Roger Conklin responds to markpinetree who laments that the impression that most Americans have of US citizens abroad is that they are rich tax cheats, and says, “Lets work to clarify the issues!”

Roger Conklin responded JANUARY 28, 2012 AT 9:57 PM:

Oh how I wish you were right. But the perception cards are so stacked against us that it a task of inconceivable magnitude.

Several years back one Congresman, I have forgotten his name [Bill Alexander, see below], who had always won reelection by wide margins, took up our cause. He introduced legislation to abolish citizenship based taxation and replace it with the residence based taxation of every other country. He had no support from his congressional colleagues. It became a major issue in the next election with his opponent majoring on the fact that this Congressman was wasting his time helping American tax evaders living abroad rather than working on the issues important to his constituents in the district he represented. He lost his re-election, going down in an flames. That bitter lesson did not go unnoticed by others when going to run for re-election. It is an issue that just does not resonate positively with he voting public.

I have listened carefully to the speeches and debates of the Republican presidential primaries contenders. When it comes to foreign trade and “American jobs destroyed by foreign imports,” they all sing in unison off he same song sheet: It’s all China’s fault. And they all appear to think that because labor is so cheap in China, there is nothing that will ever turn this around except for China to massively increase the value of its currency so the the US can be competitive in China.

They don’t seem to understand that China is the second largest import market in the world today and that our trade competitors are doing so well because they concentrate on the products China needs to import rather than trying to sell them the products the Chines make themselves. And each tries to outdo all the others on how tough they will be with China when they are elected president. None of them seem to have any awareness that the US is almost alone among the industrialized nations with a China trade deficit. Most of the rest of them are exporting far more per capita to China than the US, and are ether racking up trade surpluses or have balanced trade with China. Not a single one of them shows any evidence of knowing how alone the US stands in having a massive China trade deficit. I have personally written letters to several of them laying out the facts, but probably none of them have ever seen those letters, let alone read them.

By the way, the last trade statistics I saw on The Economist website showed that Canada has an almost perfect balance between its imports and exports.

Later Eric referred to two bills, introduced by Gregory Meeks D (NY), that would have increased the Foreign Earned Income Exemption (FEIE) to unlimited but the bills died in committee.   Roger Conklin JANUARY 29, 2012 AT 6:17 AM responded:

Both Maloney and Meek are members of a loose coalition in Congress that takes an interest in and looks out for issues that are of concern to US citizens living overseas, but having said that I can assure you that these well-meaning persons also have other priorities that are higher on their lists.

I now remember the Congressman who several years ago actually worked very hard to try to eliminate this double taxation of US citizens and was defeated in his re-election bid alegedly because of his support for these “tax cheats”. It was Bill Alexander. As I recall he stayed in Washington and is a practicing attorney there.

You are totally correct that there are far more in Congress who are trying to repeal the FEIE and thus increase the taxation of citizens abroad. And in the Senate the Champion of doing away with any “special privilege” for overseas Americans is Senator Charles Grassley from Iowa. He had just been elected as a Congressman from Iowa when the Tax Reform Act of 1976 was enacted. It was that ACT that transformed taxation of Americans abroad from tolerable into the monster that overnight turned 95 out of the prior 100 years of trade surpluses into the perpetual trade deficit that it is still today.  I called his office a few days back and ask how he had voted on that 1976 legislation. The person I talked to had to research it, but he called me back with the information. Congressman Grassley not only voted in favor of it, he was one of its sponsors.

Since then Congressman Grassley has been a dedicated foe of the FEIE. He was for many years, while the Republicans held the majority in the Senate, its chairman of the Finance Committe. A few years back, when he was still chairman, he is the Senator who introduced stacking into the TIPRA legislation which filled the revenue gap that allowed that legislation to be enacted. Stacking subjected all foreign earned income to the marginal tax rate that would have applied if there were no FEIE. In other words the tax savings now provided by the FEIE is at the lowest marginal tax rate “off the bottom” rather than at the highest tax rate “off the top.” He introduced this provision just 10 minutes before the Senate vote was taken on that legislation. There were no hearings on it nor was their any discussion whatsoever on its effect on Americans living abroad, but since it would by the Joint Tax Committee’s calculations “fill the revenue gap” the legislation was passed. Senator Grassley, who is now Ranking Member on that Committee but not its chairman since the Democrats control the Senate, as more that once publicly stated that overseas Americans serve no useful purpose in selling exports or anything else and should therefore “pay their full share” of taxes just like everyone else.

I have participated in meetings with ACA and AARO delegations that traveled to Washington with Grassley’s staff in past years and they were a “no sympathy” group indeed. But at least they were always up front with their views. Many others that we met with listened with apparent sympathy but as soon as the meetings ended and we stepped out of their offices their subsequent actions would seem to indicate that their sympathy for our cause was totally superficial. They did not lift a finger to do anything helpful. It is on Capitol Hill and only there where all the legislative decisions that are made that affect us. Almost daily there are marches and demonstrations in Washington in favor and opposed to a multitude of issues, but how they vote on these many issues is determined by whether or not they can get re-elected. And that, pure and simple, to use a metaphor, is the tail that wags the cow.

Let me add that even though renunciations of citizenship of Americans abroad is up, and it certainly is, it is still only a miniscule trickle in comparison to the multitudes of foreign citizens who are being sworn in as new naturaized US citizens. Congress with the Exit tax enacted just a few years ago did this, I am sure, primarily as a punishment rather than to generate additional tax revenues. Many more are still trying to get in than are opting out.