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 is but a symptom of the real disease. CBT (citizenship-based taxation) is the issue that needs to be addressed by the American people, their Congress and their President. CBT is un-American 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 upon which an income tax can be fairly imposed. Only residents receive the benefits of the tax dollars they pay. Differently put, this is why you pay taxes:
- to pay your fair share of 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, my community with whom 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 have not 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.
In short, FATCA without CBT could actually work. If foreign financial institutions were asked to report only on accounts held by customers with US addresses the IRS might catch the real tax evaders at far less cost to all involved. 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 RBT (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.
[This four-part article was written by a 60-year-old retired woman who has lived in Canada since the age of 5. She has been a Canadian citizen for 41 years and is a dual citizen with the United States by virtue of her birth there. She has been married to a native-born Canadian for 33 years.]
Resources for Further Details, Links and Commentary
https://www.democratsabroad.org/sites/default/files/2014%20FATCA%20Research%20%20Stories%20of%20FATCA%20-%20Affecting%20Everyday%20Americans%20Every%20Day.pdf(Read these testimonials from ordinary Americans who live outside the United States.)
http://www.repealfatca.com/(This resource contains much information about why FATCA is bad for the United States itself.)
http://waysandmeans.house.gov/taxreform/workinggroups.htm (The submission by Jacqueline Bugnion is a “must read” for anyone new to this issue)
http://taxprof.typepad.com/files/76ti0147.pdf(Click on this link for background and clearly explained information about FBAR.)
http://thefranco-americanflophouse.blogspot.ca/2014/10/lee-and-bopp-chance-to-turn-tide.html(Click on this link to read about legal actions against FATCA being taken in the United States.)
http://www.adcs-adsc.ca/(Click on this link if you would like more information about the lawsuit being launched against the Canadian government for acquiescing to the demands of FATCA.)