“This month finally marked the much delayed implementation of the Foreign Account Tax Compliance Act (FATCA). The massive financial dragnet’s diminishing group of supporters shouldn’t pop the champagne just yet, however, as the feat represents only a Pyrrhic victory. FATCA remains both politically and legally vulnerable, and ultimately represents a doomed effort to treat the symptoms of the tax code’s many inadequacies rather than root causes.
Even with the law now supposedly in force, the Treasury Department has pledged to go easy on enforcement for the first two years. This is because, despite numerous delays and so many claims to the contrary, the world remains unable to comply with FATCA’s costly dictates.
Only Treasury’s creative and extra-legal invention of intergovernmental agreements (IGAs) to enforce the law has made its implementation even remotely possible. The IGAs will route US taxpayer information through the hands of foreign governments, with all the privacy concerns which that entails. Even worse, they convinced foreign governments to sign the agreements by promising reciprocal information sharing. Not only would this require FATCA-style costs be imposed on American banks, but it would threaten America’s status as the premiere destination for foreign investment and drive capital overseas.
Congress is unlikely to follow through with such a self-destructive policy, which means the IGA partners will have sold out their fiscal sovereignty for nothing in return. Once they realize FATCA is a one way street, they may band together to fight back against US fiscal imperialism.”
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