A bill before Congress would roll back regulations requiring banks in other countries to report to the Internal Revenue Service on U.S. citizens’ assets held abroad.
In April, U.S. Rep. Mark Meadows (R-NC) and Sen. Rand Paul (R-KY) proposed House Resolution 2054 and Senate Bill 869, respectively. The bills would repeal the Foreign Account Tax Compliance Act (FATCA), which was passed in 2010.
More Harm Than Good
Adam Michel, a policy analyst with The Heritage Foundation, says FATCA creates more problems than it solves.
“The main problems are that compliance costs are too high, and new reporting requirements have the potential to violate taxpayer privacy by requiring reporting of citizen account information to the IRS without suspicion of a tax law violation,” Michel said. “The reporting burden and potential withholding penalties faced by foreign banks trying to comply with the new regulations have made it easier for some Americans to renounce their citizenship than find a bank that is willing to bear the bureaucratic costs of FATCA.”
FATCA ‘Fundamentally Flawed’
Brian Garst, director of policy and communications at the Center for Freedom and Prosperity, says FATCA is the wrong kind of tax policy.
“FATCA is a fundamentally flawed approach to tax enforcement,” Garst said. “Rather than recognize the root causes of tax evasion—excessive rates and overly complex rules—FATCA represents a belief that more draconian enforcement is the best approach to increasing compliance.”
Territorial Tax Alternative
Garst says adopting the international standard for taxing cross-border income would be better at achieving FATCA’s stated goals.
“Comprehensive tax reform that moves us to a more pro-growth system would render much of FATCA’s targeted information moot,” Garst said. “Adopting a territorial system instead of being one of the only nations that tax citizens no matter where they live or earn income makes FATCA’s reporting requirements superfluous.”