DEAR FRIENDS,

Read this and enjoy a long awaited bit of intellectual and common sense fresh air:

“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.

“Whatever the ills of ObamaCare, we are at least now having a debate on the merits. How much better we'd all be if we could say the same about the Foreign Account Tax Compliance Act. “

Amen!!

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OBAMA'S IRS SNOOPS ABROAD

Who wants American partners when that means opening up the books to U.S. bureaucrats?

By William McGurn, WSJ, 16 July 2012.

Within the United States, almost no American has heard of it. Save for the occasional article, it's gone largely uncovered. And just like ObamaCare, the nastiest, job-killing aspects will not hit until after this November's election.

It's called the Foreign Account Tax Compliance Act, and it's a doozy. With little debate, Fatca was tucked into the Hiring Incentives to Restore Employment Act of 2010—a jobs bill dominated by tax breaks designed to get businesses to hire unemployed Americans.

Fatca was the revenue side of that bill. The theory was that we would pay for the tax breaks by making fat cats hiding money in their overseas accounts pay their "fair share." The reality is that the tax breaks did little to dent unemployment, and the legislation's penalties may end up killing more U.S. jobs than all the call centers in India combined. Delayed once already, Fatca is set to take effect in January 2013.

Strictly speaking, Fatca 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.

Right now, Fatca is bearing out Nancy Pelosi's prediction about the health-care bill: that we had to pass it to find out what was in it.

So far, that's translated into 388 pages of rules, released earlier this year. This weekend, Obama campaign adviser David Axelrod invoked the holy grail behind the Fatca-led, global IRS expansion. "We lose $100 billion a year to offshore tax shelters," Mr. Axelrod told CNN.

To put this in perspective, the Joint Committee on Taxation estimates that Fatca will bring in less than a billion dollars annually for the next decade. That suggests that Fatca is only the first step toward an IRS that will be far more expansive, aggressive and intrusive than most Americans can imagine.

Indeed, in a paper called "Leveling the Playing Field," (see attached) the White House says "the IRS will hire nearly 800 new employees devoted to international enforcement." It's safe to say that while we will see only a fraction of that $100 billion in revenue, we will bear the full price that a globally empowered IRS can inflict.

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 (ExpatStory.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.

Whatever the ills of ObamaCare, we are at least now having a debate on the merits. How much better we'd all be if we could say the same about the Foreign Account Tax Compliance Act.

Write to [email protected]




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