Experts and analysts say the scheme could destabilize the U.S. financial system and potentially even spark another economic crisis due partly to executive-branch mandates on American banks; yet the IRS and the U.S. Treasury are moving full-speed ahead in spite of major concerns raised by lawmakers and others over their authority to do so. Critics are referring to the whole plot as “fiscal imperialism.”
Among other schemes, the Foreign Account Tax Compliance Act, or FATCA for short, seeks to coerce financial institutions and governments all over the world into becoming de facto extensions of the IRS. It will also turn U.S. banks and the IRS into agents of foreign tax collectors if the administration gets its way. Passed by Democrats and signed by Obama in 2010 as part of an unrelated “jobs” bill, enforcement of the vast and unimaginably complex taxation scheme has been delayed several times. It is set to go into effect this summer, but experts and policymakers are warning of a broad array of potentially devastating consequences.
The most serious concerns expressed thus far include the potential for massive damage to the U.S. economy; destabilization of American banks; an end to financial privacy and constitutional protections; the emergence of a truly global taxation regime under international institutions such as the OECD; potentially hundreds of billions in compliance costs according to some estimates; a growing wave of U.S. citizens forced to renounce their citizenship; and much more. However, because foreign governments want an incentive to cooperate with the controversial FATCA regime — and many have laws protecting privacy and human rights that must be violated to comply — the Obama administration has a big problem, too.
“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.”
The proposed “solution,” in other words, is for the Obama administration to provide foreign governments with the same information on foreign citizens that Washington, D.C., hopes to extract from other jurisdictions and institutions on “U.S. persons.” Then comes the next problem: The U.S. Treasury does not have the statutory or constitutional authority to do that, according to lawmakers, legal experts, and even the administration itself.
Still, it appears that the administration is going ahead with the plot anyway, creating new IRS “regulations” and pseudo-treaties with foreign governments — none of which will be presented to the U.S. Senate for ratification, which the Constitution demands — purporting to grant the Treasury powers it claims to need. Despite its unconstitutional promises to foreign regimes, though, even the Obama administration has essentially acknowledged that it currently has no lawful power to share such information, or “reciprocate,” as the agreements put it.
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