A crucial component of the widely criticized new addition to the U.S. tax regime known as FATCA, passed by Democrats and signed by Obama in 2010 as part of a “jobs” bill, could result in massive capital flight from American banks and economic devastation if efforts to stop it are unsuccessful, experts and policymakers are warning. With the U.S. economy still teetering, some analysts are even suggesting that allegedly unlawful IRS mandates purporting to force American financial institutions to report foreign account holders to their governments could be the straw that breaks the proverbial camel’s back.
The Obama administration has refused to perform (or at least release) any sort of cost-benefit analysis of its new tax reporting scheme, labeled “DATCA lite” by some analysts, as it paves the way for even greater FATCA-linked domestic data collection and sharing. Independent experts, though, are warning that the plan could result in potentially tens or even hundreds of billions worth of foreign deposits fleeing from U.S. institutions.
The capital flight could become so severe, documents show, and experts and policymakers told The New American, that it might even trigger runs on certain banks, taxpayer-funded bailouts, another economic crisis, a major devaluation of the already-struggling U.S. dollar, and a destabilization of the American financial system. The cost to embattled American taxpayers, businesses, and consumers would be enormous.
As part of the controversial new taxation scheme known as the Foreign Account Tax Compliance Act, or FATCA for short, the Obama administration is busy negotiating pseudo-treaties with foreign governments purporting to mandate the automatic exchange of financial information. As part of those deals, which critics and lawmakers say are likely unlawful, the IRS and the U.S. Treasury are hoping to force American financial institutions to hand over data on foreign account holders. That information would then be shared with authorities in foreign jurisdictions.
“We see no principled basis on which to require that financial institutions based in other countries collect and provide us with information on U.S. taxpayers, if we take the position that our own institutions should be exempt from similar requirements,” explained Treasury Acting Assistant Secretary for Tax Policy Emily McMahon in a 2012 speech. “To the contrary, we believe that it will be critical to the success of our efforts to implement FATCA that we are able to reciprocate.”
Of course, spying on people and sharing their deeply private information without a warrant or even probable cause is unlawful in many countries around the world — in the United States, the Fourth Amendment to the U.S. Constitution was supposed to protect Americans from such machinations. To get around those obstacles in the supposed hunt for an extra billion or so dollars of tax revenue every year, the Obama administration is signing up foreign governments for what are known as “inter-governmental agreements,” or IGAs.
Once the unconstitutional pseudo-treaties are signed — the U.S. Senate gets no opportunity to offer its consent on the deals, despite what the Constitution requires — foreign governments are expected to violate the privacy of account holders in their jurisdictions and become de facto agents of the IRS. Information on so-called “U.S. persons” is to be collected and sent to the Treasury. In return, the Obama administration plans to force U.S. banks to “reciprocate” — or put another way, violate the financial privacy of foreigners with accounts in the United States on behalf of foreign IGA signatory governments.
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