From the latest Congressional Budget Office/Joint Committee on Taxation report, “Factors Affecting Revenue Estimates of Tax Compliance Proposals” (via, of course, TaxProf Blog), we get this hilarious table, based on figures from the IRS’ “FY 2016 Budget in Brief”. I present the figures below as they were in the original table: “Cost” and “Revenue” figures are given in millions of U.S. dollars; “ROI” (“return on investment”) is the revenue divided by the cost, and is given as a multiple of the cost rather than a percentage above break-even. Note the two items in red (colour and italics added by me), which have a much lower ROI than the other categories:
|Revenue-Producing Enforcement Initiatives to Implement Enacted Legislation||$166.1||$256.5||1.5||$160.4||$658.4||4.1|
|Implement Foreign Account Tax Compliance Act (FATCA)||71.0||67.7||1.0||66.6||155.1||2.3|
|Implement Merchant Card and Basis Matching||34.3||124.2||3.6||29.0||321.6||11.1|
|Address Impact of Affordable Care Act (ACA) Statutory Requirements||60.8||64.6||1.1||64.8||181.7||2.8|
|Cap Adjustment Enforcement Initiatives||$420.6||$861.4||2.0||$434.6||$2,798.9||6.4|
|Immediate and Directly Measurable Revenue-Producing Initiatives||$333.1||$861.4||2.6||$352.8||$2,798.9||7.9|
|Address International and Offshore Compliance Issues||40.7||49.3||1.2||43.1||159.6||3.7|
|Increase Audit Coverage||150.7||397.5||2.6||158.5||1,266.7||8.0|
|Enhance Collection Coverage||122.8||345.9||2.8||131.2||1,179.7||9.0|
|Improve Audit Coverage of Large Partnerships||16.2||44.5||2.7||16.9||129.1||7.6|
|Prevent Identity Theft and Refund Fraud||2.7||24.2||9.0||3.1||63.8||20.6|
|Strategic Revenue-Producing Initiatives
(which do not have immediately measurable ROI, but clear long-term revenue effects)
Harassing diaspora 41x as urgent as stopping refund fraud
Look in particular at the penultimate line item: the IRS intended to spend only US$2.7 million on preventing identity theft and refund fraud. The IRS already has enormous problems in this area, and with their efforts to rope millions of uninformed new filers into the U.S. tax system, we can expect that similar problems will only increase in the future. Yet the IRS’ 2016 budget allocation for addressing identity theft was not even 3% as large as that for international enforcement (including FATCA implementation), which has a far lower return on investment. And the IRS’ FATCA revenue estimate for 2018 is not even one-fifth of the $850 million/year which FATCA-natics used to claim their pet project would bring in.
The CBO based their report on last year’s Budget in Brief. The most recent Budget in Brief (for FY 2017) is unfortunately not directly comparable to last year’s. In particular, the “Address International and Offshore Compliance Issues” item has disappeared entirely from “Cap Enforcement Adjustment Initiatives”, so we have no idea how much they’re spending on it, nor how little they’ll gain (let alone how much of those gains will be attributable to fines for missing paperwork rather than actual tax owed.)
What is notable: FATCA has become much more expensive. In 2015 the IRS estimated that they would spend only $71 million on FATCA in 2016 and $66 million in 2018, but now they say they’ll spend $127 million in 2017 (+$56 million vs. 2016) and $142 million in 2019 (+$76 million vs. the previous projection for 2018). And these figures only account for what the IRS is spending on FATCA, not the tens of billions it costs banks and individuals to comply with it.
Best, in a crowning touch of hilarity, the IRS moved FATCA to the “Strategic Revenue-Producing Initiatives” category — i.e., the budget category for which they get to handwave about “clear long-term revenue effects” without having to give any concrete figures.
Throwing good money after bad
On the bright side, the IRS significantly increased their budget for identity theft prevention, to $90 million for 2017 (+$87 million vs. 2016) and $107 million for 2019 (+$104 million vs. 2018). What’s really amazing is that even after they expanded that budget by 3470%, they’re still getting an extremely high ROI — more than four times what they estimated for FATCA back when they were still admitting how poorly they expected it to perform, and nearly three times that for other international enforcement. Similarly, previous IRS initiatives to dig up all that offshore gold have mainly uncovered tens of thousands of ordinary folks in other countries who don’t owe any U.S. tax.
Imagine you’re a manager, and two of your subordinates come to you with their budget requests for next year. One of them, who was starved for funds last year, still produced great results from honest work, and has just as good projections for next year. The other tells you he’s given up on estimating how much money he can bring in, and can only offer tall tales and wild promises about the potential size of his market — while his ground game consists of lies, incompetence, and fear-mongering. Who gets a budget increase, and who gets the axe?
The actual budget allocation we observe, as opposed to the one you probably came up with after that thought experiment, suggests: international enforcement is not a rational budget priority, but an ideological priority.
Bureaucratic inertia will keep the existing priorities moving forward unless someone explicitly stands in their way and gets them to stop. And lest you think that diaspora harassment is merely an ideological priority of the last administration, you should recall that Elephant Homelanders don’t like us any better than Donkey Homelanders; far too many of them believe that true Americans live in America and those of us who don’t are cheating them somehow. (Some unsolicited advice for those who seek to get on the good side of the incoming administration: stop talking about “globalism” and calling yourselves “global citizens”. That kind of terminology is perfectly-tuned to provoke a backlash from Homeland Trump voters.)
@Bubbles, “such as how they feel about the US now and whether they think the US will one day go on the offensive with non-residents again.”
We need to stop the existing jihad in its tracks soooooooo there can be an orderly evacuation through the exit doors.
The worldwide unfunded liabilities by governments is just so staggering.
Right now I think we can get sympathy from enough homelanders on the degree of fairness and proportionality. But I think financially ALL governments including Canada and mine and the USA are going to hit the wall so badly that they are going to look for revenue from anyone.
To be honest, I think its very possible that all these CLNs will essentially be worthless and there may come a time when retroactive wealth taxes are passed and it will drag everyone back into the pit. Everyone will have to pay their “fair and equal share” because they benefitted in life having been a US Citizen at one time or another.
Excuse that doom monger moment……..for that fight at hand I am most thankful and with joy.
@George – “To be honest, I think its very possible that all these CLNs will essentially be worthless and there may come a time when retroactive wealth taxes are passed and it will drag everyone back into the pit. Everyone will have to pay their “fair and equal share” because they benefitted in life having been a US Citizen at one time or another.”
The point of a CLN is to protect the bank – not to protect the former citizen.
Keeping clear of the US and/or US assets is the best protection against possible future changes in US law.
I said: “The House tax reform “blueprint” puts a lot of emphasis on simplifying the tax code and stripping down the IRS to a leaner (couldn’t be meaner so I’ll skip the rhyme) agency. Repealing FATCA could fit with that aim.
Unfortunately, the more I read about the tax reforms that are being planned, the less likely FATCA repeal seems. The basic idea of the tax reform seems to be getting businesses to bring repatriate offshore cash, and use the tax paid on the repatriated cash to renew infrastructure and finance tax cuts. Repealing FATCA just doesn’t fit with those plans. It might look incoherent and inconsistent.
Plus it might not be attractive to Senators/Representatives from states that seek to attract tax haven business. Without FATCA, the pressure on the US to sign up to CRS would probably increase. CRS would put paid to the US tax haven advantage.
Plus, repealing FATCA would be one messy messy business, with all those bilateral treaties and IGAs to deal with, and possible diplomatic and reputational consequences to consider.
I think the Republicans just promised to “call for” FATCA repeal in order to attract expat votes. Politicians do that. Always have, always will, where voting determines who gets elected.
It would be nice to be proved wrong.
“How can America be so mismanaged?”
Canada isn’t doing any better considering how much in lockstep they are with the behemoth to the south.
“but I wouldn’t be surprised if the Administration holds on to FATCA and CBT as an easy, already established way to show to Homelanders, who are already getting restless, that yes, they are doing something about international tax cheats,”
You can count on it that they will. All the GOP was doing was pandering to Americans Abroad that they would help them just to get themselves elected. You’ll see a flipflop within a week of Trump’s inauguration. Count on it!
American companies leaving US will face punishment: Donald Trump
Yikes……about Eric’s post immediately before this one…..
This is already happening, with minor word modifications…..
“Americans leaving US will face punishment.”
@PierreD, Eric and all
“Americans leaving US will face punishment.” And I think Americans in US will eventually face punishment as well as US companies trying to leave. The giant US debt is a very frightening factor here. The IRS/US government will try to collect funds any way they possibly can. Time to get out of the path of the on coming tornado.
@BC Doc and Bubblebustin:
Just to say, I wouldn’t take back my US citizenship either. I rather like being Canadian and those folks south of the border seem quite hostile these days. It’s enough to pay taxes in one country. At least here we get some services for our taxes. In the USA it’s really just paying into a war machine.
Every pound, every rupee, every dollar (Canadian or Australian), every yen, etc., that Trump’s companies spent to acquire properties and employ people outside of the US are going to add to the punishment that will be inflicted on Trump’s companies, right?
If Trump still has any American employees, every day that they spend outside of the US is going to add to the punishment that will be inflicted on those traitorous tax evaders, right?
As for Trump himself, that immensely tax evading traitor, if he takes a trip outside the US, his walls won’t let him back in, right?
Maybe the election wasn’t psychopath vs. sociopath after all. Maybe it was sociopath vs. sociopath.
So…how many people want to pitch in to buy some acreage as far north and east towards the mountains as we possibly can and dig a bunker…to hide in. It’s going to be a bumpy ride.
Bernie Sanders is right. Every company is going to get the government to give them advantages in order for them to stay in USA. Why don`t they just try tax reform in general? I dont think that Trump understands consequences! A call to Taiwan?
I went to bed and asked my wife to set the alarm for 2020.
@DoD puhleeze would you kindly tell me what has a USA democrat president and congress done for me a person who left and solely wanted to never be bothered again.
With this election we have a written commitment not by a single candidate but the entire party.
I have one issue and focus its called leave me and family alone undoing the grave harm democrats did to me and my family.
This is why my dear friend, Andy Sundberg, in our final phone conversation in Aug 2012, told me he was, for the first time in his life, NOT supporting the re-election of his party’s nominee – Obama – because of what he had done against all overseas Americans. We are hoping – and a lot of people from ACA and others are knocking on doors – that Trump’s sincere desire to simplify and revise the tax code will also do away with FACTA because of the data that started this string.
“With this election we have a written commitment not by a single candidate but the entire party.”
Since when does the US uphold its written commitments?
“I went to bed and asked my wife to set the alarm for 2020.”
Why? Hasn’t 2016 been alarming enough for you?
@Norman Diamond if you are not part of the solution you are part of the problem.
There are folks desperately hurting and your comments well……….
I’m hurting too George.
I hope you’re right but for me this time hope does not trump experience.