Thursday, February 20, 2014

Foreign banks and ex-American tax cheats - additional unintended consequences from .@pattonroberta

Robert Patton is an indefatigible sharer of valuable information, and his share of a National Public Radio item caught my eye as yet another example of unintended consequences. (For my previous discussions of unintended consequences, look at what happened with Chinese birth control, friendly relations toward Afghan farmers, and James Ulvog's favorite topic of green energy.)

For my non-U.S. readers, I should point out that National Public Radio serves the people of the United States. (Although I'm sure that if Slovenia has its own "National Public Radio," it's probably a quality organization.) And this story deals with American citizens abroad - or, more accurately, FORMER American citizens abroad.

It all started with Americans hiding money in Swiss bank accounts and not telling the Internal Revenue Service about it. Needless to say, this did not make Congress happy, because both Republicans and Democrats agree that it's essential to collect government revenue from people who would never vote for you anyway - and tax cheats fall into that category. So Congress took action:

During the economic recession, lawmakers saw a chance to bring in massive sums of money and stop tax cheats at the same time.

"They just found UBS in a terrible scheme to encourage tax evasion," Barney Frank, the Democratic congressman from Massachusetts, told NPR in 2009. "I think there are clearly tens of billions that can be recovered there."

The next year, in 2010, Congress passed the Foreign Accounts Tax Compliance Act. The law affects every foreign bank that does business with the U.S. And not just banks: It also applies to retirement accounts, mutual funds, and more.

NPR's Ari Shapiro points out that the United States is unusual in this regard. If a Spanish citizen is living in Canada, he or she is not required to pay taxes in Spain. But that's not the case for Americans living in a place such as Germany.

The first signs of a problem could be seen when foreign banks learned about the U.S. law and had to figure out how to comply with it. Many foreign banks hit on a very easy-to-implement solution:

Many of them decided to wash their hands of American account-holders.

"They canceled the accounts of just about every American in Europe," says retiree John Mainwaring, "including me."

But there were some Americans that decided to implement an even better solution to the American taxation problem.

In Switzerland, so many people want to renounce their citizenship that the U.S. Embassy actually has a waiting list.

"I want to be clear: It's not about a dollar value of taxes that I don't want to pay," says Brian Dublin, a businessman who lives near Zurich. "It's about the headache associated with the regulations, filing in the U.S., and then having financial institutions in the rest of the world turn me away."

Dublin says he is ready to renounce, despite the ties he feels to the country of his birth. "I grew up in America. I love my country. But I just feel that the current regulations are onerous."

Now remember that most countries have higher tax rates than the United States. And if people feel that the American regulations are so onerous that they'd rather be a citizen of Europe, then those regulations must be onerous indeed.

Although NPR and others have been discussing this over the past few days, it's been a topic for months.

Oh, and if you decide to renounce your U.S. citizenship, your former government doesn't give you any parting gifts - it just puts your name on a list.
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