mind your business

Wednesday, June 29, 2011

The Imperialism of the IRS

Over at U.K. libertarian blog Samizdata, Jonathan Pearce has written an excellent piece on an action of the IRS that should, by any account, be considered an act of Western imperialism, yet we've heard not so much as a peep out of the anti-imperialists about it, because it concerns the source of funding for their precious welfare state:

It bemuses me that a certain type of commentator will often - sometimes rightly - be angered at the over-reach of Western powers' foreign policy but be quieter about other, less obvious, intrusions if they happen when a more leftist government happens to be in power. And a lot of this sort of double-standard occurs with the United States.

Such critics appear to have been silent on the following issue: under the current Democrat presidency of Mr Obama, the US last year passed a stunningly badly crafted piece of legislation, known as FATCA (Foreign Account Tax Compliance Act). The law was passed at a time of what can best be described as hysteria about the amount of money that Americans were allegedly stashing abroad in places such as Switzerland, the Bahamas, the Caymans, and so forth. The major governments of the world, such as the US, Germany and UK, fondly imagine that there is, so to speak, a huge pot of gold that got lost down the back of the sofa.

What FATCA does is require any financial institution that is believed to deal with expat US citizens and Green Card holders to provide a great deal of information to the Internal Revenue Service. In other words, all manner of financial institutions, ranging from big banks to small investment boutiques, must prove to the Internal Revenue Service's satisfaction that they have not got US citizens/GC holders on their books if they want to be unmolested by the IRS's powers. If they have such clients or invest into the US stock market, etc, they must provide huge amounts of additional reporting data to the US. "Foreign Financial Institutions" must report investors who are taxable in the US to the US tax authorities. If they fail to do so, they pay a 30 per cent withholding tax. And proving that someone is, or might be, a US citizen might be hard, particularly if that person has been living outside the US for decades, and there is not much paperwork going back, say, 30 years.

This is a quite stunning extension of the IRS's power around the world, affecting European, Asian, African, Latin American and other regions' banks, who may have been blissfully unaware that some of their clients had, at any point, a US "taint". And I am frankly astonished that not more has been said by non-US governments about this; however, given that governments such as those of Germany have resorted to the dubious practice of paying for data stolen from Swiss banks, I have no great hopes that respect for sovereignty or the rule of law applies.

Read the rest at Samizdata.

Wes Messamore,
Editor in Chief, THL
Articles | Author's Page