As you may know, during the week of February 23, 2015 Democrats Abroad and members of other groups participated in the Annual Overseas American Week. The report of their visit has been the subject of much commentary.
Democrats Abroad and FATCA
The “Bulletin” from Democrats Abroad reports that:
During the week starting Monday February 23, 2015 Democrats Abroad was pleased to lead a delegation of representatives from the following organisations representing Americans living outside the US to conduct a series of meetings in Washington DC about FATCA:
- Democrats Abroad (DemsAbroad),
- American Citizens Abroad (ACA)
- Association of Americans Resident Overseas (AARO), and
- Federation of American Women’s Clubs Overseas (FAWCO) and FAWCO Alumni USA (FAUSA).
The delegation conducted 35 meetings across the five days with the offices of these officials and discussed 1) the adverse impact FATCA is having on Americans abroad and 2) reforming the FATCA implementation rules to create a Safe Harbor from FATCA reporting for Americans abroad and the banks and brokerage houses they have accounts with.
The primary purpose of the meetings appears to have been to market the “Safe Harbor From FATCA” principle. Leaving aside the technicalities, the purpose of “Safe Harbor From FATCA” is to:
1. Retain FATCA – Democrats Abroad write:
Democrats Abroad does not support the repeal of FATCA. We think it’s a good idea to make it more difficult for elite Americans living in the US to use offshore accounts to, say, carry out criminal acts.
(Note the words I have bolded.)
2. Exempt Americans Abroad from the provisions of FATCA as long as they are U.S. tax compliant – Democrats Abroad write:
The IRS is greatly concerned by the fact that at least 80% of Americans living abroad do not file US tax returns. But those people are affected by FATCA just as much as Americans who do file. In order to claim the Safe Harbor, Americans abroad will have to file Form 8939 with their tax return. That is, you’d have to become US tax compliant in order to use the Safe Harbor. This would surely increase the percentage of tax compliant Americans abroad.
(Why specifically Form 8939?)
Clearly Democrats Abroad supports the principle that “U.S. persons” abroad should be filing U.S. tax returns and the role that FATCA is intended to play in facilitating this objective. The main point is that Democrats Abroad fully supports FATCA.
Democrats Abroad and citizenship taxation
Democrats Abroad absolutely supports FATCA and Democrats Abroad supports compliance with U.S.laws overseas. What is NOT clear is whether Democrats Abroad (although they clearly accept citizenship taxation) SUPPORTS citizenship taxation.
Opposition to FATCA is primarily the result of the reality of citizenship taxation. To put it simply, FATCA mandates a worldwide hunt for U.S. citizens because they are required to pay taxes to the U.S. on their world income. As a result, the opposition to FATCA is coming primarily from Americans abroad.
There are two reasons why Democrats Abroad should support the repeal of citizenship taxation:
First, those who support FATCA should NOT support citizenship taxation. If citizenship taxation is repealed then most of the opposition to FATCA would immediately evaporate.
Therefore, because Democrats Abroad strongly support FATCA, Democrats Abroad should actively support a switch from citizenship taxation to residence taxation.
Second, Democrats Abroad also supports compliance with U.S. laws overseas and recognizes that most U.S. citizens abroad are NOT compliant with their U.S. tax obligations. It’s obvious that if citizenship taxation were repealed, all Americans abroad would be IN COMPLIANCE with U.S. laws. After all, the easiest way to reduce crime is to reduce the number of laws.
Democrats Abroad really should be actively supporting a repeal of U.S. citizenship taxation.
That’s the FATCA of the matter.