A recent article in the Boston Globe (a response to the Romney tax disclosures) notes that:
“In fact, nearly half of US taxpayers will probably pay no taxes at all for 2011, including 24,000 in the top 1 percent of incomes, according to the Tax Policy Center, a think tank in Washington. Some low-income families even get back more than they pay because of the Earned Income Tax Credit and other programs.”
And if they do pay full tax, what is the top tax rate in the United States?
“Congress decreed a decade ago that the wealthiest Americans pay a top income tax rate of 35 percent. But as Romney shows, hardly anyone – even billionaires and multimillionaires – pay anywhere close to that.”
Yes, you read right! Many U.S. residents pay no income taxes (and little in sales taxes – see below). Yet, the IRS is hunting U.S. citizens living outside the United States to hit them with massive penalties for not filing FBARs that they didn’t know about! An income tax rate of 35% is nowhere near the top rate in Canada. It is closer to 50% and it kicks in at a lower amount of income. But, that’s just the income taxes. There are other taxes.
In addition, Canada and most European countries have huge VAT (value added taxes). In Canada, this is know as the HST. Sales taxes are the only way to ensure that either everybody pays taxes, or taxes are paid for every person. Although most U.S. states have sales taxes, there is no U.S. Federal Sales tax. Furthermore, the states that do levy sales taxes, do not have a rate that approaches the 13% in Canada (and higher in Europe where it tends to be hidden in the price).
Yet, by God the American Public, or a large part of it, is convinced that U.S citizens living outside the United States are tax cheats.
If I didn’t know better, I might think that the IRS thinks it is the job of U.S. citizens living abroad to pay the bills of those U.S. citizens at home who don’t pay taxes. The IRS has enlisted Mr. FBAR as a tool to drain the retirement accounts of U.S. citizens abroad.
There was an interesting comment on a post yesterday – “All Gov calls renunciants tax cheats” – to the effect that:
I think the real tax cheats are the almost 50% of Americans living in the US who don’t pay any taxes yet use the services. There are too many ordinary Americans down there who through all their deductions end up paying no tax, and most of these people are not rich. You can’t run a country that way.
In Canada everybody pays taxes no matter how little they make.
If Americans living in the US want to see a tax cheat, half of them just need to look in the mirror.
What about you? When you look in the mirror, do you see a “tax cheat”?
It is time for ACA and AARO to place this announcement in a national publication:
“Americans Living Abroad
It is estimated that there are around 5 million Americans Living and Working Abroad. They are not Tax Cheaters.
They earn their money from their work in the foreign country and pay Income Taxes to to their country of residenceand to the United States. They are not the same as the Americans Living and Working in the USA who are hidingin foreign banks. Yet they are being treated in the same way.To learn more about this, contact ACA at http://www.aca.ch or http://www.aaro.com“
“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”
– Alexis de Tocqueville
The problem is, as I see it, that Cato, Freedom Works, Center for Freedom and Prosperity, etc, get dismissed as being partisan by those in the current Administration whose attention we need. That is very unfortunate, as the do deserve a lot of credit, are right on the issue, and I agree with you.
Personally, I have been trying (without a lot of success) to get the attention of the progressive media, Fallows with his FATCA Chronicles being a case in point. It was good that he spent gave the issue attention, but practically speaking that is probably all he is going to expend on the effort. We need other similar sources, because if and when they begin to see the injustice, and frankly, stupidity of US tax laws, you then begin to build a coalition toward change.
However in this political year, it is going to be tough to keep the issue out of the demigod realm. Too easy for lazy progressives to just dismiss this as the lament of the rich, and for lazy Conservatives to just blame Obama! even though Commissioner Shulman was appointed by W! There is bipartisan blame all around!! I fear, with our efforts here, we might just become our own little echo chamber unless we reach out and get as broad of a political spectrum as possible engaged on the subject.
Have you made that suggestion directly to them? I email them all the time, and have found them responsive to my comments.
They do send out a lot of media press releases, that get ignored or buried behind IRS press releases, but they are also quoted quite expensively in a lot of stories that get written.
You might check with them and see if they are planning anything additional in the near future along the lines you suggest. I heard they were working on another press release related to FATCA, but not sure on the status.
I’m not disagreeing that the IRS’ going after overseas Americans or purported Americans is wrong, but the Globe article does oversimplify things just a tad.
No one pays on average the tax rate at “their” income level, not even in Canada.
For example, the Canadian federal marginal tax rate at my 2010 income level is 22%. My actual federal tax payable that year was about 14%, which is the marginal rate at the bottom bracket. But this is all before deductng my non-refundable tax credits, which in my case are the basic personal amount, the pension income amount, and a very small deduction for donations and gifts.
However the fact remains that, according to the Globe, I’m still paying about 50% more federal tax in Canada than I would in the US. I’m roughly in the same income level (a bit lower, but probably keeping me in the same bracket) as the average tax filer reported in the Globe — who pays 9% of his/her total income in US federal tax, versus nearly 14% in my case. Subject to rounding errors, I’m paying Canadian federal tax at a total-income rate about 52% higher than the average American.
My only income last year was pension income (federal superannuation, CPP and OAS). I had absolutely no investment income and no capital gains (my RRSP is still an RRSP, I haven’t RRIF’d it yet, and I have no other investments). If I had to file US returns whatever capital gains there had been in my RRSP would have been taxed there, further increasing my US tax rate but nowhere near enough to bring it to my Canadian level, given the small size of my RRSP and the pretty-flat performance it had in 2010.
Any way you cut it, we in Canada pay more taxes than do Americans (I haven’t included in the above my provincial income tax never mind the HST we pay in Ontario never mind property tax).
However, in reluctant fairness to Romney, liars figure and the media and political opponents are playing rather loose and dirty with the calculations here, to score political points. They do that domestically as well as when they look at us overseas, don’t kid yorself … And never trust anything you read in any newspaper without doing some further checking. Journalists lie or can be sloppy, and then the editors have their way with what the journalists write — and editors are beholden to whoever owns the media outlet, and who knows what the owner’s affiliation and agenda are? And that’s just as true in Canada as in the US.
in case it wasn’t clear in my previous post, the 14% figure I quote for myself is 14% of my total pre-tax income …
I became an American (dual citizen) by choice. I really don´t regret. Now I am back living in my country of origin. An American Living Abroad. It may sound funny but I still believe that the USA is a fair Country. I am hoping that they will correct unfair practices and eventually will give representation to Americans Living Abroad. Am I dreaming?
I would love it if the USA corrected unfair practices and gave representation to USC’s abroad. However, if I believed they would eventually do those things, I would not have renounced. If American were a fair country, the CEO’s involved in the bank scandals, the mortgage mess, etc would be in jail. Nixon would have been in jail. Geithner would not be the head of the US Treasury. Charles Rangel would never have been able to sponsor FATCAT. And on and on it goes………
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