Last week I posted about the possibility of renouncing my American citizenship due to the onerous requirements the US government imposes on expatriate Americans. That post broke the record here at Rachel’s Ruminations: the most “hits” ever.
And, in the process, I’ve learned a lot more about the situation from the many people who responded, reposted, and generally informed me about it.
What I didn’t know was how far the FATCA law goes. (FATCA stands for Foreign Account Tax Compliance Act.) It requires foreign banks to report Americans’ private bank balances to the IRS, the US tax authorities. This seems incredibly unfair to me: banks in the US are only required to do so if there’s a reasonable indication that a crime has been committed. All they normally report is interest income or dividends, etc., not balances.
Also, through the FBAR form, we are required to report our account balances as well, presumably so that the IRS can compare the two reports. Again, residents in the US don’t have this requirement.
This implies that we expatriates are assumed to be criminal tax cheats unless we prove ourselves innocent. Sounds a bit backwards, doesn’t it?
And never mind any right to privacy! Not only do I end up revealing my own finances, which are none of the government’s business, but I also end up revealing my husband’s finances. He’s not a US citizen, but if I have signing power on an account, I have to report it.
But here’s what has surprised me more than anything this week: it’s the Republicans who are fighting FATCA.
If you’ve read this blog before, you know that I’m a Democrat through and through: a “bleeding-heart liberal” even. I’ve always voted for Democrats (and, very occasionally, Independents) in the US, and generally vote Green in Holland. It’s extremely rare that I agree with Republicans on anything! Yet, here I am, siding with them.
Apparently, the Democrats in the House and Senate are the ones who voted FATCA in. The idea, and a great vote-getter, is catching the fat cats who move their money overseas. The problem is, they’re victimizing the small fry like me at the same time. The $10,000 fine for failure to file the FBAR form, for example, won’t matter at all to a multi-millionaire, but for me it would be hugely excessive and unreasonable.
That multi-millionaire they’re trying to catch will have no trouble finding citizenship somewhere else: every country encourages people with money to move in. Then he could move all his assets and businesses out of the US and renounce his US citizenship. The $2350 fee for renunciation is a night at a chic hotel for him. So the IRS won’t get the tax money it wants from him, and the US will lose the advantages of having his assets and businesses reside there. No one wins.
The rest of us are struggling with trying to comply. The Republicans Overseas are bringing a lawsuit on our behalf. A group of Canadian citizens is suing the Canadian government for signing a FATCA agreement because of the requirement to report private bank accounts. And the number of renunciations is rising steadily as people move their accounts out of the US, fed up with these onerous requirements.
It’s a mistake. If you want to catch overseas tax cheats, find some other way! Don’t punish the rest of the more than seven million expatriates, most of whom just want to live our lives and don’t owe US taxes, or, if we do, we pay them faithfully.
In any case, as I pointed out last week, only two countries impose taxes on worldwide income: the US and Eritrea. Country of residence taxation is the norm, and the US should join the rest of the world. People the US is defining as tax cheats are more than likely paying taxes where they live, as I am, which makes sense, given that taxes are meant to pay for the services we receive from the government.
If any Democratic Senators or Representatives read this: you’ve actually managed to push a dyed-in-the-wool Democrat to the Republican camp on this issue. There are more than seven million expatriates around the world. We are also your constituents, and it’s time to listen to us!
Here’s my more emotional take on the question of renouncing citizenship.
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