A Perfect Conspiracy

I write this sitting on my rooftop in San Miguel de Allende, Mexico.  The temperature is 72 degrees F.  The sky is blue and cloudless.  There is an occasional light breeze.

By all accounts, life is dead solid perfect.  And I am not the only one to have made that observation.  Indeed, San Miguel has been voted and described by a myriad of publications as the best city in the world in which to live.  Having resided here in the land of eternal Spring for 13 years, I agree.  In fact, I would like to spend the rest of my life here, yet I now ponder whether that will be possible.

You see, Mexico, like so many other nations, appears outwardly to be sovereign, but in fact is a vassal state of the 900-pound gorilla to the north.  Its history of subservience to the United States dates to 1836 when U.S. citizens, kindly allowed by Mexico to live in the Mexican state of Texas, revolted against the Mexican government to establish a U.S.-backed Republic of Texas, a country that existed less than 10 years (from May 14, 1836 to December 29, 1845) before it was annexed to the United States.  It was theft on a grand scale and set a precedent that exists until today:  the U.S. takes what it wants when it wants.

And, Mexico is hardly the first or the only nation that exists to serve the United States.  Canada, likewise critically dependent on the U.S. economy, asks “how high” when the U.S. says “jump.”  And, like Mexico, Canadians pretend their nation is not at the beckon call of its southern neighbor in the face of all evidence to the contrary. 

Indeed, citizens of all vassal states are allowed to engage in the fantasy of autonomy until the U.S. wants something, at which time all pretenses must stop and the vassal states are expected to drop to their knees.  (Most of the European Union falls into the “vassal state” category, as does much of south and central America, Australia, and New Zealand.  The list goes on.)  Right now, on this rooftop, I am concerned only about Mexico, my adopted home, and the most recent effort of the United States to disregard its sovereignty as well as the privacy of its own citizens.

Enter FATCA

We begin this story of a conspiracy with theForeign Account Tax Compliance Act (FATCA), about which I and others have written extensively.  This legislation requires all nations and all banks in all nations become the unpaid agents of the United States Internal Revenue Service (IRS).  When enacted in 2010, it stunned even those accustomed to wild-eyed U.S. bullying and hubris.  

By way of background, the U.S. is one of only two nations in the world that taxes its citizens and permanent residents on their worldwide income regardless of where they live.  FATCA effectively cuts off companies from access to critical U.S. financial markets if they fail to pass along data on their American residents and customers.  This effectively eliminates the right of Americans to bank in foreign countries absent complete compliance.  FFIs must report account numbers, balances, names, addresses, and U.S. identification numbers on every U.S. account holder and if they fail to do so they must withhold a 30% tax that goes directly to the IRS and is non-refundable on outgoing wire transfers.

Many countries initially and rightfully objected to FATCA as a gross incursion on their sovereignty, but then fell into line, one by one, agreeing to identify all U.S. customers with accounts in their domestic banks or eliminating the problem by closing their accounts, which many have done. As of this writing, more than 100 nations have agreed to “step ‘n fetch it” for the Leviathan.  

Mexico broke its knees falling on them so fast.  Indeed, it was one of the earliest signatories to FATCA.  

But that was not enough for the United States.  It still left them in a dilemma:  how to find each and every U.S. citizen and permanent resident that walks the face of the earth and collect every last dime of tax on every last dime of their earnings, regardless where earned.  FATCA will surely identify many Americans, those with large bank accounts, but many, perhaps the majority, of U.S. citizens and permanent residents who live outside the U.S. live quietly under the radar in places like Mexico, a place that more than one million Americans call home.  The U.S. knows there is gold in the hills of Mexico because “a mere 7,000 (income tax) returns from Mexican based U.S. taxpayers” were filed in 2011.

Whoa!  Only 7,000 out of more than a million actually filed a U.S. tax return?  This fact acted to confirm my long-held anecdotal perspective that most Americans file their last U.S. tax return the year before they step across border to live in Mexico.  They don’t report their accounts with the FBAR form, something required of those who own or have signatory authority on foreign accounts that total more than $10,000, if only because many don’t have bank accounts at all, and if they do, they total less than $10,000 USD.  In short, many Americans come to Mexico not because they are rich, but they can live here well being poor.  

Many likewise don’t file U.S. tax returns, many for decades.  And most have gotten away with it simply because there is no (current) requirement to inform the U.S. government know where you are at all times.  And, a lot of Americans stop filing tax returns for good reasons — like death, for example.  In short, the IRS can’t tax or threaten you if they don’t know where you are or even if you are alive.  

But not to be dissuaded from total and complete compliance by every American citizen and permanent resident, the U.S. and Mexico, in what appears to be three unrelated events that, in fact, are totally related, have worked together to insure the U.S. gets what it wants (again), which is everything.

Conspiracy:  Step 1:  Offer Expats A “Deal”

Mexico has long had to deal with U.S. citizens who violate Mexico’s immigration laws, e.g., come to Mexico on a tourist visa and never return to the U.S., disappearing into the bi-cultural societies of places like San Miguel de Allende.  In true Mexican fashion, when they are caught, they are not immediately deported, or deported at all.  They usually face a fine but also get the opportunity fix the problem.  Let and let live.

Mexico collects money; the putative Mexican resident gets a resident card, and everyone is happy.  Which makes it curious that Mexico recently announced that this year, 2015, between January 12 and December 18th, the Mexican government will allow undocumented foreigners who come forward to “legalize” their status to do so without paying a fine.

Sounds good, but to whose benefit?  Mexico is out the revenue from the fines.  Besides, they have never really cared if Americans live here as long as they don’t take the jobs of Mexicans, which few do if only because most Americans won’t perform hard labor for $20 dollars a day.  One might argue that by identifying these gringos that some of them might pay income taxes to Mexico, but the numbers would be minuscule, either because they are pensionados living here on their pensions, 401k’s and/or Social Security, or they, like many of their Mexican counterparts, earn money under the table.  

Which brings us to the interests of bully-boy to the north . . .

If American citizens and permanent residents of the U.S. living in Mexico take the bait and self-identify to avoid the inevitable fine, and legalize their presence Mexico, then Mexico knows where they are — their names, addresses, finger prints, and photos.  And because these American citizens are in Mexico using their U.S. passports, the U.S. immigration authorities will also know.  

Getting warmer . . .

But this still doesn’t solve the entire problem, mostly because the U.S. State Department has never acted as an agent of the Internal Revenue Service.  

Until now . . .

Conspiracy:  Step 2:  Information Sharing

In an altogether curious email from the U.S. State Department to some U.S. citizens residing overseas is a reference, “I Haven’t Filed All My Tax Returns, What Can I Do?.”  It then references the IRS offshore programs (which includes the current version of the IRS’ Offshore Voluntary Disclosure Program (OVDP) which has acted to deplete the net worth of those who jumped on board early, confessing their sins and paying dearly for the right not to go to jail, even though some were criminally prosecuted anyway.

As one tax professional opined on seeing this State Department memo, “In my career of more than 25 years as a tax professional, working in the international tax area, I have never before seen communications sent by the U.S. Department of State, directly discussing U.S. federal tax obligations.

“However, there have been many changes in the last few years in how aggressive the IRS (and Tax Division, Department of Justice) has become in enforcing U.S. tax laws overseas.   See, Should IRS use Department of Homeland Security to Track Taxpayers Overseas Re: Civil (not Criminal) Tax Matters? The IRS works with Department of Homeland Security with TECs Database to Track Movement of Taxpayers.

“This seems to be part of a bigger trend of the IRS to use other governmental agencies and their resources in identifying and locating U.S. taxpayers and their assets overseas.”

Indeed it does.

Sounds like the perfect conspiracy, and it is, but there is still one piece missing — how does the U.S. enforce its will in Mexico?  How does it squeeze blood out of the proverbial turnip?  There are many ways, including filing suit and attempting to seize Mexican bank accounts and real estate of U.S. citizens believed to be evading U.S. income taxes, or even seeking arrest warrants in Mexico to enforce criminal complaints and indictments in the U.S.  But most countries don’t like to deport for tax offenses, and besides, the process can be long and costly.  

Something more effective and nefarious is needed to complete the conspiratorial circle, to make it dead solid perfect.  

Enter Congress . . .

Conspiracy:  Step 3:  Hold The Family Hostage

As recently observed by Martin Armstrong at Armstrong Economics, “just two days after taking charge of the committee chairing the House Homeland Security subcommittee hearing, U.S. Rep. John Katko introduced two bills. He is looking to effectively close the borders using terrorism as the excuse (as always) to hunt down Americans. Katko is a former federal prosecutor.  So he knows precisely what he is doing writing a law that is so broad, that anyone suspected of a crime cannot leave the country, which for expats, likewise means a prohibition on entering the U.S. because even if one could enter without being detained, they could never return home.

“Katko’s bill will direct the TSA Office of Inspection Accountability Act (H.R. 719), requiring TSA to now conduct criminal Investigators spending at least 50% of their time ‘investigating, apprehending, or detaining individuals suspected of committing a crime.’ This bill will now result in the arrest of anyone for any alleged crime whatsoever and that will apply to taxes.”  

According to Armstrong, “Katko is constructing a highly dangerous version of the Berlin Wall around all American citizens. He is converting the TSA into a police force less concerned about air safety and focused more on catching anyone the government can argue violates some law federal or state.”
Because most Americans have, at a minimum, familial, if not business, ties inside the United States, and thus return from time to time, with this legislation the U.S. will create the perfect extortive tool:  “If you ever want to see your family again, pay up — all of it — taxes, penalties, interest, and perhaps even some prison time.”

And if that’s not enough, there is always the threat of arrest when one tries to cross into the U.S. or back into Mexico, back to home.  

Conclusion

The government of the United States is failing, completely and utterly.  It is financially bankrupt and morally vacuous.  It remains standing solely because the dollar, for the moment, remains the world reserve currency, allowing such gross overreaches as FATCA, and the extortion of virtually every other nation in the world.  That will change sooner than later, perhaps when China or Russia, or both, back their currency in whole, or part, with gold.  But that is another story we will save for later.

In the meantime, the U.S., now in its death throes, is burdened by inconceivable debt that cannot be repaid, an economy supported by a diminishing, asset-stripped middle class, all of which is actively ignored by an incurious, anesthetized population more interested in the size of Kim Kardashian’s ass than in their own privacy.  The behemoth is now thrashing, flailing, doing anything and everything to stay alive, including extorting other nations and its own citizens.  The beast will be come more aggressive and violent as it approaches its final breath. Until then, American expats everywhere, including Mexico, have decisions to make.  

I only hope my personal decision does not require me to leave this rooftop. 

Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.