Last Tuesday, libertarian-leaning Sen. Rand Paul (R-Ky.) introduced a bill to repeal parts of the Foreign Account Tax Compliance Act (FATCA), a bill passed in 2012 to cut down on offshore tax evasion. Although unlikely to have any success in Congress, the bill has been praised by anti-tax conservatives such as Grover Norquist, whose support could be vital in a possible run for the White House in 2016.
FATCA, which is meant to go into effect next year, requires foreign financial institutions (i.e. banks, credit unions, investment firms, etc.) to submit financial informational to the Internal Revenue Service for all “U.S. persons” with overseas accounts worth more than $50,000, or face a fine and possible exclusion from the U.S. market.
FATCA supporter Heather Lowe, director at the tax-policy watchdog Global Financial Integrity told Accounting Today that FACTA is “crucial to cleaning up the worldwide shadow financial system. Foreign financial institutions should not harbor the illicit assets of U.S. tax evaders." A recent study from the Tax Justice Network found that some of the world’s wealthiest individuals are hiding a staggering $21 trillion in offshore tax havens, with 100,000 individuals accounting for $9.4 trillion. These havens cost U.S. taxpayers an estimated $150 billion per year in lost tax revenue.
In line with his strong anti-taxation stance, Sen. Paul claims that FATCA is an unacceptable breach of the financial privacy of Americans, and gives the Treasury excessive power over otherwise sovereign foreign nations. For example, under FATCA the IRS would have access to detailed financial asset reports without the requirement of a warrant, suspicious activity report, or any suspicion at all.
Since his election in 2010, Sen. Paul has used Senate rules to place a hold on all bills regarding the implementation of tax treaties under FATCA, including those with Switzerland and Luxembourg, two very popular tax havens. In fact, the Treasury Department is in the process of negotiating with over 50 tax jurisdictions to create a global tax information network, but none of these agreements will be put up to a vote on the Senate floor if Sen. Paul maintains his hold.
Senator Paul’s block on Senate votes for tax treaties as well as his bill repealing parts of FATCA, which is unlikely to get through the Democrat-controlled Senate, have gained the senator strong support from anti-tax groups that could be key to a successful presidential campaign in 2016, if Paul decides to run. These supporters include the Credit Union National Association, National Taxpayers Union, and Grover Norquist, who said, ”Unsuccessful tax systems attempt to force other countries to become their tax collectors. That’s what FATCA is, and it should be repealed.” Remarking on the economic costs FATCA could provoke, Chief Executive of the Devere group Nigel Green said, "Senator Paul’s heroic stance against this toxic, economy-damaging tax act is a landmark moment in the mission to have it repealed. He has taken a courageous stand against FATCA, [a law that] will impose unnecessary costs and burdens on foreign financial institutions."