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:
| Category | First Year (FY 2016) |
Full Performance (FY 2018) |
||||
|---|---|---|---|---|---|---|
| Cost | Revenue | ROI | Cost | Revenue | ROI | |
| 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) |
$87.5 | $0.0 | 0.0 | $81.8 | $0.0 | 0.0 |
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.)
As the penalties subside, FATCA should produce less and less revenue. One would think it would just peter out…..
But I find it very hard to think that these people are all morons. They MUST know what they are doing? Perhaps they based their logic on revenue generated in the past, but how can they not see how much of it was penalties? They MUST know?! This is their job- it is what they do all day. How can America be so mismanaged?
@Polly – In one of her blog entries on FATCA, Allison Christian says:
http://taxpol.blogspot.co.uk/2014/04/netherlands-bank-prohibited-from.html
“How can America be so mismanaged?”
It always has been, hasn’t it? Certainly has seemed that way to me, over the decades, watching from afar.
On the other hand, it’s not just America. FATCA itself is clearly the linear descendant of the European Savings Directive, isn’t it? And no doubt there are earlier antecedents beyond that. So it goes.
Very interesting piece. Thanks, Eric.
Your last paragraph is a dire warning, and may serve to dampen our recent enthusiasm. We are not an important constituency, and not one that homelanders are intuitively sympathetic to. One can easily imagine the GOP getting some token Democrats on board for their sweeping tax reform, one carrot being throwing Americans Abroad (evil, unpatriotic tax evaders all) under the bus (again). The fantastical revenue streams dreamed up by the IRS then being inflated again to serve as projected “revenue” offsetting tax cuts and increased spending in the Homeland (jeez — the fascistic connotation of that word keeps unsettling me), making the deficits somewhat more palatable … on paper. Going after us may be just the bipartisan issue that unifies Homelander politicians.
As someone else said here a while ago, these next 2-4 years will determine whether many of us finally decide to renounce.
If Trump as a businessman had one look at these numbers, he would immediately repeal FATCA and reduce headcount at the IRS. That money would go towards reducing the huge deficit and/or increase spending in the Homeland.
FATCA was projected to bring in $8.7 billion over 10 years, or $870 million per year. I believe the way this was presented was that the $870 million was net of costs. We see the projection of FY2018 of $166 million from which we may subtract the 67 million of costs, so net of $99 million or ~ 1/9 of the amount projected.
What is the break down of this? All penalties, or some tax?
No mention of the compliance costs on US persons, or the expense of the banks of the world to comply.
Sooooo…..for the USA to net $90 million…….just one country the UK has to spend;
” HMRC estimates the cost for UK business over the first 5 years to be £1.1bn-£2bn, running thereafter at an annual cost of £50m-£90m.”
http://www.lexology.com/library/detail.aspx?g=a74e2969-7fe3-4931-999b-7caaf60c5588
@Fred, my enthusiasm can not be dampened. Why?
1.) Repeal of FATCA and replacement of CBT is in the platform. Its a cast iron written guarantee. Its David Cameron 2.0….Vote Torry Get Referendum.
2.) The GOP hit the political trifecta; POTUS, House, Senate.
3.) Rand Paul, Rand Paul, Rand Paul………..
4.) FATCA is FULLY owned by the Democrats and OBAMA. Its their child not the GOPs.
5.) Overseas voters remain the political Unicorn in that politicians think there are votes to be mined overseas!! We know the dirty little little secret……we do not vote and the few that vote are wasting a stamp. We just need to keep that illusion going on BOTH SIDES of the aisle.
6.) The IGA like much of the Obama legacy was built on a foundation of dry sand with his pen and phone!! They have no firm basis in enduring law.
7.) The name and shame list is the USA Shame List. Right now the list is rebuking Obama!!! In 12 months if its still high it will be rebuking Trump.
—
Again I am very positive, the cat is going to be skinned we just do not know how and when.
Political Action to take?
Erics brilliant analysis and the cost YOUR country is paying (see wiki) help make a brilliant letter.
If you have a US Democrat Rep or are a registered Democrat and can contact DA please use the excuse Clinton would have won those marginal states if Team Clinton had listned to the DA advice in the leaked podesta email.
If you have a US Republican Rep or are a registered Republican and can contact RO please use the excuse that overseas voters made the margin for Trump in the battleground states and that Podesta was warned and did not take the advice.
Guys…….I may be sounding like someone with no morals right now but those are the cards we have and its a good hand, its a winning hand.
I gave up on the D.C. Pukes when Gov Huckabee was dumped. He joined with Trump who promised Tax reform, but all of them are talking about amending the current 77,000 page tax law instead of throwing it out and enacting the FairTax.
he FairTax would have solved the overseas citizens concerns, provide the right amount of revenue, help the poor pay no taxes, stimulate the moving of companies coming to America, solve the immigration problem(we would need more workers to produce all the products and a hundred other benefits. The downside: Politicians could not extort campaign contributions at will and the Lobbyists would be rendered helpless by the FairTax Law.
Excellent!! What jumps out at me is how the IRS will spent less on enforcing Obamacare with the same miserable results as they do for FATCA. What does anyone think? That enforcing the provisions of Obamacare is LESS important than FATCA??
As someone rightly pointed out, the W&M Committee scored FATCA at $870 million per year over 10 years when it was passed. The IRS – and Sen. Carl Levin who imposed this Frankenstein on overseas Americans – kept talking about $150 BILLION in offshore unpaid taxes. Yet, despite the cooperation of Switzerland and their banks, and the amnesty, the most they scared up was $6 billion, of which only $2 billion was from the lost taxes; the rest was from interest and penalties. How ironic that FATCA was an even bigger LIE than Obamacare….
Finally, note the “forecast”. What another joke!! Just how do they expect the revenue from FATCA going to double in 2 years? And even if it does, we are still talking about only $155 million – not even CLOSE to the estimated annual revenue Levin LIED about.
Since “tax reform” seems to be a very real objective by Trump, we are all seriously hoping that this jihad by Stack and the IRS will finally be called off and we can go back to a CBT system. Here is a simple consideration: The USA gets to tax the worldwide income from all legal residents (green card) – there are 22 million legal residents; there are – at best – 7 million overseas residents paying taxes in their country of residence. Anyone looking at that should understand in a nano-second that the USA is already getting the better end of that deal in the balance.
@Patric “FATCA was an even bigger LIE than Obamacare….”
Priceless…..
1. Its true
2. Its a great phrase to put it into homelander perspective!! Obamacare has been an absolute lie with respect to premiums that have skyrocketed and insurance that his deductibles so high you never can afford to use it. I could no longer afford to return to the USA today because the health care coverage I used to have has gone up in price TEN TIMES!!! I have quasi family homelanders that are Clinton voting democrats who can no longer afford US health insuarance and are uninsured.
@George – ‘Sooooo…..for the USA to net $90 million…….just one country the UK has to spend;
” HMRC estimates the cost for UK business over the first 5 years to be £1.1bn-£2bn, running thereafter at an annual cost of £50m-£90m.’
Reading further in the lexology article, that compares quite favourably with what the costs would have been without the IGA:
The UK seems to have taken one look at FATCA and set about putting it to use. Besides joining with the other G6 countries to negotiate with the US for less onerous terms (the IGAs), HMG refused to allow the Crown Dependencies and Overseas Terriotries to comply with FATCA/IGA, until they agreed to accept the UK’s own mini-FATCA: the CDOT regime:
(my emphasis)
https://archive.globalpolicy.org/nations-a-states/state-sovereignty-and-corruption/tax-havens/52096-treasury-to-crack-down-on-uks-offshore-tax-havens.html
It would be interesting to know whether CDOT has resulted in improved tax revenues for HMRC, and if so, what the numbers are. Haven’t been able to find that information.
The IRS spends less in preventing refund fraud because, as I have said before, there must be IRS insiders who are getting a piece of the action. If that is the case, then you have to go after someone–so as to look as if you are doing something. So the IRS spends the money on going after expats.
FATCA fits the description of “boondoggle”. From Wikipedia:
“A boondoggle is a project that is considered a waste of both time and money, yet is often continued due to extraneous policy or political motivations.”
Now it that’s true, what political motivations exist to have it repealed?
“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.”
This is the money quote.
@Bubblebustin – ‘FATCA fits the description of “boondoggle”. From Wikipedia:
“A boondoggle is a project that is considered a waste of both time and money, yet is often continued due to extraneous policy or political motivations.”
Now it that’s true, what political motivations exist to have it repealed?’
Two possibilities come to mind:
1. 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.
2. Shifting to RBT for individual taxpayers might fit well with shifting to a territorial system for businesses. (???)
Thank you, Eric. I agree with your last paragraph.
I think Trump’s picks for Commerce and Treasury, and his willingness so soon to cross his populist base and go back to Goldman Sachs et al., is concerning for our cause. Just a hunch, and I hope I’m wrong, but between all of the billionaires so far named to cabinet and Trump’s global holdings, 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, while Trump and his pals, and their lawyers and accountants, safely know — as the NY Times headline put it yesterday — “How to Hide $400 Million” (and more),
http://www.nytimes.com/2016/11/30/magazine/how-to-hide-400-million.html
@Iota, “Now it that’s true, what political motivations exist to have it repealed?’”
Same reason Cameron had to offer the referendum vote, it was in the manifesto and ALL the power is with the GOP so no wiggle room.
The US lawsuit will continue and the Trump Justice Department would need to defend the law that the GOP platform said would be repealed.
Lastly it is a poke in the eye to Obama as it was passed solely with Democrat votes.
FATCA is going away.
@Rebecca, “already established way to show to Homelanders, who are already getting restless, that yes, they are doing something about international tax cheats”
I think you are letting your own personal political emotions takeover.
The Republicans that control Congress today are largely the same ones that voted AGAINST FATCA in 2010, the ALREADY took the political hit.
Getting rid of FATCA is going to be a cake walk compared to the Affordable Care Act and that is going to be repealed too.
FATCA will be repealed because the members that voted against it in 2010 are going to repeal it in 2017.
If Congress needs a fig leaf they have it on reciprocity and the USA will not provide it.
@George – It was Bubblebustin’s question, which I replied to.
In my view (and that of many others), Cameron took a gamble, expecting to win, and he lost, ending his political career for the present. The Republicans were more guarded. The platform only promises to “call for” repeal of FATCA.
“Lastly it is a poke in the eye to Obama as it was passed solely with Democrat votes.”
And not repealed by a Republican-controlled Congress.
“FATCA is going away.”
That would certainly be a welcome outcome. Personally I think it will happen if it suits the administration’s agenda, and not if it doesn’t. But who knows?
From CNN some comments on the Treasury pick;
http://money.cnn.com/2016/11/30/news/economy/donald-trump-economic-team-mnuchin-ross/index.html
Some of my own thoughts……he has run a series of businesses so he would be sick and tired of complexity. Upper income taxpayers would have rate reduction offset by reduction in itemized deductions…..which is good for expats because expats typically do not qualify for itemized deductions anyway.
He is NOT a lawyer or an accountant.
We were NOT going to get Rand Paul or James Jattras in that position.
From the above snippet I can not see any reason to be concerned about the guy.
@Iota, Trump and the GOP are going to no more keep the Affordable Care Act then they are going to keep FATCA.
I have been around US politics and Capital Hill long enough to see this is a done deal. The only part of the equation is reminding the Congress Critters as to the manifesto commitment. Congress Critters obey manifesto promises when they have a trifecta victory which they just had.
Congressman Meadows already has hearings scheduled in January on FATCA. He will either reintroduce his existing bill for the new Congress or add it on to another bill, Senator Paul will do the same in the Senate. There is nothing that is going to stop those two men from doing this, they are driving it legislatively and it will be in legislation with the new Congress in January.
The hearings are for the sole purpose of gathering evidence to support the introduction of the repeal bill. Meadows already has a list of folks that are going to testify with their sob stories. He already has in the bag both Democrats Abroad and Republicans Overseas calling for RBT, they just differ on what to do with FATCA.
Once the repeal is made part of legislation the Republicans will NOT remove it and they will NOT vote it down. Trump will not veto a FATCA repeal bill.
The “only” way FATCA survives is IF Meadows and Paul get weak knees. They are the key points NOT Trump and not the Secretary Treasury.
FATCA Repeal is going to happen.
What we do not know is if repeal will be first or the IGAs get gutted first.
Switching to RBT is going to be more of a work in progress as I do not think there is anything already in the pipes to do it. But I think this is likely to happen in the next two years.
@Iota, “Personally I think it will happen if it suits the administration’s agenda, and not if it doesn’t.”
Trump is not a PM, much of the time he gets what Congress sends him and has to decide to veto or sign.
So is FATCA repeal on Trumps “agenda?” Who knows but he agreed to the platform.
POTUS has no ability to introduce legislation.
Hmmm…now where would Meadows and Paul get a case of “weak knees” from? Just trying to prepare myself for disappointment.
I doubt if the pussy-grabber-in-chief has heard of FATCA or cares about CBT v. RBT They won’t be high on anyone’s agenda. I wish you good luck.