IN July, 2010, I was quoted in the Economist about the direction of tax policy in the United States. At that time, I suggested that the U.S. appears to be building its own Great Wall - this one, though, is not bricks and mortar - it is one of tax policy: The Great Tax Wall of America. True, I was being somewhat cynical at that time. But now, I want to discuss a couple of 'mid-year U.S. tax happenings' and you, the reader, can tell me if I was prematurely cynical.....

During the first week of May, Senator Carl Levin of Michigan attached an entirely unrelated rider to a transportation bill. This bill (S. 1813) was passed by voice vote and thus, without any member apparently even seeing it, another 'Stop Tax Haven Abuse' measure could become law via a process that is anything but due process! While nothing has happened subsequently (things rarely go fast in the U.S. Senate - perhaps this is why there is so much dissatisfaction with both houses of Congress by the U.S. electorate), never underestimate the ability of the Senate to really do some serious damage in undermining global capital flows and weakening the already fragile U.S. economy.

The 'Stop Tax Haven Abuse' amendment expands authority granted under the Patriot Act, giving the Treasury Department power to extend U.S. tax law beyond U.S. borders. Treasury officials would be 'required' to spend resources tracking and analyzing all jurisdictions around the world, blacklisting those jurisdictions that fail to comply with FATCA provisions. Andrew Quinlan, president of the Center for Freedom and Prosperity, a 'right of center' think tank called upon Senate Transportation Committee members to exclude that which Senator Levin single handedly included in a measure that no one read prior to voting. 'Senator Levin's crusade against so-called tax havens is as irrational as it is dangerous. Despite constantly asserting that the U.S. loses $US100 billion each year to offshore tax evasion, the legislation he proposes to solve this alleged problem never comes close to matching his claims. FATCA is only expected by congressional score keepers to raise less than $US800 million annually over the next ten years despite costing considerably more in lost investment in the economy. Senator Levin is up to the same old tricks in trying to quietly pass 'son of FATCA' ".

Personally, I think that FATCA is a lead balloon that simply will never leave the ground. U.S. banks are required, under FATCA, to start reporting bank information to foreign jurisdictions for its foreign accounts held in the U.S. The U.S. banks do not want to do this (and, for that matter, the foreign jurisdictions don't really want information - they want money, instead!!). The U.S. banks can't do this: they have absolutely no idea who might be foreign! Banks in the U.S. want to see a drivers license as a form of identification. They also want the individual's Social Security number. In all the years I've been in business, I've never heard of a U.S. bank ever asking to see the social security card - how many Americans even have their original card? If the U.S. banks cannot comply/do not comply, then what will be the reaction of foreign banks.....want to figure out the odds of foreign bank non-compliance once they see their U.S. counterparts failing to comply?

I joked about it in the past but I'm not so humorous, anymore: we are going into an era of 'speak easy' banking. Speak easy? That was the term used for illegal bars that flourished during the era of prohibition in the United States during the 1920s, when America went dry. There are banks, wealth management financial institutions, brokerage houses that have absolutely nothing to do with the U.S. They have no branches there, there have no investments there, either. They are advertising in all the 'wealth magazines', now, proudly listing the locations of all their offices. Ominously missing from these lists are U.S. cities. These are advertisements specifically intended for wealthy (and not so wealthy, too) who simply do not wish to be bothered with reporting requirements that they view as an infringement of their rights. But these banks will also welcome those U.S. citizens who have been given their 'walking papers' by other non-U.S. banks, those who find the easiest way to comply with FATCA is to get rid of their U.S. clients, so they simply do not have to report, at all.

Are you an NRI with a U.S. passport? Do you vote in U.S. elections? Would you like to vote? Be aware, my friends, that if you are soon intending to register to vote, you may also find yourself having to file (and possibly pay) state taxes. The Federal Post Card Application (FPCA) for voter registration and absentee ballot request, while still in draft form, has an 'interesting' change: While you still have to check the request for an absentee ballot for which you are eligible to vote, you now also have one of two choices you are also going to have to make.

"I am a U.S. citizen residing outside the U.S. and I intend to return." or

"I am a U.S. citizen residing outside the U.S. and I do not intend to return."

Now let's just say that you are applying for a California absentee ballot. California is broke. The financial stability of the Golden Bear State just might be worse than Greece - yes, it is truly that bad. Just what do you think the California Franchise Tax Board is going to do when given a copy of that absentee ballot application where the applicant has checked off that he or she intends to return. I will wager that the FTB will say that if you are intending to return, since your last residency was in California, that you never really left. Do you find that somewhat outrageous? California is going after all the tax money it can possibly raise - it has to.........so what do I suggest if the post card ballot application is in your hands and you want to vote in upcoming elections? Choose the option that you do not intend to return - you can always change your mind later on but for the current, why potentially risk having to deal with the Franchise Tax Board over whether they consider you a California resident subject to taxes that you should not be subject to?

This is not as far fetched as it may seem. The State of Virginia considers former Virginians to be life long residents: If you are a Virginia resident who accepts employment in another country or moves outside the United States for other reasons (including military orders), the fact that you are living abroad does not mean that you are no longer considered a Virginia resident for tax purposes. Unless you have established residency in another state, you will be considered a domiciliary resident of Virginia and will be required to file Virginia income tax returns. What do you think of this??

When I was in secondary school ( a couple of generations ago), I read the novella 'The Man Without a Country'. Senator Harry Reid is attempting to make a citizenless person a reality. In the very same bill that Senator Levin set forth his words of 'wisdom' (which, in this case, are truly words of sheer lunacy), Senator Reid of Nevada has also added another rider that appears to be heading towards passage.

This amendment would allow the IRS to instruct the State Department to cancel or not renew or not issue a U.S. passport to an individual who owes more than $US50,000 in taxes to the U.S. Treasury Department. It would also permit the government to revoke a passport upon re-entry into the U.S. for such individuals. The effective date of this provision is 1 January 2013. The U.S. Passport Act of 1916 would thus be amended to provide that, upon receiving a certification from the Treasury Department of tax delinquency, the State Department 'may not issue a passport or passport card to any individual who has a seriously delinquent tax debt. Moreover, the State Department shall revoke a passport or passport card previously issued to any such individual. Before revocation, the State Department may limit a previously issued passport or passport card ONLY for return travel back to the U.S. I ask one simple question regarding this: at what point are taxes delinquent? What if the taxpayer is currently going through audit and appeals? The IRS has been known to abuse its privilege - what guarantees are set for the taxpayer?? Thus far this essay has concentrated upon the so-called obligations of U.S., taxpayers. Yet obligations listed cannot be valid without taxpayer rights, as well. How many years has it been since the IRS issued a taxpayer bill or rights? Does anyone pay attention to bills of rights anymore?