Is FATCA the Worst Part of the Internal Revenue Code?


Daniel J. Mitchell |  Jul 06, 2014

I’ve argued that subsidies for the Paris-based Organization for Economic Cooperation and Development are the most destructively wasteful outlays in the federal budget. At least on a per-dollar-spent basis.

But, what if we did the same exercise on the tax side of the fiscal ledger. What’s the most damaging provision of the tax code?

In a TV interview earlier this year, I said I was most upset by all the corruption in Washington that is made possible by a Byzantine tax code. But that’s an overall observation, not a specific feature.

Today’s question deals with the part of the tax system that is most harmful to the economy, on a per-dollar-collected basis.

If you asked me to make that choice five years ago, I probably would have picked the death tax, though I’ve had some experts tell me that “depreciation” is even worse.

But I think today we have a new champion (so to speak). A little-known law called the Foreign Account Tax Compliance Act almost surely wins the prize. And it’s not just cranky libertarians such as myself that think the law is bad news.

The U.K.-based Economist is one of the most establishment publications in the world, yet even that magazine has concluded that the law “is doing more harm than good.”

Here are some excerpts from the article, starting with a basic description of the law.

 Basil Zirinis of Sullivan & Cromwell, a law firm, began his presentation with a discussion of events in Iraq, where Islamist fighters were advancing on Baghdad. Barack Obama, he claimed, was drawing a red line around the city and, if necessary, would “drop FATCA on them”. …The analogy was tasteless, but also telling. FATCA stands for Foreign Account Tax Compliance Act, an American law passed in 2010 to crack down on the use of offshore banks…

Read more here.