One of the most commonly used (and abused) buzzwords in public life is “transparency.” Transparency is good. Everybody’s for it.
The problem is the different, even contradictory, meanings the word is given.
For example, transparency in government is when citizens can see what their rulers are up to. It’s a necessary check on abuses of power. That’s why the United States and many other countries have laws on freedom of information.But there’s another, very different, meaning that’s emerged in recent years. Rather than citizens monitoring their government, “transparency” becomes a government window into citizens’ private affairs.
“It is a practice of good government for institutions to be transparent and open to the people,” writes Brian Garst of the Center for Freedom and Prosperity. “It is a practice of tyranny for individuals to be made transparent to the government.”
For example, in 2010 the United States enacted the so-called Foreign Account Tax Compliance Act (FATCA). This law mandates that Americans’ private financial information on specified assets held outside the U.S. be automatically provided to the IRS. It’s indiscriminate — no suspicion of wrongdoing is required. This is justified as “promoting transparency.”
But historically, details of Americans’ private assets aren’t automatically reported to the government, just “taxable events,” which means realization of income. That’s why when you earn money, your employer sends you a W-2 Wage and Tax Statement. Your bank issues you a 1099-INT on interest paid (or would, if it weren’t for near-zero interest on consumer bank accounts).
By contrast, absent evidence of illegal activity, U.S. law does not require automatic reporting of financial information unrelated to income. There is no regular, blanket disclosure to the IRS of your domestic bank balances, your transactions and purchases, your life insurance equity, the value of your mutual funds, stocks or other investments (unless you sell them, thereby triggering a taxable event), and so forth. That’s as it should be.
This almost started to change in 2015 when the Senate Finance Committee considered lowering the already absurdly low $10 threshold for bank interest reporting to zero. This would have meant in effect disclosing the value of an asset even in the absence of a taxable event. Luckily that initiative was nipped in the bud, largely through the active opposition of the credit union and banking industries.
But while income-only reporting remains the standard for assets held inside the U.S., FATCA has imposed a completely different regime for Americans’ assets held abroad. Under FATCA, the value of the asset must be reported, along with transaction history — even if there has been no taxable income realized.
This is despite the fact that even the IRS’s own Taxpayer Advocate Service admits that “the vast majority” of Americans resident abroad “actually appear to be substantially more compliant than a comparable portion of the overall U.S. taxpayer population.”
This distinction was thrown into sharp relief at a hearing earlier this year before the House Committee on Oversight and Government Reform, Subcommittee on Government Operations, presided over by Freedom Caucus Chairman Mark Meadows. Elise Bean, a former Senate staffer widely considered one of FATCA’s architects, inaccurately claimed FATCA reporting was “simply a transparency measure” that matched a domestic 1099.
When Bean was forced to concede that was not the case, Meadows offered a compromise: If FATCA is supposed to be just like a 1099, why not change the law to do just that — drop the details FATCA now requires and only ask foreign banks to report on income, if any, just like U.S. banks.
Bean rejected that out of hand. Instead, she suggested that domestic 1099s be expanded to what FATCA requires on foreign accounts.
That idea is bad enough in terms of opening the door to wholesale reporting of Americans’ private information. What’s worse is what it portends for the future if FATCA remains on the books.
FATCA advocates also favor a global scheme promoted for years by the Organization for Economic Co-operation and Development (OECD) to achieve — you guessed it — transparency. But what OECD means is not government accountability but the virtual abolition of personal privacy in the form of “Common Reporting Standards” for which OECD says FATCA was “a catalyst for the move toward automatic exchange of information in a multilateral context.”
Translated into English, this means worldwide FATCA-type reporting of personal financial information from every country to every government on an automatic basis, indiscriminately and without cause. Some have dubbed this global FATCA, or GATCA. As you might imagine, compliance vendors that are already making billions of dollars on a FATCA corporate welfare bonanza are thrilled at the thought of GATCA.
The roadmap to GATCA is provided by a series of legally dubious so-called FATCA “intergovernmental agreements” crafted by the Obama administration promising U.S. reciprocal reporting to other governments.
Those agreements have been challenged by Rep. Meadows and Sen. Rand Paul, who in April wrote to the Trump administration asking for action to block compliance with the agreements pending FATCA’s repeal. Meadows and Paul have introduced FATCA repeal bills, and the 2016 GOP platform also calls for dumping FATCA. So have almost two dozen taxpayer groups, including Americans for Tax Reform.
At this point, it seems FATCA repeal has gotten gummed up with everything else in the legislative deadlock over Obamacare. Meadows and Paul are waiting for an response to their letter, but given the slow pace of Senate confirmation of administration appointees it’s unclear if the eventual answer will reflect the GOP consensus or a rehash of the prior administration’s policy.
The time for complacency is over. As long FATCA remains on the books it hangs like a sword of Damocles waiting for the next Democratic administration to press forward on the wrong kind of “transparency.”
-Authored by Nigel Green