More than just the numbers: the legal dilemmas and economic repercussions of the fatca
| Autor | Brian A. Mottl |
| Páginas | 260-276 |
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MORE THAN JUST THE NUMBERS: THE LEGAL DILEMMAS AND
ECONOMIC REPERCUSSIONS OF THE FATCA
BRIAN A. MOTTL*
I. Introduction .................................................................................................................. 260
II. The Negative Effects FATCA Will Have on Circular Flow in the US
Economy ......................................................................................................................... 262
III. Unemployment, deflation, and recession: The effects of implementing
FATCA. .......................................................................................................................... 263
IV. It Costs More To Implement FATCA Than the Estimated Revenue it Will
Generate ......................................................................................................................... 265
V. Why the U.S. Federal Government is Willing to Implement FATCA:
Businesses All Over the World Paying Most of the Costs ................................ 267
VI. FATCA Must Be Repealed Due to the Legal Implications it Brings .............. 268
VII. FATCA Violates the Sovereignty of Other States ............................................... 269
VIII. Strained Foreign Relations Will Be the Result of FATCA ............................... 271
IX. The Solution to the FATCA Dilemma .................................................................... 273
X. Conclusion .................................................................................................................... 275
I. INTRODUCTION
David R. Kamerschen, Professor of Economics at the University of Georgia,
wrote an article in an attempt to imitate the American tax system and the
disproportionality of the tax bracket tiers. This depiction, known as Bar Stool
Economics, tells the story of ten men that walk into a bar, and accumulate a tab
of $100.1 The amount each person pays represents the percentage of taxes that a
certain amount of the American population would pay. One hundred dollars
represents all taxes paid, and each person equates to ten percent of the
population. Four out of the ten men in the bar would pay nothing. $0.00.2 The
fifth person would pay a whopping $1.00.3 The sixth person would pay $3.00 and
the seventh would pay $7.00.4 The eighth person would pay $12.00 and the ninth
$18.00.5 That leaves the rest for the tenth person, the richest, who would have to
cover the tab of $59.00. These figures, while not exact due to the small amount of
people used to make the analogy, are still accurate. The richest people will end up
paying the majority of the nation’s taxes, which drives them to acquire income
from other places, thus creating foreign assets. In order to not have to pay another
$59.00 at another bar outing, these Americans maintain their money abroad. The
combination of Americans taking their assets abroad and the
$100
budget not
being enough to cover government expenses, results in the birth of the Foreign
Account Tax Compliance Act (FATCA).
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1
See
David R. Kamerschen,
Bar Stool Economics
, CAT-V, http://doc.cat-
v.org/economics/bar_stool_economics (last visited Apr. 9, 2016).
2
Id.
3
Id.
4
Id.
5
Id.
No. 2 More Than Just The Numbers
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261
As the country was seeking to recover from a period of recession, the federal
government naturally decided to seek new methods of increasing revenue, and
this was one of them. In response to the 2008 Recession, Congress passed the
Foreign Account Tax Compliance Act.6 The new law requires Foreign Financial
Institutions (FFI) to report the foreign assets of American citizens, within after a
certain dollar amount of income.7 FATCA requires US citizens who have foreign
financial assets in excess of $50,000 for bona fide residents overseas; $200,000 for
single filers and $400,000 for joint filers, to report those assets every year on a
new Form 8938 to be filed with the 1040 tax return Form.8 The Act also requires
all FFIs to report all American assets to the IRS.9 Failure to report, empowers
these institutions to charge up to thirty percent withholding penalty on their US
investments.10 So far, approximately 77,000 foreign financial institutions have
complied with the requirements of the Act, ensuring the US financial policing of
American assets overseas.11
However, this new piece of legislation has led to a parasitic relationship
between the United States and foreign institutions, where the US benefits from
the assets reported, and the foreign financial institutions are bullied into coping
with the costs and burden of identifying American assets. Many financial
institutions have stopped doing business with American citizens to avoid the
hassle, and the number of renounced US citizenships has quadrupled since
FATCA was enacted. This frustrating experience will produce considerable
capital flight from United States, as evidenced by foreign companies unwilling to
do business with Americans. Although some may say that FATCA is a positive
law that will generate revenue, nevertheless, it should be repealed and replaced
with a more cost effective auditing system, because of the effects on circular flow
of money, cost outweighing benefit, and legal complications.
This work will analyze the repercussions of FATCA on circular flow of money
in the economy, highlighting externalities such as unemployment, deflation, and
recession. Then the cost-benefit analysis of implementing this law will be broken
down. And lastly, this comment will analyze the legal implications associated
with implementing FATCA, including the violation of sovereignty of states and
strained foreign relations.
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6
See
I.R.C. §§ 1471-74 (2006 & Supp. V 2011).
7
Id.
8
Id.
9
Id.
10
See
Taxing America’s Diaspora: FATCA’s Flaws,
THE ECONOMIST (Jun. 28, 2014),
http://www.economist.com/news/leaders/21605907-americas-new-law-tax-compliance-heavy-
handed-inequitable-and-hypocritical-fatcas-flaws.
11
Id.
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