June 10, 2016

FATCA : A Banking Burden Abroad

For most people, a bank account close to home is a fact of life. Sarah, an American researcher living in Canada, had thought little of how this right could come under fire until the Foreign Accounts Tax Compliance Act (FATCA) went into effect. She now faces the anxiety of invasive monitoring of the account she shares with her British husband and worries about how she can save for her future. FATCA, a law intended to target those who evade taxes by stashing untaxed earnings in foreign banks, unjustly hurts normal Americans abroad—whose only crime is having a bank account in their country of residence.

FATCA has ended up gravely burdening millions of law-abiding, tax-paying citizens stationed outside the United States. The law not only requires Americans to report their accounts held in foreign financial institutions (FFIs) on their tax returns, it forces any FFI to report to the IRS details of every account held by any American. This has created a link between US citizenship and the burdens of harsh penalties and red tape. 

For Sarah, FATCA is anything but fair.  “These regulations don’t seem to prevent the real tax dodgers from placing their money in tax havens like Panama,” she sighs. “Meanwhile, I can’t even share an account with my husband without every detail of his income being poured over by the IRS. Separating our accounts crossed my mind, but I just can’t do it. We’re married. Are we supposed to go back to wondering which one of us will pay for pizza?” Among other financial rules affecting expats like double taxation, FATCA drove her to join Democrats Abroad to make her voice heard.

But her experience is only the tip of the iceberg. For others, FATCA’s enforcement has come to mean severe stress, humiliation and exclusion. FFIs of all kinds now choose to refuse service to Americans and continue to close the accounts of loyal clients, solely on the basis of their citizenship. A mother of two from New Mexico living overseas claims she was recently expelled from her bank. “I was forced to search for banking services elsewhere. As there were several banks that I applied to, but wouldn’t accept me due to FATCA, I was anxious and confused about when and where I could place my money. When I finally found one, my money was held without my having access. I am still waiting for my new bank to verify and approve the US tax documents before I can touch a dime of my own money!” she says. After two weeks without access to her funds, she feels like a “financial refugee.” The stigma now attached to American citizenship is a barrier to stability for ordinary families.

Across the board, the middle class suffers the most. According to our recent survey, over two-thirds of checking accounts closed as a result of the law had a balance of less than $10,000. Social mobility is also affected: 5.6% of respondents said they were refused a position because of FATCA. When investing abroad, even US companies often forego qualified American workers. It’s simply cheaper to hire foreign citizens. And small business owners living abroad are shunned by potential partners who balk at the extra measures for compliance. 

An exemption for Americans living abroad is not only the right thing to do, it would mean more efficiency for the IRS and better business for American investment around the world. That’s why Democrats Abroad is fighting for a Same Country Safe Harbor rule for FATCA. Simply put, Americans holding accounts in a country in which they are legal residents would be exempted from FATCA reporting. Sarah agrees with this policy. “I’m a Democrat and all for paying my fair share in taxes. But this regulation disadvantages the least advantaged.” 

Both Bernie Sanders and Hillary Clinton have supported the Safe Harbor exemption, and both have said that they would eliminate unfair tax burdens on Americans abroad if elected to the White House.   The best way to remind them of that pledge is to cast your vote from abroad this November.   Together, Democrats Abroad can send a strong message this election, and by voting to keep the Presidency in Democratic control and to retake the Senate, we can help achieve the change that Sarah and all Americans living abroad need.

text by Jonathon Holler