified so as to pay taxes upon their income not taxed by Sweden. And so forth. Country-by-country and instance-by-instance, FATCA would enable further IRS revenue by identifying previously-unidentified US dual citizens throughout the world.
Australia’s study determined that FATCA would cost its banks $1.065 billion USD, or $42.12 USD per capita. Hence, its recommendation was for the Australian government to absorb some of FATCA’s implementation costs, by signing an Intergovernmental Agreement (IGA) with the US Treasury Department. With the IGA, it was determined that its banks costs would be reduced by more than half—from $42.12 USD to $20.46 per capita. Canada and UK have also absorbed some of the banks implementation costs, so that their banks are only burdened with $26.02 and $25.28 USD per capita. These three countries verify each other’s calculations, in being able to transfer more than half of their bank’s implementation costs into each country’s own administration.
Up to half of the world’s governments have signed IGA’s. Even China, Russia, Kosovo, and UAE have agreed to collect and store FATCA’s identification of US persons within their countries. As a result, we can see that about half of the world has reduced it’s banks’ implementation costs from $42.12 to as low as approximately $22 US. Even though these IGA’s are not all the same, this could succeed to bring FATCA’s global bank burden down to as low as $221 billion USD.
FATCA is a law created by specialist US accountants with specialist FATCA competency. As such, FATCA’s implementation is primarily by very-high priced compliance firms. There are few discounts available in lower income countries. There are few lower-cost specialists outside of the developed world. It would be difficult to say that FATCA-implementation cost reductions might be possible in low income regions or in non-IGA countries.
It might also be said that low income countries have fewer banks for their populations and fewer banks trading in US investment products. If these banks could succeed to stay out of US investments, indeed, the global FATCA implementation costs might be reduced somewhat. Another possible reduction might be that, although the 2010 Congress intended for the entire world to implement FATCA, many developing countries can not or will not implement FATCA.
There is no other analyses available showing other than an $8.5-8.9 billion USD FATCA revenue benefit over a 10 year period. Round that up to $9,000,000,000—9 zeroes. However, with the analysis in this article, it shows that the FATCA implementation costs have been reduced from $291 billion to $221 billion. FATCA has then been shown to globally lose $212 billion dollars net. Rounding down, we see that FATCA is made by $200,000,000,000—11 zeroes.
FATCA was created by a whole bunch of zeroes.
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Don’t know if this is a good place to raise this…
FATCA includes 30 percent withholding on US payouts to non-compliant FFIs.
Withholding is normally a means of tax collection. In FATCA, it is used as punishment.
I wonder whether this use of withholding is valid under international law.
Could you explain a little further about the following? Not sure I understand…..
“…in being able to transfer more than half of their bank’s implementation costs into each country’s own administration.”
@NorthernShrike. WItholdings implies against income tax owed on the income represented. In the 30% case, that is witholdings against noncompliance. And as it is not clear that one may get it back if one then complies then “noncompliance penalty” would be a better name. So either there is implication that one may get it back with the word “witholdings” as in witheld until compliance complete, or US Treasury is applying some doublespeak here to what is really a noncompliance penalty.
It was an imperfect set of words.
The banks in each country have high costs. They reduce those costs with an IGA—moving their own costs from themselves to their own governments. They reduce their own costs, but it’s not stated how much of those costs are just absorbed by their governments. There is no guarantee that those costs go away–it’s just that the government can take those costs upon themselves.
It’s also completely plausible that the government AMPLIFIES the total costs by transferring the costs from the private sector to the government sector. Who knows.
Obviously, America doesn’t care one iota about the costs to other nations.
There could be more in the article outlining the equation for the $200 billion cost figure.
The article says that for those countries that have implemented an IGA (most notably Australia and the UK) that their implementation cost for FATCA have been reduced substantially.
Based on the study of FATCA cost implementation by (Australia and the UK) that the per capita cost without IGA is in the $42 range and with IGA this is reduced to approximately $22 per capita.
Half the banks in the world have adopted an IGA, therefore the global FATCA implementation cost is as follows:
3.6 Billion people (half the world) * $42 per capita = $151.2 Billion
3.6 Billion people (half the world) * $22 per capita = $ 79.2 Billion
Total = $230.4 Billion
Of course this may be reduced as not everyone keeps their money in banks (thinking some tribal areas in places). Yet, the time frame for the revenue is 10 years so we may match the cost over this period of Implementation Costs, + annual administration costs*10. The article does not talk about annual administration costs.
Plus the article only deals with IRS projected revenues and financial institution costs. Any proper cost benefit study may identify and quantify any other significant benefits and costs (beyond pure implementation costs). Extra costs include damage to international relations, opportunity costs of the funds diverted to implementation, hurting US exports as any US persons sent abroad to live would be penalised and thereby disincentivised to go abroad, degrading the US rights to liberty and the pursuit of happiness of US persons living abroad, aversion by international entities in the use of US dollar transactions, etc.
That’s the beauty of FATCA. The US taxes US persons (whom the US alone defines) wherever in the world they reside and wherever in the world that income may be earned. The system is impossible to enforce so they came up with FATCA to allow the US to compel (via extortionate threats) all the other nations of the world to do the enforcement for them. The US gets the tax revenue it could otherwise not collect and everybody else in the world pays the cost of collecting it. The US doesn’t care how much implementing FATCA costs because they aren’t paying the bill. So if it costs $10 to collect $1 of revenue, who cares? Not their problem.
The other countries of the world were so scared of that 30% extortion threat they allowed themselves to be turned into IRS agents. They not only don’t get paid for this service, they pay the costs of providing it out of their own pockets. It’s pure genius…all stuck in the back of a domestic jobs bill as funding for the bill. Congress gets to sling some more money around without actually raising homelander taxes to pay for it, which, of course, is good for their re-election prospects.
Sooner or later the rest of the world will realize they’ve been screwed again by the US (particularly when they realize all those reciprocity promises will never happen). Then lookout, the US dollar will go into a tailspin. That’s when the real cost of FATCA will become apparent.
CBT is outrageous, FATCA is outrageous, and the cost of FATCA is outrageous – and yet, the US gets its way….it is unbelievable. My suspicion is that the US lawsuit will be filed after the Nov election if the Senate continues to be held by the Demoncrats. If we get really lucky and the Senate control swaps to the Republicans perhaps, just perhaps the suit may not be necessary or will change in character to focus the attack directly on Obama when he threatens to veto a bill to repeal/significantly amend…..
@Steve, defunding can always work and that might be our best hope post November.
Whatever costs the governments can’t offset for the banks, the banks will write off against their profits. Domestic taxpayers get screwed from multiple directions.
This from fatcalegalaction.com: In the end, the IRS hopes to recover $870 Million a year in unpaid taxes, not counting the cost of collection, which could be 100 times greater than the projected annual tax revenue. That will keep the US government running for a few hours at the best.
They don’t cite their calculation, yet the “100 times greater’ is certainly in the range of the numbers discussed here.
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