Legislation will hurt America's trade, citizens
June 24, 2014 at 1:24 a.m.
Editor, the Advocate:
HR Bill 2847, known as the Hiring Incentives to Restore Employment Act, was passed by Congress in March 2010, which sought to provide pay roll tax breaks for businesses to hire unemployed workers. Slipped into this bill was a section creating the Foreign Account Tax Compliance Act, which becomes effective July 1.
FATCA was created to catch those Americans thought to be evading taxes by hiding their wealth in foreign accounts. FATCA will require foreign institutions to report information about the ownership of U.S.-held taxpayer assets to the IRS. Such assets would involve a wide range of financial endeavors involving banks, stock brokers, hedge funds, pension funds, insurance companies, trusts, etc. If foreign institutions don't comply with FATCA, the U.S. will impose a 30 percent withholding tax on all its transactions concerning U.S. securities, including the proceeds of a sale.
The major risk stemming from FATCA is the potential for wide scale disinvestment from the U.S. by foreign institutions seeking to avoid IRS penalties and sizable compliance costs. This invites a huge incentive to get out of U.S. markets entirely. The implications for the stock market, economy, bonds, the dollar, etc., could be disastrous. If foreign institutions flee U.S. markets, the economic damage could be massive, especially considering the U.S. reliance on foreign investments and outside credit to function.
I view FATCA as another bill similar to the Affordable Care Act, in which the Obama Administration is trying to impose its will on foreign institutions in accepting this bill whether they agree to its contents or not. While the reason for FATCA has merit, the way it is designed will cause major problems for our nation and is counterproductive to the estimated amount of additional taxes to be collected. Lastly, FATCA may make it difficult for reputable, tax-paying American businesses and U.S. citizens living and working abroad to open and maintain accounts in foreign institutions.
Allen J. Novosad, Edna