The WSJ’s Bill McGurn reports:
Strictly speaking, Fatca [the Foreign Account Tax Compliance Act] isn’t a new tax—it’s a new requirement for reporting overseas financial accounts, backed up by heavy fines. It requires foreign financial banks, investment houses, insurance companies, etc. to identify any Americans among their customers and turn over information about their accounts to the IRS (or to the local government, if that country has a sharing agreement with Uncle Sam).
At the individual level, Americans are now required to report foreign accounts at thresholds beginning at $50,000. Failure to file, or filing incorrectly, means a heavy fine. Among the most wicked aspects of this legislation is that a taxpayer can rack up tens of thousands of dollars in fines even if he or she doesn’t owe the IRS a dime in actual taxes.
I’d like to think that injustice worried some of the legislators who voted for it. Then again, that would assume they had read the law on which they were voting. Nope, too much to hope for.
But back to Mr. McGurn:
Already, honest citizens are taking the hit. A woman emailing this reporter from Sweden says she’s been shut out of a promising Information Technology partnership since the chief investor learned that having an American on board would mean opening the partnership’s books to the IRS. On this side of the Atlantic, Joe Green, chairman of Canada’s Democrats Abroad, announces a website (www.ExpatTaxStory.us) where Americans can post their horror stories anonymously. In testimony at IRS hearings on Fatca in April, Mr. Green cited another example of the price U.S. expats are paying: American executives with foreign companies who “are being refused a promotion because it puts the company in a vulnerable position.”
Thus far, these and similar anecdotes have gained little public attention. Partly this is because the affected group—the roughly six million Americans living overseas—is much smaller than those who are directly affected by, say, the president’s Affordable Care Act. For most Americans, the negative consequences of Fatca are highly abstract. The other reality is that the caricature of high-living American expats makes them an inviting target. Not only are they small in number, their political representation is thinned by being spread over 50 states. That makes them vulnerable to the operating assumption we now have with Fatca: If you are working abroad, you must be a tax cheat.
A better way to think about these men and women would be as America’s international sales force. With only 4% of the world’s population, America has to look abroad for most of its new customers.
President Obama recognized this reality in his State of the Union in 2010. There he talked about the importance of being competitive, and he announced an initiative to double exports as a way of creating two million American jobs. Alas, it’s hard to see how you increase American exports to markets overseas when you make it more costly and difficult for Americans to be in those markets
Indeed.