This month finally marked the much delayed implementation of the Foreign Account Tax Compliance Act (FATCA). The massive financial dragnet’s diminishing group of supporters shouldn’t pop the champagne just yet, however, as the feat represents only a Pyrrhic victory. FATCA remains both politically and legally vulnerable, and ultimately represents a doomed effort to treat the symptoms of the tax code’s many inadequacies rather than root causes.
In addition to the practical obstacles to FATCA’s implementation, a coming legal challenge could potentially reopen debate on the law’s overall viability and effectiveness. Attorney Jim Bopp, who had a leading role in the successful effort to strike down McCain-Feingold, plans to challenge FATCA on three points. Namely, that Treasury’s unilateral intergovernmental agreements violate the Senate’s treaty power, that FATCA’s excessive penalties violate the 8th Amendment, and that its privacy invasions violate the 4th Amendment.
There’s a direct correlation between the severity of a tax code and the level of effort individuals are willing to put into avoiding or evading taxes. Attempting to address the latter while ignoring the former is a fool’s errand. It’s the fiscal equivalent of the war on drugs – a costly enforcement-minded solution in which government agencies are always two steps behind their targets. And like the drug war, FATCA will produce considerable collateral damage and invasions on innocent Americans.
FATCA has been dubbed “the worst law most Americans have never heard of.” See this article for more.