Although this is not the most well written piece I want to try to write some posts looking at specific situations to show the unfairness of the US Tax System. Two industries I keep coming back to are airlines and shipping. Some historical background. For many decades the US was historically very dominant in both airlines and the manufacturing of aircraft and as such tried to encourage a very liberalized system of regulating international air transport on the basis that the US would always be dominant especially in the face what were for many years bloated inefficient state owned air carriers that existed in much of Europe and South America. While there were some bumps such as domestic de-regulation in the US itself the US has always pushed for something known as “Open Skies” something that culminated in an agreement between the Netherlands and the US in the early 1990s that basically eliminated all commercial restrictions on airline service between the two countries. The US quickly went to town signing “Open Skies” agreements with as many countries as they could including many small ones that had no history of direct air service with the US. Some enterprising countries though such as the United Arab Emirates, Qatar, and Singapore started their own state owned carriers that being much more competitive than the US historical competition in Europe could now under the US Open Skies policy “dump” an virtually unlimited amount of seat capacity into the US and setup their home countries as a sort of hub and spoke system to fly passengers onward to other neighboring larger countries. Thus you have Emirates Airlines with the largest fleet of Airbus A380s in the world flying passenger nonstop from San Francisco to Dubai and then on to India. Now whatever the merits of the US “Open Skies” policy it is I suspect water under the bridge. However want to make two key points first the success of Emirates has hurt both the main US airlines and their US Citizen employees and second almost no one who works for Emirates Airlines is a UAE national. Thats right almost no one right up to the CEO and its same thing for other Middle Eastern airlines such as Qatar Airways and Ethihad.
So who works for Emirates Airlines. In terms of pilots Europeans, Canadian, Australians, and “some” Americans. Flight Attendants as I understood are a mix of everywhere. However as we all know Americans have a very distinct disadvantage in applying for these types of jobs. Just in terms of pure economics as Dubai and the UAE have no income tax a Canadian or European applicant can have the same standard of living as a competing American by simply lowering their salary demand to less than what the American will have to pay in US tax residing outside the US.
Now what about the Foriegn Earned Income Exclusion. Well it does help having said that the going rate airlines pilots is now above $95,000 and here is the real kicker the FEIE doesn’t apply to income earned in international waters so thus an American pilot working for Emirate Airlines would still have to pay US tax on a prorated basis for the time he spent flying over the Persian Gulf or the Indian Ocean on the otherside of the Earth from the USA.
Next up I will try to look at some specific situation involving international shipping which is now almost completely devoid of US citizens working in it.
@blaze
The U.S. expat community is the most articulate, vocal and growing group of U.S. bashers ever. This will be very very costly to the U.S. long run.
@Mona
I see from your posts that the financial costs of your compliance have been very high. Yes, you should become an EA – get some of your money back. Here is a paraphrase of one of the many lawyers jokes (Sorry, Steven if you think that I am stereotyping lawyers) but it goes like this:
“A man is talking to his son about careers. He says: Son, there is a lot of injustice in this world. So, I think that you should become a lawyer and make a profit off it!”
@geez
Yes, the U.S. should have a VAT. As has been noted there are the economic arguments of broadening the tax base, rooting out the underground economy, etc. But, the best argument for a VAT is this:
A VAT will ensure that tax is paid either by everybody or on behalf of everybody. I.e. everybody consumes goods. Under the present U.S. tax law (which is mainly income based), large numbers of people do not pay tax. This is totally unjust.
http://isaacbrocksociety.com/2012/01/30/irs-hunts-u-s-citizens-residing-outside-the-u-s-while-many-u-s-residents-pay-no-income-tax/
Rosa Parks asked a simple question: “Why do you all want to push us around?” Unfortunately, in our case, we know the answer: They want our $$$$$!
Sine bnatuibs generate their tax rfevenues thorugh income taxes and some through consumptoin taxes. There are arguments for and against both. But currently the US considers the income the onlly foreign tax that can be claimed as a credit against US income taxes for those US citizens who live outside of the US.
The FairTax concept, proposed by as yet a minority of US legislators, would totally replace the US income tax with a consumption tax levied on the sale of NEW goods only. It was espoused by Gov. Huckebee who was an unsuccessful candidatein the Republican primaries in the last presidential election.
The FairTax concept would totally abolish the IRS as well as the income tax. It would be replaced with a national sales tax. This concept would apply only to sales in the US and would, among other things, eliminate the taxation of US citizens living abroad. It would encourage production by making consumption the only source of tax revenue.
Here’s the FairTax website:
http://www.fairtax.com/
I just closed my last two remaining companies in the U.S. today, one week until I renounce my U.S. citizenship and it’s mostly over.
All the new business ideas that are in my head, will be launched once I renounce, I just hope they don’t try and tax the unrealized gains on my business ideas like the fake chinese billionaire the IRS invent who might have purchased some art.
http://www.forbes.com/sites/janetnovack/2012/02/22/the-irs-invents-a-chinese-billionaire/
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@Roger – Yes and that is why, however I may personally like at least one of my Democrat senators (the soccer mom) and the President, I think voting for the Democrats in the coming election is an act of suicide.
“My personal opinion is that it going to take some “loud protests” on the part of foreign governments against extraterritorial taxation by the US before anything will ever happen in Congress to repeal it.”
The foreign governments have another way out which is to simply strongly encourage American citizens living in their countries to naturalize and relinquish their US citizenship. In general we are a pretty well-educated group with a strong culture of entrepreneurship. In addition many of us are of European origin. Europe needs people. Might as well get them from the “settler colonies.” And given that Europe did not pay to raise or educate us, our migration is a net benefit for the host country.
So on some level does this not represent a convergence of interests? The U.S. does not want its citizens to work and live abroad and our host countries do not want to have American citizens (duals or legal residents) dragging them into conflicts with the U.S. The best move, it seems to me, for the host country is to encourage naturalization and relinquishment. This is not likely to raise any flags with the U.S. government since its politicIans can hardly change their tune from “evil tax evaders” to “wait a minute, we are losing the college-educated young entrepreneurs/professionals!” I doubt they would even notice. This could be a real chance for Europe to improve its demographics and skim off some of the cream of the US crop. Of course, this would mean making sure that Americans are not too comfortable with their residency cards and status in their host countries. For that reason they might be better off just letting the US government provide the “push” so the host countries can reap a crop of new productive loyal citizens. 🙂
@Victoria, I think that we are still some time away from seeing Americans moving abroad in any significant numbers. Currently the US has by far the lowest percentage of its citizens of any OCED nation whose citizens live in a country other than their own; and the very thought to the vast majority of Americans of living in a country other than the United States is totally beyond their understanding. When we were living in South America for 11 years and would return to the US for vacation in the summer, the question literally everyone had on their lips was “why in the world would any American ever want to live in a foreign country?” After all, this is the nation where foreigners from around want to come to live. Some of our family members thought, although we denied it because it was not true, that I must secretly be working for the CIA. That seemed to them the only reason an American would ever move abroad. They still talk about it at family reunions and ask me if that wasn’t really the reason.
Undoubtedly citizen-based taxation which started in 1962 has been a deterrent to Americans relocating abroad since then, but the number of Americans who might be contemplating moving to a different country is so small at present to be really inconsequential.
@Mona, you are right. I don’t like it that 50% of people pay nothing, when they try to threaten and intimidate people who live abroad. When I break the taxes down here for Americans, I get the reaction that they definitely *wouldn’ t* want to pay here.
Despite the absurd taxes here, when I walk outside onto the street and I listen to people talking, I feel like I belong here. The US nationality doesn’t play a part in my day-to-day life anymore. AND I’M TIRED OF SEEING “ESTRANGEIRO” (FOREIGNER) ON ALL OF MY DOCUMENTS. I live here. I do more than the average Brazilian does in their own country! I would much rather renounce/relinquish US Citizenship and IF NEEDED, get a US green card to go to America. That way it’s easy to turn in 🙂 with no fees or pledges of disallegiance.
@Roger, you never know.. maybe you WERE working for the CIA back then! Speaking of 1962, I wasn’t born yet, but I know that the Cold War was in full swing. Either you were a Commie or an American. Things are different now. “Even Bin Laden” is dead. Why they can’t accept it that people are mobile is beyond me. Moreover, I think any American that doesn’t seriously view all countries as potential places to make money is limiting themselves economically. This is why the idea of going to America and working 2-3 jobs to save money is a very crazy notion to me. All the money a Brazilian needs is right here.
But a “Survivor Brazil” would make a GREAT TV show. Drop Geitner, Schulman, Obama, and Mitt Romney in Brazil to see how long they survive. Whoever makes the most money in 1 year wins. I bet most of those clowns wouldn’t last 1 week, and they would be panhandling on the street.
@ Roger Some in family have strong Wanderlust, that was once very strong in many Americans. Otherwise, how do you explain the continual drive to the occupy the western frontier? My great-great grandfather traveled the Oregon trail and homesteaded a farm in the Willamette Valley. The farm now belongs to suspicious cousins, who probably couldn’t understand why anyone would want a little adventure–to travel to another country and leave the farm. They are settlers, not pioneers. The pioneer spirit continued in my father who moved to Alaska after med-school before 1958; he was in the public health service and his first patient died of tuberculosis in the airplane on the way to Bethel on the Kuskokwim River. I believe that Alaska is the most wonderful state, but I wanted to see the world: Canada, England, Germany, Switzerland, Central African Republic. I wanted to learn some foreign languages because I always thought people who could speak more than one language were cool.
The cousins on the farm were unfriendly-like to another cousin, now from California, who was doing genealogical and historical research on the family. I suppose they didn’t want any Californians poking around the old farm, even if she was a not so distant member of the family (her father, like my grandfather, grew up on that farm–so not so strange that she wanted to visit).
One day, the United States will be filled with only people like my settled cousins, xenophobic and suspicious, and anyone else will move on to the next wild adventure.
@Roger – you make a very good point and I will concede that this is probably the situation right now. I say “probably” because there isn’t really enough reliable data to tell us exactly the state of things. Nonetheless all the indicators today seem to say that Americans rarely emigrate.
So from this unreliable present data we can try to project ourselves into an unknowable future. I think it would be a mistake to say that just because it’s been this way up to now, that it won’t change. There are days I think I am already seeing small changes. Some of the “push” factors might be loss of opportunity in the US, higher unemployment, lower wages, lack of benefits, reduced social mobility, possibility of higher taxes or another implosion of the American economy. And then there are the “pull” factors. We already know that young educated Americans are looking toward Asia – Infosys is getting a lot of applications from the U.S. I get a lot more discreet emails these days from folks in the U.S. who are asking about the possibility of an EU passport based on, for example, an Irish grand-parent. The EU is committed to encouraging highly-skilled migration and many of the Americans I talk to fall into this category.
Since the US keeps no records on US emigrants, no one really knows how many are contemplating this or acting on it. And as you rightly point out U.S. emigrants are not viewed kindly and so they have every interest in not broadcasting their intentions even to their families. Even so the young people I talk to today seem to be more open than folks like me who migrated years ago – they see globalization and the ability to work anywhere as a fundamental right. The tax situation is unlikely to stop them since the pain is delayed – as a punishment it’s very ineffective since it only occurs years after the fact of migration. In a nutshell, the damage could be done long before anyone in the U.S. realizes it’s happening.
I’ve been told (and I am convinced) that sheer numbers are not that important when it comes to emigration. It’s more about “who” emigrates and not so much “how many.” India, for example sent hundreds of thousands of people abroad since Independence but as long as these folks were low-skilled labor, the Indian government didn’t really pay them much attention (except of course for remittances). It was when the educated classes began to move in increasing numbers to the US that they started to worry. They then had to completely change their approach to their diaspora.
This may never happen in the U.S. but if I were them I’d be paying a little more attention to what’s going on with these emigrants. There may be some trends in there that the US needs to pay attention to.
@Petros – you make a very interesting point that I hadn’t considered. Most Americans have ancestors who did exactly what we are doing now – left their countries of origin and settled in a new land. If we are “traitors” then what does that make our ancestors? One could argue that emigration is in our blood… 🙂
@Victora and Petros
Here is a copy and paste of OECD dispora numbers from 2000, the latest I have. First column is Country name. Second column is percentage of population resident in other OECD countries. It does not provide information on percentages in non-OECD countries
Austria 5.42%
Germany 5.30%
Canada 4.90%
Netherlands 4.57%
Italy 4.46%
Belgium 4.41%
Denmark 3.93%
Poland 3.66%
Czech Rep 3.64%
Norway 3.46%
Hungary 3.37%
Turkey 3.25%
Sweden 3.03%
Australia 2.54%
France 2.35%
Spain 2.07%
Korea 0.80%
Japan 0.53%
USA 0.51%
You will see that Canada is near the top of the list while the US is at the absolute bottom with the very lowest percentage. Canada’s percentage is 9.6 times greater than the US.
The US is indeed a country were almost everyone’s ancestors came from abroad. But once here their descendents attitude is that they reached the Promised Land. This attitude could indeed change, but it is my opinion that it will take many years for this to happen significantly. This attitude has become so ingrained in American culture that to change it is like turning the Queen Mary around on a dime. And because US citizens generally speak only one language, it is much more difficult for them to make a move like this than it is, for example, with Europeans who may speak several languages, or Indians or Chinese who have studied English in their home countries and are much more prepared linguistically to be able to function in another language where English is spoken by many, if not most of its residents.
The point is that although this could well happen, it is unlikely to happen quickly. Probably not in my lifetime, since I am 81.
Based on the Global Migrant Origin Database (2007) and UN population figures, here are the countries with a lower proportion of emigrants out of their populations than #204 United States has:
Japan (205)
Guadeloupe (206)
Tanzania (207)
Myanmar (208)
Oman (209)
Nigeria (210)
Uganda (211)
Brazil (212)
China (213)
Saint Pierre and Miquelon (214)
Ethiopia (215)
Maldives (216)
Mongolia (217)
Mayotte (218)
Incidentally using the same data, the US is only ranked at #58 for immigrants as a proportion of population.
@Geeez, having lived 7 years in Brazil I really love that country. It is the most hospitable country I have ever visited. When we lived in Rio de Janeiro 1970-1977 the figure quoted was that 20% of the population of that city were foreign citizens. And on Rua da Alfandaga in downtown Rio the Arab and Jewish shopowners were all mixed in together, all mixed next door to each other and enjoyed gulping down their cafezinhos together. Absolutely none of the hostility that permeates the Middle East.
Having “tasted” of life in Brazil, even during those days of a military government, we expected to spend the rest of our lives there. We were in the final stages of building a house there when the Tax Reform Act of 1976 was signed into law by President Ford. I had a good job, but the results of that law were so devastating that we made a very tough decision to return to the US and start over in a new career. A few of our American friends became Brazilian citizens; but most also came back home.
It was a very traumatic experience for our 4 kids who were from 11 to 17 years of age to leave all their close friends behind and move to the US. It was really tough for them, but at that age they were quick to recover. But even today they still keep in touch with their school friends from our days in Brazil. We lived in Peru 4 years before that and our oldest daughter, a flight attendant, looked up and found one of her 2nd grade classmates when she overnighted in Lima on a trip there a few months back.
And they quickly learned to never speak Spanish or Portuguese when their new classmates in Miami were within hearing distance, lest they be branded as “different.”
@Eric – Thanks for the research! Really interesting numbers. I’d love to know if they could be further broken down: age at migration, married or single, education level, income level, first or second generation citizen/immigrant in the case of the settler colonies like US, Canada or Australia. How many are duals and what is the rate of return?
The other interesting stat about the US (in addition to the relatively low immigration rate compared to some other countries) is the naturalization rate. The latter rate is the one most countries use to signal the intention to stay permanently. People who are “sojouners” don’t usually bother unless it is very easy. The US dropped from 64% to 37%. that means that the majority of immigrants to the US never bother to become citizens. A great example is a Brit I met who had been living in the US since the age of 12. He is now in his late thirties, works as an M.D. in the U.S. and when I met him had zero intention of applying for US citizenship. He liked being a Brit and just didn’t see any advantage to being naturalized in another state. And he did like the idea of going back to the UK at some point.
@Victora. The one advantage of becoming a US citizens is that this provides with you with the right to vote and hold public office. The disadvantage is that you are obligated to serve on jury duty if selected. Non-citizen residents are disqualified from Jury duty.
The other disadvantage is if you have been convicted of a crime, been fined and/or served time in prison, you are deportable when you are released. That law, which was enacted in recent years, was made retroactive. We had a close friend and a faithful middle aged member of our church from Haiti who, when he was a teenager was involved in traveling to the Bahamas to earn money by carrying into the US drugs. He made two trips and spent time in prison. That was 30 years earlier. He had tuned his life totally around and was an exemplary resident with a wife and 3 adult children. On a routine traffic stop it was determined that he was a Green Card foreign citizen with a criminal record. He was turned over to immigration and held for 2 years, and then despite pleas from our pastor what ultimately deported back to Haiti. His wife then sold their home in Miami and moved to Haiti where he operates a small business. Had he become a US citizen that would not have happened but now he cannot even visit his children and grandchildren in the US.
@ Roger and all above
I agree with Roger. I believe Americans are still too inward looking to move away from “home”, unless it is on a very temporary basis. I first moved to Canada as a student, 51 years ago. At the time, my friends and family thought it was rather exotic. After all, I could actually trace my paternal grandparents back to Canada and a maternal great grandfather, who immigrated to America from Ireland by way of Ontario.
I have remained in Canada and completely immersed myself in life here, voting, earning money, raising family etc. My extended family loves to come here to VISIT. However, I know that most of my extended family still looks upon Canada as “the poor second cousin” of America. You know, not quite the “land of the free and the brave”, high taxes, lax immigration policies, poor health care (well we have to wait so long to be taken care of in our socialist system!!) etc. etc.
I don’t expect to see in my lifetime a mass exodus of Americans leaving the U.S.A. for other countries. Perhaps future generations, but for now they will stick close to home!
@Roger – I thought a lot about what you said and here is my answer based on where I sit:
Voting: Many homelanders don’t bother. Turnout is low compared to other countries. In my circle of friends and family voting is perceived as a duty, not as a means to effect change. There is a disconnect between the act and the result. People are disappointed and angry and scared. Voting does not seem to help – deadlock reigns. Trying to sell a foreigner on US citizenship by saying “you can vote” just begs the question, “OK, but if voting is such an important right, why don’t Americans do it?” You couldn’t ask that question in France because about everyone does vote.
Deportation: That is a good reason. Citizens have that protection from being ejected from the country. On the other hand citizens can be thrown into jail and stripped of many of their rights including the right to vote. NDAA means that these things can be done to citizens without due process. Not sure there is much of a difference between internal and external exile. Between being thrown in a U.S. jail run by a for-profit enterprise and returning to the home country, well, the latter just might be a better deal. Nonetheless, you are right and citizenship does confer some protection.
Do these things matter in the decision to seek or not citizenship? Spiro thinks not and he has very good argument for why naturalizations rates are so low in the U.S. I think what seems like “obvious advantages” to someone in the homeland can look very different to an U.S. immigrant or a U.S. emigrant. Consider Geitner’s “privilege” statement. My goodness, Mr. Geitner, I would love to see some of that privilege. Outside the U.S. my citizenship at best is neutral (no advantage) and confers no special protection or benefits as far as I can tell. I really wish he would explain further because I think he was sincere and believes what he is saying.
@victoria, Thanks for your comments.
Very true that not a few American’s don’t bother to vote. In some countries voting is not an option, but an obligation. In Peru, where we lived for 4 years, if you are a citizen but fail to vote and that action is not stamped in your “libreta electoral” you cannot open or maintain a bank account, sign a contract, renew or obtain a passport, or do almost anything else. If you fail to vote you are subject to a fine in order to reinstate your ability to do these other things. And this also holds true for Peruvian citizens residing or traveling abroad on election day. They are required to vote at the nearest Peruvian consulate or be subject to that fine.