RUTHFULLY YOURS

How does despotism come to a modern democracy? Tocqueville thought it was by means of the regulatory state, which “extends its arms over society as a whole.”

[I]t covers its surface with a network of small, complicated, painstaking, uniform rules through which the most original minds and the most vigorous souls cannot clear a way to surpass the crowd; . . . it does not tyrannize, it hinders, compromises, enervates, extinguishes, dazes, and finally reduces each nation to being nothing more than a herd of timid and industrious animals of which the government is the shepherd.

Exactly how would you go about doing this?  Ask the acronyms, starting with the NSA and IRS (and let’s not forget the EPA). The NSA hoovers up information about everyone everywhere because you just don’t know who might turn out to be a security threat. (And given our government’s penchant for criminalizing behavior that only yesterday was considered innocent, the category “security threat” just grows and grows and grows.) The IRS, as we continue to learn, is only incidentally in the business of collecting taxes. At bottom it is a weaponized bureaucracy, deployed to intimidate, silence, and punish individuals and enterprises deemed to be at odds with the ruling nomenklatura in Washington.

IRS: that’s “Internal Revenue Service.”  I think they may have to change their name soon: maybe “URS,” for “Universal Revenue Service,” for like many bureaucracies, the IRS just grows and grows and grows. A disturbing article ^[1] by Colleen Graffy in The Wall Street Journal shows how the IRS, emboldened by new legislation, has set its sights, and its intrusive, bureaucratic paws, on foreign domiciled Americans.  The legislation is called FATCA (don’t you just love it?), the “Foreign Tax Compliance Act.” It is, as Ms. Graffy points out, a law of “breathtaking scope.”  Imagine this scenario:

You were born in California, moved to New York for education or work, fell in love, married and had children. Even though you have faithfully paid taxes in New York and haven’t lived in California for 25 years, suppose California law required that you also file your taxes there because you were born there. Though you may never have held a bank account in California, you must report all of your financial holdings to the State of California. Are you a signatory on your spouse’s account? Then you must declare his bank accounts too. Your children, now adults, have never been west of the Mississippi but they too must file their taxes in both California and New York and report any bank accounts they or their spouses may have because they are considered Californians by virtue of one parent’s birthplace.

Or let’s say you are one of the 6 million U.S. citizens living abroad. You may own no property, you may receive no income from the U.S., yet still you face fines if you do not file in the U.S.

The IRS has enormous, largely unaccountable powers, and they deploy them freely. The target of FATCA (emphasis on “Fat”) is not just individuals.  Foreign banks are also in its crosshairs.  If foreign financial institutions don’t report U.S. citizens’ accounts to the IRS, they face a 30% withholding tax on any securities transactions in the U.S. And what if privacy or data protection laws in the foreign country prohibit the disclosure of such information? Tough. If you want to do business with the U.S., you have to be on board with the Leviathan of Governement Unlimited.

As Ms. Graffy points out, FATCA is not just unpardonably intrusive for individuals, it is also bad for for U.S. interests. Given the potential penalties, “why allow an American, or even suspected American, to bank with you? The reporting costs, and the consequences of a mistake, are too onerous.”

Not only that, but it is not always easy to know who is an American citizen and who isn’t.  Some of my readers will know of Boris Johnson, former editor of The Spectator, currently the world’s most amusing mayor.  But the mayor of London, than whom no one is more British, is actually an American citizen through the accident of having been born in New York when his father worked at the UN. Has Boris formally renounced his U.S. citizenship?  That, as Ms. Graffy notes, requires “an appointment at a U.S. Embassy, forms [natch] and fees [but of course].”

Mayor Johnson repudiated his American citizenship in a newspaper column once, but it’s far from clear that this would satisfy U.S. authorities. Mr. Johnson, have you filed your taxes and reported all your U.K. bank accounts to the U.S. Department of Treasury yet?

While we await an answer, note that foreign financial institutions have two choices: “Drop American clients, or don’t invest in the U.S.”  Nice work, guys!

Of course, the U.S. is not the only country that bases its tax policy on citizenship rather than residency. The other country that does so is Eritrea. (Where?) I am loath to quote the preposterous Susan Rice favorably in any situation, but she got it right when, as U.S. ambassador to the U.N., she condemned the practice by Eritrea as “the extortion of a ‘diaspora tax’ from people of Eritrean descent living overseas.” You got that right.

As Ms. Graffy sadly notes, there is no upside for dual citizens like her who split their time between countries.  They pay the highest possible tax rate, can take none of the tax advantages either country has to offer, and face the burden and expense of double filing.  More and more people — I know several — have responded by renouncing their American citizenship.

The power to tax, Chief Justice Marshall observed at the dawn of the republic, is the power to destroy. Every country needs revenue. Hence the system of taxation.  But free countries understand that revenue is for the sake of their citizens, not the other way around.  FATCA is a stupid, counter-productive, and ultimately an un-American law. Like so much else about the hypertrophied bureaucracy that has encrusted itself along the sinews of this country, it should be undone and consigned to the obloquy of misbegotten governmental meddlesomeness.