Rachel Godin is sophomore journalism major and a columnist for the Daily Kent Stater. Contact her [email protected]
According to CNN, in the first six months of 2013, 1,809 people renounced their U.S. citizenship or gave up their green cards. The cause is being criticized by Wall Street Journal, Washington think tanks, Voice of Americans Abroad, and is gaining public media attention across the globe. The controversial Foreign Account Tax Compliance Act cracks down on tax evasion by U.S. citizens but the side effects have the potential to devastate the U.S. economy and exploit the personal privacy of all Americans who live, work or invest overseas.
FATCA is an international piece of legislation created by the IRS to target American corporations who try to get around paying American taxes on their assets and investments. It obliges most non-U.S. financial institutions to collect and share data concerning their clients or face a 30% withholding tax. To put it into perspective, if you were to send information like this now, it would breach data regulation laws. FATCA seems like an unavoidable future pillar of universal finance, since the consequences of non-compliance are so high. This piece of legislation aims to affect everyone, not only those who try to hide money in offshore accounts. Once again, the modest American suffers for the sins of the corporate world.
FATCA offers a slew of limitations on American abilities to create business opportunities abroad that would benefit the US economy–seems a bit counteractive on the government’s part. The staggering negativity of the act makes one question why, with other taxation options such as residence-based taxation (RBT), a system that taxes individuals only once, is the most exploitive choice drowning the chance for the right choice to be heard?
It makes sense that individuals everywhere should only pay taxes to the government under whose services they receive; yet, America, according to American Citizens Abroad, is the only developed nation that taxes citizens living abroad with the same income taxes that residents of the states pay. Americans abroad are already at a great disadvantage due to the current, outdated system of citizenship-based taxation, initially created to punish individuals who fled the U.S. in avoidance of the Civil War draft. Some have been completely locked out of their finances, have had their assets liquidated, and been denied job opportunities because, according to AmericansAbroad.org, “many foreign financial institutions have simply chosen to eliminate their U.S. citizens and U.S. person client basis in order to minimize their exposure to FATCA reporting requirements, withholding fees and potential penalties.”
Sadly, this spike in citizen renunciation may show that American citizens living abroad might possibly view their citizenship as more burdensome than beneficial, proving that the American government complicates the lives of its citizens to further its own agenda. Will this go down in history as yet another example of government-regulated intrusion on personal privacy that went unnoticed by the public?
American Citizens Abroad is one of many institutions that believe FATCA is the wrong way to go about minimizing tax evasion. “FATCA invades personal privacy, turns Americans abroad into pariahs in international banking, creates a huge bureaucracy with little return to the U.S., costs financial institutions billions of dollars to comply and discourages foreign investment in the United States.”
The act is proposed to begin in January 2014. Until then, it is of utmost importance to combat FATCA by promoting RBT. American citizens should acquaint themselves with the changes that could eventually infringe on their future plans and finances.