August 27

Will American Expats Miss This Year’s Historic Opportunity on FATCA and RBT by Chasing a “Same Country Exception” Mirage?

Several weeks ago in The National Interest, known as the flagship of American foreign policy realism, I published a commentary comparing the relevant portions of the 2016 Republican and Democratic political platforms addressing the concerns of American expatriates (“expats”) and to some extent of other people (dual nationals, “accidental Americans,” etc.) caught in the blunt-instrument machinery of the global financial information dragnet. (“GOP Woos Americans Abroad, Democrats Tell Them to Get Lost,” August 1, 2016; text below) To date, no other publication of which I am aware has made such a direct comparison of the two platforms, in either a commentary or news format.

This omission is not because the differences are not newsworthy. As detailed in the TNI commentary, the contrast could not be sharper. The GOP language is direct, clear, and unambiguous: FATCA must be repealed and the U.S. should shift from citizenship-based taxation (CBT) to residency-based taxation (RBT). The Democratic language is vague and insulting, mentioning expats only in passing in the context of tax evasion, terrorism, and corruption. CBT/RBT is totally ignored, and FATCA relief is only hinted at as “finding the right solutions” for Americans abroad. The latter is taken as an oblique reference to creating a “same country exception” (SCE) for FATCA.

You would think that given this gap, the choice would be clear across the expat community and the media that serve them. But instead, with a few honorable exceptions, the GOP language has been largely ignored except by the FATCA-natic “tax justice” crowd who predictably (and dishonestly) blasted it as attacking an “effective anti-tax evasion measure” and “effectively advocating for tax evaders.”

Conversely, the thin gruel the Democrats have ladled out has received disproportion attention in the context of what I regard as quixotic efforts to achieve an SCE carve-out from FATCA. Even if such a carve-out were attainable (a slim chance at best), it would hardly constitute the solution it is touted to be. Even with SCE, the blind panic reaction of non-U.S. financial institutions in dropping their American clients would scarcely be relieved and might even be aggravated by adding yet one more layer of complexity to their compliance load (“Where does this person live?”) A U.S. passport or birthplace would still be seen as the dreaded Mark of Cain, leading more people reluctantly to conclude that “when it’s all said and done: all roads lead to renunciation” of American citizenship.

Even worse from expats’ perspective, SCE (if it happened) would make adoption of RBT less likely (“Hey, we fixed your damn problem – now shut up!”). Finally, by supposedly “taking care” of expats, the “canary in the coalmine” when it comes to FATCA, SCE would signal a decisive abandonment of any hope of getting rid of a massive, invasive, expensive, and counterproductive pillar of the global surveillance state and set the stage for “global FATCA”: GATCA.

Some may feel a targeted “smaller fix” that narrowly addresses expats’ concerns (i.e., SCE) is more “doable” than what seems a “bigger” task (FATCA repeal). The opposite is the case. An SCE fix addresses only a “niche issue” with no appeal outside of the expat community. (If Hillary is as smart as she is evil, she’d promise to institute SCE and then forget all about it after she had won.) FATCA gores a lot more oxen than CBT does; a FATCA repeal effort, if one were ever belatedly launched (I keep hoping!), would find plenty of allies. Instead of a force multiplier in working against FATCA, an SCE focus means wasting the unprecedented leverage provided by the Republican platform language. Moreover, as I have long argued, replacing CBT with RBT is far less achievable as a stand-alone enactment than piggybacking RBT on FATCA repeal. The wording of the GOP platform supports that approach.

From my work on earlier GOP platforms, I can attest that fat corporations with powerful lobbies work for months, even years, and spend hundreds of thousands of dollars, to get just a sentence, just a phrase into a party platform that kinda, sorta, maybe points to their interest. This year expats have a whole paragraph, and a very explicit one, that’s spot-on their critical concerns. As platform language goes, this is the gold standard, and it has fallen on expats like manna from heaven. But instead of being hailed and jumped on as an extraordinary opportunity, it’s mostly been ignored or pooh-poohed while inordinate attention is being paid to bogus hints – not even promises – from the very party that birthed the phony “tax justice” torture regime.

In 2016 expats and others who have problems with FATCA and CBT have a clear choice: either Donald Trump and the GOP ticket have your vote, or you can roll the dice and hope against hope that if he loses, somehow, in some way, something good might possibly, maybe, perhaps someday happen under Hillary Clinton (and your prospective new First Lady, Bill the Molester). Keep in mind that if Trump does win, he’ll definitely have a GOP Senate (the House will stay GOP in any case), meaning that the ability of the Grand Old Party to keep its promises will be there. If Hillary “Queen of Chaos” Clinton wins, gridlock in Washington will be the least of the world’s and America’s problems.

It’s time for expat voices to come out in clear and unequivocal support for the GOP ticket and platform. Even if it’s limited to this one aspect of the platform, with caveats like “while we don’t agree with all positions in the platform, or agree with the candidate on this or that, we strongly urge this vote.” In the end, it’s about who gets to make the rules starting in January 2017 and making sure they see that expats were with them and are owed something.

The text of “GOP Woos Americans Abroad, Democrats Tell Them to Get Lost” follows:

GOP Woos Americans Abroad, Democrats Tell Them to Get Lost

Jim Jatras

August 1, 2016

American citizens who live outside the United States are one of the least visible constituencies in U.S. politics. This is despite the fact that, at up to nine million people, they are more numerous than the populations of all but about a dozen of our fifty states.

The Obama years have been tough for American expatriates, or “expats.” The prime culprit is the so-called Foreign Account Tax Compliance Act (FATCA). Supposedly aimed at “fat cat” tax cheats with money stashed abroad, FATCA includes not a single provision targeting actual tax evasion. Instead, FATCA creates a wholesale NSA-style information dragnet requiring under threat of sanctions, all non-U.S. financial institutions (banks, credit unions, insurance companies, investment and pension funds, etc.) in every country in the world to report to the IRS data on all specified accounts of U.S. persons (but not corporations). No proof or even suspicion of wrongdoing is required.

Hoping to avoid sanctions threats and crushing compliance costs, institutions around the world have been dumping American clients, making it increasingly difficult for them just to open a checking account and pay their everyday bills. Businesses once eager for our expats’ expertise now shun them because FATCA imposes U.S. regulatory oversight of companies in which Americans exercise signature authority.

FATCA has thus vastly compounded pressures imposed by earlier laws like Report of Foreign Bank and Financial Accounts (FBAR) and America’s unique worldwide taxation system. (Virtually all other countries impose taxes based on residency, not citizenship). While genuine “fat cat” evaders can easily slip the FATCA net by putting assets into gold, diamonds, art or real estate, middle-class Americans overseas are being smacked with massive penalties for filing deficiencies even when they owe no tax, on top of hefty accountant and attorney fees to navigate an increasingly labyrinthine regime.

In short, this vital part of “America's international sales force” is being strangled. It’s hardly surprising then that the number of American expats reluctantly making theheartrending decision to renounce their U.S. citizenship has skyrocketed. The only response from the Obama administration has been to crank up the fees and penalties for doing so.

In a timely move, the 2016 Republican Platform promises rescue in a clear and unequivocal statement that champions expats’ financial interests and constitutional rights:

“The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting Requirements result in government’s warrantless seizure of personal financial information without reasonable suspicion or probable cause. Americans overseas should enjoy the same rights as Americans residing in the United States, whose private financial information is not subject to disclosure to the government except as to interest earned. The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. Thus, FATCA not only allows ‘unreasonable search and seizures’ but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.”

Let’s keep in mind that the GOP Platform also proposes a far-reaching and long-overdue overhaul of an American tax system that seems almost designed to stifle enterprise and drive jobs overseas. If Donald Trump wins the presidency, he almost certainly will have a Republican Senate as well as a GOP-led House of Representatives to work with. This means a Trump administration will be in a position to keep its promises on FATCA and residency-based taxation.

By contrast, what do the Democrats promise expats in their platform? Just more pain and blame, lumping them with presumptive lawbreakers:

“Democrats believe that no one should be able avoid paying their fair share by hiding money abroad, and that corrupt leaders and terrorists should not be able to use the system of international finance to their advantage. We will work to crack down on tax evasion and promote transparency to fight corruption and terrorism. And we will make sure that law-abiding Americans living abroad are not unfairly penalized by finding the right solutions for them to the requirements under the Foreign Account Tax Compliance Act (FATCA) and Report of Foreign Bank and Financial Accounts (FBAR).”

Sure, there is a milquetoast hint at “finding the right solutions” for expats. If there is a Hillary Clinton administration, they can file that with “if you like your healthcare plan, you can keep it.”

Despite their formidable numbers, American expats (who vote via their address of domicile back home) are not concentrated in any particular states or congressional districts. It’s thus unlikely they can decisively swing the 2016 race. Nonetheless, the GOP has made a bold and principled play for their support. Democrats have given them the back of their hand.

If the American expat community wants relief, this is a no-brainer.

Jim Jatras, a former U.S. diplomat and foreign policy adviser to the Senate GOP leadership, comments on financial and foreign policy topics and on U.S. politics. He edits