Prior to the enactment of FATCA, Congress and the Executive were in possession of concrete-evidence revealing FATCA would fail to collect any meaningful amount of tax-revenue from U.S. persons evading tax through offshore financial center holdings. Congress should have halted enactment of HIRE – if in fact, FATCA’s purpose was to collect tax-revenue from offshore tax evasion by U.S. persons.
The United States Congress used estimates from the Joint Committee on Taxation (JCT) as the foundation for supporting the Foreign Account Tax Compliance Act (FATCA), contained in the Hiring Incentives to Restore Employment Act (HIRE).
HIRE was a tax expenditure designed to encourage U.S. small business to hire new employees. HIRE included two tax expenditures of note: a payroll tax exemption to employers and a one-thousand dollar tax credit for employers hiring employees between February of 2010 and January of 2011. FATCA was included in HIRE because the tax revenue collected from FATCA was supposed to offset the tax expenditures authorized by HIRE. The tax revenue FATCA was said to be targeting was from U.S. persons with foreign bank accounts who were evading tax.
In July of 2008, and around the time of the UBS scandal and the Global Financial Crisis the U.S. Senate Permanent Subcommittee on Investigations held a hearing and issued a report entitled “Tax Haven Banks and U.S. Tax Compliance”. The underlying justification for FATCA as a substantial revenue raiser rested on a single statement found in a footnote in the 2008 hearing report: “Each year, the United States loses an estimated $100B in tax revenue due to offshore tax abuses.” In a 2009 follow-up report, the Ways and Means’ Subcommittee on Select Revenue Measures held a hearing entitled: Banking Secrecy Practices and Wealthy Americans. During this hearing, the Senate increased the U.S. tax revenue loss-estimate by 50 percent stating: “Contributing to the annual tax gap are offshore tax schemes responsible for lost tax revenues totaling an estimated $150B each year.” The estimates entered into the record during these hearings measured the offshore tax gap, or the amount of tax revenue that would be collected if offshore tax evasion by U.S. persons holding foreign bank accounts was ended. One month, before HIRE was signed into law by President Obama, new evidence revealed the offshore tax gap was nowhere near as large as previously thought.