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Most of us are aware how U.S. government regulations hurt people living in the United States. But too little attention is paid to how federal regulations can be damaging towards U.S. citizens living outside the country. American expatriates cannot even escape the regulatory nightmare that’s coming out of Washington, D.C.
United States citizens should be free to live in a different country without the U.S. federal government breathing down their necks. The United States has a worldwide tax system which means that a U.S. citizen living outside of the United States cannot legally escape the wrath of the Internal Revenue Service (IRS). The United States is the only industrialized nation that taxes citizens on income earned abroad, even if they are taxed in their country of residence. Taxing U.S. citizens living and working abroad undermines individual liberty as well as the sovereignty of other nations.
Stringent new banking regulations have further hurt expats living abroad. President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act of 2010 into law which contains a harmful but little-known provision called FATCA (Foreign Account Tax Compliance Act.) The supposed intention of FATCA is to crack down on those who evade U.S. taxes by hiding assets in foreign banks. But FATCA will have widespread negative consequences on the U.S. economy, financial markets and law-obeying U.S. citizens overseas.
FATCA forces all foreign financial institutions (FFIs)—that includes banks, stock brokers, hedge funds, pension funds, trusts, insurance companies— to reveal accounts held by U.S. citizens to the IRS. These FFIs will be required to provide an annual report to the IRS and collect tax withholdings for the IRS from U.S. citizens. The yearly report must disclose the name and address of each U.S. citizen as well as their largest account balance in the year and total debits and credits.
This new banking rule infringes on the privacy of U.S. citizens in addition to creating a bureaucratic nightmare for financial institutions. According to American Citizens Abroad Director Jacqueline Bugnion, “the FATCA legislation treats all Americans with overseas bank accounts as criminals, even though most of them are honest, hard-working individuals who happen to be living and working or retired abroad.”
On January 1, 2014, the IRS will start imposing a 30 percent withholding tax on U.S. securities for any FFI that does fully comply with FATCA. This will only incite foreign institutions to withdraw their investments from U.S. financial assets. Total foreign investment exceeds $21 trillion, according to the U.S. Bureau of Economic Analysis. Various FFIs threatening to disinvest in U.S. securities is a serious issue that should not be ignored.
The European Banking Federation and the Institute of International Bankers expressed their concerns with FATCA by stating that, “… many FFIs, particularly smaller ones or those with minimal U.S. investments or U.S. customers, will opt out of U.S. securities rather than enter into a direct contractual agreement with a foreign tax authority (the IRS) that imposes substantial new obligations and the significant reputational, regulatory, and financial risks of potentially failing those obligations, or may disinvest their U.S. customers in order to reduce their compliance burdens under an FFI Agreement.”
Foreign financial institutions are already turning away American clients. “We have become toxic citizens,” says American Citizens Abroad founder Andy Sundberg. Due to FATCA, a U.S. citizen abroad is now seen as a significant legal and financial risk. An increasing number of U.S. businesses and citizens abroad are finding it significantly more difficult to open foreign bank accounts and get insurance coverage.
A growing number of Americans living abroad are actually renouncing their U.S. citizenship. This seemingly drastic step makes it much easier for them to have a bank account and operate a business overseas. In Time Magazine, a business owner John based in Switzerland says that, “the U.S. government creates conflict and abuses me. I feel under duress to understand and comply with laws that have nothing to do with and are constantly changing—almost never in my favor... Every time I turn around, I get smacked in the face with some new restriction as a result of being a U.S. citizen abroad. "
The IRS should not bully American citizens living and working outside of the United States' borders. FATCA will have devastating impacts on the U.S. economy while infringing on the liberty of American expatriates. It needs to be repealed immediately.