The following was submitted in the form of a comment:
I’d like to have some opinions about the bill that I’m writing to replace citizenship with residence-based taxation. Maybe someone could move this to a different page if it gets too long. By the way, I’m about one third of the way through with the relevant sections in the Internal Revenue Code.
1. To define residence, I am using the current substantial presence test with all of its rules and exceptions. This is the definition that is currently used for foreigners without a green card, so I am just applying it to everyone. I am also adding an exception to consider US government or military employees abroad as residents, because their salaries are sourced in the US and they would pay higher taxes if they were considered nonresidents. I am also adding that US citizens and permanent residents who don’t satisfy the substantial presence test may elect to be treated as residents for tax purposes by simply filing the normal resident tax forms (1040). I understand that there are some cases where this may be beneficial, and I don’t want to increase taxes on anyone.
2. Because some people may elect to be treated as US residents even if not acually residing in the US, I am keeping the foreign earned income exclusion and the exclusion of income from US possessions available. It may be hard for you to imagine, but there are situations where using the exclusions is better than being a nonresident. For example, this occurs for those residing in a low-tax country or US possession who have income from US sources and a low total income.
3. To be consistent with the concept that citizenship should not be used for taxation, I am removing the requirements that certain dependents be “citizens or residents”. If I changed the requirements to only “residents”, some people might not be able to claim dependents that they currently claim, and again I don’t want to increase taxes on anyone.
4. Also to be consistent with eliminating the use of citizenship, I am repealing the sections that allow higher taxes on those whose country of citizenship or residence impose higher taxes on Americans. (I don’t think this provision has ever been used anyway.)
5. Again to be consistent, I am removing the requirement that the spouse be a US citizen for the estate tax exemption. I am also allowing the exemption from US estate taxes to all residents of US possessions, not just who were born there.
6. I was trying to restructure the exit tax based on termination of residence, but I decided to repeal it completely. My understanding is that the main reason for the exit tax in the US is not to collect revenue on unrealized gains, but to penalize rich people who renounce US citizenship to avoid taxes, because certain dual citizens, permanent residents with less than 8 years of residence, any residents only by virtue of the substantial presence test, and any people not considered “rich” are exempt from it, while those who do not certify current tax compliance are not exempt even if not “rich”. The whole idea of renouncing citizenship because of taxes does not exist in a residence-based system. One could argue that taxes would then be a motivation for terminating residence, but I’m not aware of any US state that imposes an exit tax. Some countries have foreign exchange control but not an exit tax per se. As far as I know, only Canada has a real exit tax, and the Netherlands can only impose it under a treaty with the new country of residence. I also don’t agree with taxing unrealized gains because they are not final and could decrease, just like what happened to Eduardo Saverin’s Facebook shares. Besides, the gains may be taxed by the new country of residence once realized; if it doesn’t tax capital gains, it probably collects more revenue from other taxes or other sources instead, or it spends less. Likewise, I decided to repeal the estate tax on inheritance from “covered expatriates”.
7. I am getting tempted to include in the bill a complete repeal of FBAR, FATCA and even the whole estate tax. It’s very easy to write “section #### is repealed”. But those are separate issues and I guess I shouldn’t try to fix everything, I don’t even know if my bill will be introduced at all. I think it’s better leave the unconstitutionality of the FBAR penalties for the courts to decide, a repeal of FATCA for the banks to lobby, and a repeal of the estate tax for the Republicans in Congress. Citizenship-based taxation is the issue that no one else cares about.
or it is just opposition tracking by Levin staffers, under the “know your enemy” philosophy!
@ Shadow Raider
Last night, somewhere, you reported something about a court ruling making it easier for the IRS to link to FBAR information and visa versa. At least I think that was what it said (I was tired and possibly got the gist of it all wrong). Could you repost that comment in this thread? Thanks.
I think this is what you’re referring to, Em. http://isaacbrocksociety.ca/2013/09/26/the-fbar-fundraiser-and-the-penalty-jackpot/comment-page-1/#comment-590508
Shadow Raider is correct in its importance of consequences. Thanks, Shadow Raider, once again.
@ calgary411
Thank you. I hate it when I read something and just expect it to be filed away in my head — it never gets in there. This is a good location for Shadow Raider’s FBAR find. What a treasure he is.
@Em
Agreed on the Treasure, and a good place to store that information is on this thread.
Is this same instance?
http://federaltaxcrimes.blogspot.ca/2013/10/irs-not-liable-for-opening-fbar.html
@badger, Yes, that is the same case, and it explains the situation in more detail.
It looks like the Senate Finance Committee is planning to release a detailed tax reform draft this week. We might have another big news like the one in May very soon. Stay tuned.
Meanwhile, I’ve come up with a catchy phrase:
I have a dream that my fellow citizens will one day live in any nation where they will not be taxed by the color of their passport but by the content of their address.
@ Shadow Raider
It’s Max Baucus and after his handling of healthcare reform (written under the influence of the health insurance and pharmaceutical companies) I fear that these tax reform proposals will also be written under the influence of big corporations and there will be little in them to help individual tax payers … but I’ll try to stay hopeful. BTW, I love your dream and I appreciate everything you are doing across the border to present the case of everyone who is a victim of citizenship-based taxation.
@Shadow Raider
Thank you for your update. The abomination of CBT, like slavery, must end if Americans are to be free. In the meantime, the renunciations will continue.
Shadow Raider,
Your herculean efforts on behalf of all of us is every appreciated by me. I, too, thank you for the update. If there will be any miracle, much will be because of your continued work.
@ShadowRaider…
Good one! I shortened it for a tweet…. Do you tweet? If you do, I will re-tweet you with attribution.
“I have a dream that #Americansabroad will one day NOT be taxed by the color of their passport but by the content of their address.”
@Just Me, I don’t tweet, but you can surely use the phrase.
Shadowraider,
we on another thread http://isaacbrocksociety.ca/2013/11/07/senate-bill-aims-to-simplify-income-taxes-for-people-working-abroad/comment-page-1/#comment-640338 were talking about bills brought by US representatives to address the injustices they recognize as ‘extraterritorial’ crossborder taxes for US homeland resident commuters who live in one state (ex. Connecticut) and are being taxed by the one they work in (ex. NY). Or who telecommute and never leave their state, but work for an employer across a state border.
We have even less economic connection to the US than those US residents have – ex. only a US parent or a US birthplace. We use no state or federal roads or services.
If 28 bill sponsors of the ‘H.R. 1129: Mobile Workforce State Income Tax Simplification Act of 2013’ recognize the concept of ‘extraterritorial’ tax overreach by state tax authorities, can that be a lever for them to have to consider the hypocrisy of basing US taxes on mere parentage without any other connection? In the case of the train commuters, they use services. In the case of the telecommuters, the source of their employment is located in another state. But they are both in the process of earning an income – and the issue is partly geography.
Have any of those you’ve spoken to mentioned these bills ‘H.R. 1129: Mobile Workforce State Income Tax Simplification Act of 2013’ and ‘H.R. 5615 (112th): Telecommuter Tax Fairness Act of 2012’ ? One of those bills had 28 signatories, the other had only two co-sponsors as far as I can see but it was introduced twice (?) in 2009 and in 2012. http://thomas.loc.gov/cgi-bin/query/D?c111:3:./temp/~mdbscn4xAz:: . http://isaacbrocksociety.ca/2013/11/07/senate-bill-aims-to-simplify-income-taxes-for-people-working-abroad/comment-page-1/#comment-640584
Cosponsors
28 cosponsors (17R, 11D) (show)
Johnson, Henry “Hank” [D-GA4]
Farenthold, Blake [R-TX27]
(joined Apr 25, 2013)
Franks, Trent [R-AZ8]
(joined May 09, 2013)
Amodei, Mark [R-NV2]
(joined May 14, 2013)
Long, Billy [R-MO7]
(joined May 14, 2013)
Murphy, Patrick [D-FL18]
(joined May 14, 2013)
Stockman, Steve [R-TX36]
(joined May 14, 2013)
Lowenthal, Alan [D-CA47]
(joined May 16, 2013)
Luetkemeyer, Blaine [R-MO3]
(joined May 17, 2013)
Rice, Tom [R-SC7]
(joined May 17, 2013)
Latham, Tom [R-IA3]
(joined May 21, 2013)
Pascrell, Bill [D-NJ9]
(joined May 21, 2013)
Kilmer, Derek [D-WA6]
(joined May 22, 2013)
Walberg, Tim [R-MI7]
(joined May 22, 2013)
Frelinghuysen, Rodney [R-NJ11]
(joined May 23, 2013)
Johnson, Bill [R-OH6]
(joined May 23, 2013)
Shea-Porter, Carol [D-NH1]
(joined May 23, 2013)
DelBene, Suzan [D-WA1]
(joined Jun 03, 2013)
Peterson, Collin [D-MN7]
(joined Jun 04, 2013)
Wilson, Frederica [D-FL24]
(joined Jun 04, 2013)
Loebsack, David [D-IA2]
(joined Jun 12, 2013)
Barr, Garland “Andy” [R-KY6]
(joined Jun 19, 2013)
Noem, Kristi [R-SD0]
(joined Jun 19, 2013)
Roskam, Peter [R-IL6]
(joined Jun 19, 2013)
Kline, John [R-MN2]
(joined Jun 27, 2013)
Duncan, Jeff [R-SC3]
(joined Jul 09, 2013)
Heck, Joseph [R-NV3]
(joined Jul 16, 2013)
Kuster, Ann [D-NH2]
(joined Oct 29, 2013)
Articles describing at least one of the bills mention “ending double tax penalty” and the injustice of imposing double taxation “regardless of the amount of time they are physically present” http://thehill.com/blogs/floor-action/senate/192295-connecticut-senators-propose-ending-double-tax-penalty-for-telecommuters . And there are references to the lack of physical presence http://files.ali-aba.org/thumbs/datastorage/lacidoirep/articles/PTL_PTXL0511-GOLUBOFF_thumb.pdf . http://www.journalofaccountancy.com/Issues/2009/Jun/20091371.htm
From what I understand, this bill is void/unconstitutional and was only introduced to make nice press releases. I don’t think Congress can tell the states what they can or can’t tax, that’s simply outside of its jurisdiction. On the other hand, what is indeed under Congress’s jurisdiction is how the federal government taxes nonresident citizens, but for some reason they want to pretend that this subject doesn’t exist. And that’s much worse than the states, since the states at least require some kind of concrete criteria to tax people, like residence or physical presence, while the federal government relies on an abstract status like citizenship. Yes, this certainly shows again the inconsistency/hypocrisy of Congress.
I didn’t know about these bills before, so I didn’t mention them to the congressional assistants I met, and they didn’t mention them to me either. I’m not planning to have another meeting anytime soon, I’m waiting for the committees to release their tax reform plan.
It took a little longer than expected, but it looks like the Senate Finance Committee will release an international tax reform draft today.
Big news, Shadow Raider!
Thanks, Shadow Raider (and for all you’ve done!).
I hope it will have some “individual” information as well as corporate:
http://www.bloomberg.com/news/2013-11-11/baucus-plans-release-of-code-revision-drafts-in-two-weeks-taxes.html
Tax lobbyists in touch with congressional staff members have said they expect the committee to begin with tax administration, international tax rules and possibly education-related tax policy.
I believe the majority of submissions made to the international committee on tax reform were from individuals, it would be a pity if Baucus only addresses corporations. I couldn’t find anything on line that even mentioned individuals. I suspect we’ll be brushed aside again.
From WSJ…
Nov. 18, 2013 6:43 p.m. ET
WASHINGTON —A Democratic Senate committee chairman is expected to release a proposal as soon as Tuesday to overhaul the U.S. system for taxing corporations’ overseas profits, a long-sought goal of many American companies.
The future of the legislation remains murky as lawmakers of both parties continue to debate the goals of a tax rewrite. It is unclear whether Finance Committee Chairman Max Baucus (D., Mont.) can muster the votes to pass his ideas through his panel amid partisan gridlock.
From NYTs…
http://www.nytimes.com/2013/11/20/business/senator-baucus-offers-bill-to-overhaul-corporate-tax-code.html
There is no mention of FATCA, FBARs or replacing citizenship based taxation with residence based taxation, and nothing about maintaining the Foreign Earned Income Exclusion. Only Paper persons have power for any tax reform consideration. DNA persons, go pound sand!
Sorry, folks, the big news didn’t come today. The draft only deals with corporations.
However, the end of the summary says:
“The staff discussion draft does not address the international tax rules addressing individuals, whether for U.S. citizens living overseas or foreign nationals moving to the United States. The Chairman’s staff is considering reforms to simplify the rules in this area while appropriately taxing such individuals. Comments are requested regarding the scope and mechanics of reforms in this area.”
“All comments should be submitted to tax_reform@finance.senate.gov. While comments will be accepted at any time, the staff requests comments by January 17, 2014, in order to be able to give them full consideration.”
Sigh. All right, so they haven’t decided what to do about individuals yet. I suppose we should send the same or similar comments as those sent to the Ways and Means Committee earlier this year. This time it’s to the Senate Finance Committee. I’m planning to send them my latest suggestions, with perhaps some updates.
I know this is frustrating, but at least they mentioned the topic and are looking for detailed ideas.
I think this news should be in a new thread.
Well it’s not like we didn’t expect this. The U.S.A. is a corporatocracy not a democracy after all. Guess everyone gets to dust off their now moldy Ways & Means submissions and start all over again with another committee. The Baucus and Camp “road show” last summer was obviously all for a show of support for corporations, not people. When some wise Brockers said this would be a long battle I still hoped I’d get to see the end of it before I die. Oh well, we plug onwards anyway.
@Em
No problem thanks to the cut and paste function!
@Shadow Raider
Hmmm, me thinks “appropriately taxing” individuals is RBT! How long do you think they’ll tinker with CBT before they realize it?
http://isaacbrocksociety.ca/2013/11/19/us-senate-finance-committee-comments-requested-on-international-tax-rules-addressing-individuals-by-january-17-2014-todays-report-addressed-only-corporations/
I’ve put the above post up per Shadow Raider’s suggestion.
After multiple delays, it seems that the Republican leadership has finally authorized the Ways and Means Committee to go ahead with tax reform, after the budget agreement was recently completed by Paul Ryan and Patty Murray. They should release something in the beginning of next year, and the Democrats are willing to compromise.
Congress turns to tax reform
So we may finally see a response to those hundreds of comments sent earlier this year. By the way, Paul Ryan supports RBT.