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.)
@Bubbles…..writing legislation is like making sausage. Ever make sausage at home with a sausage grinder? Its messy, disgusting and all sorts of stuff goes into the casing including the squeal.
The stars are perfectly aligned for this legislatively and it does not matter if Trump thinks CBT and RBT are fraternity houses.
Everything is perfectly aligned, perfectly.
Meadows does the pony show in January. We need to encourage him with snail him, talk about the manifesto and thank him.
Legislation is introduced in the House by Meadows and Senate by Rand.
Priebus as Chief of Staff having made this his pet project in 2014 will look for it moving along. It will get passed alone or rolled into another bill.
The revenue impact based on scoring is minimal. Its an easy repeal.
Bubbles this is so perfectly aligned I expect to wake up and find out this was a dream.
@Eric
Yup, definitely not the time to be going around calling oneself a global citizen and shame on avipac (and avaaz.org) for not realizing it.
As British MP Theresa May said, undoubtedly just to keep the populists happy: “if you believe you are a citizen of the world, you are a citizen of nowhere”.
Great news everybody–Trump just proposed an easy, no-fee renunciation method!
http://www.nytimes.com/2016/11/29/us/politics/trump-flag-burners-citizenship-first-amendment.html?_r=0
(rimshot)
I thought the same thing! Let’s hope it comes to pass.
“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??”
Trump’s going to get rid of National Romneycare but keep FATCA. Trump is a skilled politician after all, even if his experience is in corporate politics instead of governmental politics.
“Just how do they expect the revenue from FATCA going to double in 2 years?”
More forms, more penalties.
“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.”
Did you say it before TIGTA said it?
More of the insiders were caught this year but the ringleaders haven’t been.
“How to Hide $400 Million”
Oh, is that what I’m hiding? Good news, that will help a lot. But where is it? Gee, where’s Alito when I need him? The only way I’ll find out where my $400 Million is hidden is by torturing someone.
@Publius: just saw on Twitter or Reddit or somewhere, Trump said something similar in a speech yesterday:
http://www.realclearpolitics.com/video/2016/12/01/trump_there_is_no_global_flag_no_global_currency_no_global_citizenship_we_are_united_as_americans.html
George,
What about the filibuster?
@beneficii, its a revenue item so it falls under reconciliation, no filibuster permitted.
@George – “its a revenue item so it falls under reconciliation, no filibuster permitted.”
Interesting article in Vox explaining reconciliation, and what it can and can’t do:
http://www.vox.com/policy-and-politics/2016/11/23/13709518/budget-reconciliation-explained
@Iota, FATCA repeal is an ideal reconciliation item as it was inserted into a bill because it would “generate revenue.” I suppose if they had created as a simple legal requirement with no revenue associated then it would have needed to be repealed conventionally.
Hopefully, Priebus will ensure the IGA repeals are in Trumps basket of things to sign as executive. Once the IGAs are killed, getting rid of FATCA is more mopping up water on the floor.
The FATCA repeal will need to be scored for revenue cost but the revenue is not much.
Keith Redmund appears to be involved with the Meadows hearings in January which will be highly important and again hopefully filled with sob stories. I would love for Dr. Kish to go and testify as his story is brilliant, he cherished his USC but had to renounce in the end.
I wish that I could have participated but I relinquished pre-FATCA and frankly would not have much sympathy to me in the end as I did burn a bridge.
@George
Please correct me if I’m wrong, but I get the impression that you haven’t left a paper trail to your bridge burning. I don’t think many here would condemn you if you were to have a change of heart.
To thine own self be true.
Thank you for your insights.
@George – Who knows. Not I. Interested to read various opinions about it though.
There’s a thread on Maple Sandbox mentioning this aspect (Meadows Bill, reconciliation) if anyone is interested:
http://maplesandbox.ca/2016/proposal-to-repeal-fatca-in-u-s-congress/
@Bubbles, my backside still has a bruise because the door was slammed intentionally so hard with such unbridled anger.
I see, George. Sorry. I do wonder, though, how many undocumented self-relinquishers would have a change of heart should the US go to RBT.
@George,
Reconciliation can only be used to decrease the deficit. Since FATCA is supposed to be a revenue item with little to no cost, repealing FATCA does not decrease the deficit and so cannot be passed by reconciliation.
@Bubblebustin
Even if FATCA failed and CBT were repealed, I wouldn’t want my USC back. With every passing year, the US looks more and more like a failed democracy to me. Long, long ago as an undergraduate student, I enrolled in a comparative politics course. As we studied the different systems, I remember thinking that social-democracy seemed like the best system to me. Almost three decades later, working and living in Canada as a Canadian fits that bill. I have no desire to go back to what to me seems like the jungle where it’s everyone for himself/herself. I am angry about having to give up my right of entry to the place of my birth. Beyond that, I don’t miss a thing. Last week, we had the odd American relative texting or emailing to wish us a happy American Thanksgiving. My spouse and I each privately commented that gave thanks for no longer living there.
@ Bubblebustin’
If the relinquishment was some time ago, I’d assume that a person who believed they relinquished at the time they performed their relinquishing act would not have a change of heart if CBT were replaced with RBT as it’s unlikely CBT factored into their decision-making (it not being widely known about at the time).
As for me, I had no beefs with the US until 2011 (OMG day), but even in those prior years – when I would have perceived no downside to US citizenship – I had no desire to reacquire US citizenship.
I felt like I was exchanging one citizenship for another in 1978 (fair exchange, two things of relatively equal value). Now I think of it as having dumped one (as in good riddance). And it can stay dumped!
One loses faith. Who says FATCA would not be reinstated under some new president? I think having US citizenship is frightening.
Another question: any chance of retrieving any money if FATCA/CBT was removed?
@Eric
I was going to post that!
@BC Doc
U.S. democracy is in big trouble (along with democracy in many other places, unfortunately). There is a free article in the Journal of Democracy that states, among other things, that 1/3 of rich, young Americans are o.k. with military rule (20 years ago, the figure was just 6%). http://www.journalofdemocracy.org/sites/default/files/Foa%26Mounk-27-3.pdf
I’ve been away on holiday and just catching up with the latest news here. it’s good to see all the optimism on here and the same fighting spirit that I admire so much about this forum. I hope Fatca and the CBT both come to an end in 2017 and it does appear that there was never a better chance. It really is the only logical outcome. this unfairness has gone on way too long.
I renounced this year and I will not regret renouncing even if this comes to pass. I haven’t lived in the US as an adult and what I experienced this year, i never want to experience again. I don’t trust them to come up with something else somewhere along the line in the future that traps me once again. Once having escaped, I want to stay free. However I would like the law changes to transpire for those still trapped. They too deserve an end to this.
As far as offering citizenship back, I would never take it back not even if they paid me to take it back but it’s likely to be the other way around. I can see them seeing it as a revenue raising exercise and charge a huge fee to get it back.
“If the relinquishment was some time ago, I’d assume that a person who believed they relinquished at the time they performed their relinquishing act would not have a change of heart if CBT were replaced with RBT as it’s unlikely CBT factored into their decision-making (it not being widely known about at the time).”
The IRS’s Taxpayer Advocaate reported to Congress in 2011 that thousands of honest US taxpayers found they had to renounce US citizenship because it was impossible to complete US returns accurately. These thousands of renunciants had to be people who were well aware of CBT. The IRS’s Taxpayer Advocate believes that CBT was a large factor in their decision-making.
“1/3 of rich, young Americans are o.k. with military rule”
Wow. I was going to say they should be the first to be drafted, but there’s no need. They’ve already enlisted, right?
I’m talking about people who probably didn’t think about their US citizenship at all when obtaining another decades ago who suddenly find it convenient to have “relinquished” with that act, especially if it means that they will have no tax liability (prior to 2004).
Would these same folks who remain undocumented relinquishes find it as easy to embrace their US-ness should RBT be reinstated?
I suppose there are many factors, as many have pointed out, that will affect their decision – 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. All hypothetical of course at this point!