The Centre for Freedom and Prosperity (CF&P), a US-based organisation which seeks to “promote economic prosperity by advocating competitive markets and limited government” is one of the high-profile critics of America’s soon-to-be implemented Foreign Account Tax Compliance Act (FATCA). This controversial new piece of legislation, say its opponents, will be financially detrimental to the vast majority US citizens living abroad.
Here the President of the CF&P, Andrew F. Quinlan, shares his FATCA concerns in an exclusive interview with iexpats.com.
You, and the Center for Freedom and Prosperity, have been vocal opponents of FATCA. Why do you feel this new piece of legislation, which aims to catch tax evaders, ought to be repealed? Why are you lending your support for the anti-FATCA campaign?
First and foremost, the law simply doesn’t do what it is purported to do. Rather than target actual tax cheats, it burdens all Americans living and working abroad as if that were tantamount to criminality. As a result of FATCA’s sweeping new burdens, American expats are now toxic assets. Unwanted by foreign banks and financial institutions, and hounded by a government that has scapegoated them for problems created by the profligate spending of politicians, it’s not a good time to be making a living as an American abroad.
Overall, FATCA is just an affront to the principles and mission of the Center for Freedom and Prosperity. It violates the fundamental financial privacy of millions of Americans, eviscerates the most basic and long standing concepts of national sovereignty, and seeks to limit tax competition by controlling the free flow of capital. Furthermore, the economic harm to the US in terms of lost investment, and just to the world economy as a whole, may far outstrip the minimal “revenues” expected to be collected by the government.
Simply put, it is not properly the responsibility of the entire world to chase down every last potential dollar for US politicians to waste, all the while footing the bill for the pleasure.
If FATCA is such a wholly damaging piece of legislation, why was it passed in the first place?
I don’t think most members of Congress had any clue what they were voting for. FATCA was slipped into an unrelated, so-called stimulus bill at a time when Congress was desperate to show they were doing something – anything – to alleviate joblessness. It was included to pay for the bill’s other provisions and politically was seen as free money. Expats aren’t, unfortunately, considered a politically threatening constituency.
Furthermore, the law was never debated and no hearings were held to expose its many downsides. It was just taken at face value as targeting tax cheats, and who can be against that? The few members who were actually aware of exactly what the law contained are the same misguided folks who think that tax competition is harmful, and that the only fiscal problem in Washington today is that politicians haven’t yet confiscated enough tax dollars from the private sector.
Washington intends to implement FATCA on 1st January next year, do you feel the Treasury will manage to hit this target?
It would certainly be a first if they did, as they’ve missed just about every deadline up until this point. FATCA is a fatally flawed bill, in that its tax regime is essentially too draconian and complex to be enforced as written. That’s why the Treasury Department has shifted to a government-to- government approach and is now attempting to swindle nations into acquiescing their sovereignty to US tax collectors in the form of intergovernmental agreements (IGAs).
The question will be whether they are able to strong-arm or cajole enough governments into signing IGAs, and thereby bring enough institutions into FATCA compliance. If they aren’t able to do so, and there are indications that they are having trouble getting the number of IGAs in place that they had hoped, it will be very hard for them to hit the January 1st target.
What, in your opinion, will be the factors that are most likely to derail the FATCA project?
On the implementation side, the IGA process is a clear weakness. Treasury needs the IGAs to enforce the law. If foreign governments resist or demand real and substantive reciprocity, which they aren’t likely to get, enforcement is going to be extremely difficult.
There are political weaknesses as well. Congress may not care much about the pain inflicted on expats, but there are two things they do care about that are clearly working against FATCA. One is their “revenue,” and the other is their political authority.
The law already is only estimated to raise less than $1 billion per year. But because no real cost-benefit analysis was ever conducted, members of Congress may be surprised to learn that, due to capital flight and lost investment, even the direct costs to the government could exceed this total, much less the pain that will be felt across the economy as a whole. As these facts come out and the true costs of FATCA are revealed, pressure will grow to revisit the law.
The decision by Treasury to pursue IGAs also had the unintended consequence – though beneficial for FATCA opponents – of creating a wedge between Congress and the Executive branch. The law as written included no authority for intergovernmental agreements, and Treasury’s decision to chart a new course for both international and domestic tax policy, by promising to pursue reciprocation with similar requirements on domestic banks, is drawing the ire of members of Congress who don’t like ceding their lawmaking authority and are particularly sensitive to Executive encroachment.
How likely is it that these factors will, ultimately, kill FATCA?
I wouldn’t put odds on it, but I’d say that it’s getting increasingly likely every day. We’ve been working hard to draw attention to this issue both among the public and on Capital Hill. After conducting hundreds of meetings, we are optimistic that Congress is beginning to stir and the first real efforts to reverse FATCA are around the corner. Whether these efforts succeed will depend significantly on those most affected by the law and whether they are willing to rally behind any potential legislation, support organizations like CF&P and others resisting the law, recruit others to the fight, and just generally make a lot of noise.
Is there a general sense amongst lobbyists that time is running out? What more can or should be done in your opinion?
I wouldn’t say there’s a sense that time is running out, but from a practical point of view the law is most vulnerable before it’s fully established and implemented. As I said before, what’s really needed is for more folks to be involved however they are able. Part of that will also mean making it clear to domestic banks and even those Americans who do no banking overseas that they will be impacted as well.
How important is it that China – which is said to be stalling on signing up to FATCA – agrees to an intergovernmental agreement with the US on this issue? And what will happen to FATCA if the People’s Republic doesn’t sign up?
China is an important country because of their influence in the region. If China doesn’t get on board with FATCA – and it’s hard to believe that they will – that could lead to similar resistance from other Asian-Pacific countries. And if Singapore and Hong Kong don’t join, for instance, that will leave major financial centres outside of FATCA’s reach.
How is FATCA being presented in the US media? And how does this compare to coverage in other parts of the world?
Most US media is ignoring it, unfortunately, or when they do address the issue they paint it solely within the framework of pursuing tax cheats. There has been some coverage of the more destructive aspects of FATCA, but little on the bigger picture implications that will come from such a dramatic upheaval within the international financial sector.
Foreign media outlets have been more likely to cover the issue, but have proven gullible to spin from the Treasury Department. The lack of specific knowledge of the US political system in foreign media has aided the administration’s efforts to convince foreign governments to sign the IGA’s, because they think the entire US government shares the views of the Treasury Department, when in reality Congress not only has its own interests, but will have the ultimate say on whether the US provides reciprocal information, which many governments are demanding before signing any agreement.
Should FATCA be rolled out as the US hopes in January, what are the wider economic and/or regulatory consequences for the US / other nations?
The obvious economic implications from FATCA are the loss of jobs and investment to the US economy. It will also sabotage American competitiveness in the global economy, paving the way for China or other nations with less self-destructive rules to attract the investment and opportunities that once flowed to America.
Sadly that’s just the tip of the iceberg. There are already indications that other nations are looking at implementing their own FATCA systems. The fact that the US to this point has largely been alone in taxing extraterritorial earnings should come as no comfort for the future of tax policy. Other governments have not chosen territorial taxation because they understand it to be better, but because they simply lack the resources to pursue taxes across the globe. But if the US lays the groundwork for an international tax cartel through the FATCA model, it will provide cash-hungry politicians a ready excuse to revisit worldwide taxation, and we can thus expect tax policies all across the globe to get much worse.
Most politicians don’t choose good tax rules – in the rare instance when they do – because they understand and appreciate pro-growth economics; they do so when economic pressures compel them to, and only then. That’s why my organization is dedicated to preserving tax competition and committed to winning the fight against FATCA.