One Step at a Time

journey

It’s crystal clear by now that the US and Australian governments are not going to wake up tomorrow and realise that FATCA and CBT are unjust and discriminatory. It will take quite some time to get rid of CBT and move to RBT. The other night I was catching up on my long list of podcasts, and stumbled upon the latest edition of the Freakonomics Podcast – In Praise of Incrementalism.  The podcast explores how an incremental approach worked for gay marriage, and the civil rights movement as well as how an incremental approach might be used for current issues such as #BlackLivesMatter. Listening to the podcast soon after reading a discussion about the civil rights movement in the American Expatriates Facebook group, started me thinking about our struggle to get our elected representatives to understand the injustice of FATCA and CBT. When it comes to fixing FATCA and CBT, a home run is unlikely. But each hit makes a run more likely. So while we have our eyes on the prize, we need to also aim for small victories that will eventually make a shift to RBT seem inevitable.

What does incremental look like?

Incremental is SLOW. It’s not exciting. But eventually it gets you there.

The incremental approach is most effective when the obvious, low-hanging fruit, is tackled first. I’ll suggest three potential baby steps that could get us on the road to victory – please add more in the comments.

Accidental Americans
Many of those claimed as US persons don’t identify as Americans at all. Perhaps they were born in the US, but their non-American parents took them home while they were still children. Or maybe they were born outside of the US with at least one US citizen parent. They may not even speak English. And now, if they admit their place of birth or parentage to their local bank, they are asked to fill out a W-9 so their account information can be sent to the IRS. What right does the US have to tax these people? The injustice is so obvious that President Obama has proposed an inadequate remedy in the 2016 and 2017 budget proposals. And recently there has been some push back against the US taxation of Accidental Americans in France.

Privacy/Transparency
Last week’s post argued that US Persons should be automatically notified when their account information was reported to the IRS via the ATO. Implementing this type of reporting would be an acknowledgement that affected US Persons have a right to know who has their financial information. Again, this is a baby step towards overturning the massive privacy violations of FATCA. A comment in the Facebook group argues that privacy is just a distraction, and that we should, instead focus on more substantive problems with FATCA. However, once our governments admit that there are some privacy concerns with FATCA, it may be easier to get them to understand some of the bigger problems.

Same Country Exemption (the right way)
This excellent video by Professor Allison Christians (McGill University) from 2014 was recently linked in the Citizenship Taxation Facebook group.

Starting about 6 minutes into the video Professor Christians advocates a “Same Country Exemption (SCE)” as an incremental approach to dismantling FATCA. SCE has a bad name among some groups of US expats because of a specific proposal that links SCE with IRS compliance. However, I think Professor Christians is advocating a simple SCE without any need for the FFI to check anything other than proof of residence: if you bank where you live, the bank is absolved of all FATCA reporting requirements. Plus, you’re being taxed where you live, so the chances of your “foreign” bank account being used to evade a significant amount of US tax is fairly small. SCE would be a small incremental step that would bring relief to many (not all) of those adversely affected by FATCA. Does it go far enough? No. But, implementing this type of SCE would alleviate at least some of the injustice of FATCA – it would be a small wedge that might allow us to push the door open wider.

 

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