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.
@shadow raider, just me
According to Victoria, what’s got lawmaker’s attention are the renunciations. There’s concern there. Whether they’ll respond with a stick or a carrot (or at all) is TBD, though.
Yet, they’re considering CBT for corporations…
It is depressing to see congress so dysfunctional. If they can’t agree on big “deals”, they should at least be able to agree on smaller laws that make sense to a majority and get some things done.
The problem is that it seems that getting things done means that it would be points for the current administration.
Regarding the FBAR penalties, with the extremist state of mind most senators have, you’ll always have people like Levin who will want to maintain them as the current level to serve as a deterrent.
Right now, they’re so high that it goes against tax compliance and terrifies everyone. And they only serve as a fundraiser for the few that get hammered with them.
I sure hope that they’re going to be addressed at some point, or that as Mr Mopsick seems to think, enough people are going to sue that they may change how they administer them.
Pretty depressed right now. I had to amend my tax return because of a 1099 that was missing when I originally filed my taxes. I had to correct it as this is the type of mistake that automatically gets flagged, and I owed a non negligible amount. But am terrified of being audited because of it.
The other thing I don’t understand is why they don’t listen to the numerous reports from Nina Olson.
I believe the renunciations will continue to grab their attention. It is a national disgrace and really exposes the myth that America is the land of the free, bring us your poor, tired hungry masses yada, yada. Meanwhile an increasing number of America’s best and brightest outside the Homeland are tossing their blue passports in the bin.
Renunciation is a highly sensitive (hot button) issue. Every time the numbers come out, the press is all over it. The more expats who renounce or relinquish, the greater the chances for reform.
Those who renounce or relinquish today are not only protecting themselves; they are doing so in rejection of tyranny. Equally important, they are paving the road for reform, which will only come when the politicians in Washington become embarrassed enough to do something about it.
I look at it like this, I renounced US citizenship today so expats in the future won’t have to.
Samuel Adams, I like that thought — me too:
I only wish that American homelanders really appreciated the reason so many US citizens abroad are renouncing their citizenship, but I fear that most back home don’ have the slightest clue or any sympathy for those that renounce, The typical attitude is that of Senators Schumer and Read, which is reinforced by Senator Levin, his staff and buddies is that all who do this are tax evading traitors who should be blacklisted as persona-non-grata and never allowed to even enter the US for any reason for the rest of their lives.
Tragic but true. And it is not just the Obama-supporting Democrats either. There are some on the Republican side of the aisle in Washington who feel the same way.
There will be a tipping point when embarrassment forces the politicians to change policy. My guess is that it will be when renunciations reach 10,000 per year, which if things continue as they are, could very well occur in 2015.
There will eventually be internal pressures to change when Americans living in the US realize that they are at a disadvantage over other nation’s citizens when considering moving abroad, whether it be for personal or business reasons – when they realize that they aren’t quite as free as other people. As Just Me posted elsewhere, articles like this are turning up more and more often:
http://www.mainstreet.com/article/smart-spending/financial-considerations-expats?page=1
Samuel, How I wish you will be right. But even at 10,000 renunciations per year that is a drop in the bucket compared to the number who immigrate to the US each year. With 5% of the world’s population 20% of the world’s immigration is to the United States, and the percentage would be even higher if it were not for the restrictive US visa policies.
The latest information on the number of immigrants, I find from a Google search, arriving in the US is for 2010 of the number coming to the US. So 10,000 renunciations is still equal to only about 1% of the number of immigrants arriving in the US in 2010, 1,042,625.
ACA is now organized and qualified by the IRS as a US non-profit organization with a registered US address. Before that it was registered only in Switzerland as a Swiss non-profit organization. The purpose of this US registration was to improve its recognition by Congress and other government agencies as a “full-blooded” US organization. It now has a permanent office in Washington, DC. It is still also registered in Switzerland as a Swiss non-profit organization.
I just read that ACA is now headquartered in the US. Perhaps because there are so few Americans left in Switzerland. Too many there had to renounce their US nationality or move back to the homeland.
American Citizens Abroad, (ACA, Inc.)
11140 Rockville Pike, Suite 100-162
Rockville, MD 20852
USA
@Roger
10,000 renunciations will be more than a 2,000% increase from the long term trend of 400-500 per year. The likes of Schumer, Levin, Reed etc can only demonize Americans abroad for so long before it catches up with them. And when it does, watch how quick they artfully change their tunes.
A lot of progress has been made in the media, and the renunciations is what gets the media’s attention.
The tide will eventually turn in the war against expats. But it won’t turn without some casualties along the way.
Of the figures given of an annual 1 million immigrants arriving in the US, I wonder what percentage of the poor, tired, hungry masses will become wealth creators vs, welfare recipients?
One thing about expats, ZERO % are US welfare recipients.
@Roger Conklin
But the problem with the increase of immigrants going into the US… they are poor…. when they hit the shores of the US… they know how to get the welfare… food stamps… free health care… its discussed freely because they love the fact… in their home country… they got nothing… in the US… they have all this free things given to them by the gov’t… they do not contribute anything to the society…imho… skilled workers from say Ireland… are now heading to other countries… such as australia because they feel that the US has become home of the slaves rather then the free….
@US-Person_Foreigner
What you have written about skilled professionals from Ireland, for example, now going to Australia rather than the US is undoubtedly true. But STILL THERE IS NO SHORTAGE OF SKILLED PROFESSIONALS STILL SEEKING TO ENTER THE US, FROM India, as one example. There are limitations on visas for Indian citizens which are constantly being challenged by US high tech corporations who have good-paying jobs waiting for them in the US.
And undoubtedly there are Americans who would like to take jobs abroad where, for reasons of cost due to US tax laws, many foreign job openings carry the caveat., either written or unwritten: “US citizens need not apply”. But some go anyway. Americans right out of the university top the list of foreign professionals receiving work visas in Brazil .
And just wait until the US immigrants who are wealth creators get slapped with FBAR penalties on the money they left behind in their countries of origin. Thats going to be ugly.
I agree with US person Foreigner, many, if not most, of the immigrants to the US will become part of that 47% who don’t pay income tax but consume all the public goods and services they can get their hands on.
I live in a poor country, I see the type of people that run after green cards from here. They’re not going to America to create wealth, they’re going for whatever they can get for free. Little do they know, they’re running to the wrong place.
@Roger Conklin
Its called the american dream that they see in the cinemas… not realizing what they have to do to get it… When I travel in places like China… they all assume that the roads are paved with gold… that everyone is rich… they rush to try to get to the US to ensure that their children are born there or become citizens so they can get a piece of the fantasy of the american dream… not realizing… its a nightmare that is hard to get rid of… But then… they also assume canada has snow 365 days & they don’t understand how we can deal with the cold… lol
@US-Person_Foreigner
The complaint of immigrants coming to America for welfare and free stuff, is not strictly a U.S. phenomena. The English bitch about it too… 🙂 Yes, this stereotypes, but the cute jingle sums up frustrations that extends to a lot of countries I bet! No wonder Britain created Sons of FATCA, they have to find a way to pay for all of this….
http://youtu.be/wq_lhlIn1e0
@Just Me, it is not just Britain. The French complain as well about all these North African immigrants who come to France with their huge families (and sometimes multiple wifes) and rack up “allocations familiales”. The French are tired of it, which also explain the rise in the extremist right party the “Front National”.
I’m back at it again. I sent meeting requests to 6 representatives and made a presentation about my nationality proposal. I made it more friendly and engaging this time, with more graphics and less text. Comments are welcome.
@ Shadow Raider
Looking at your power point presentation makes me wish I could hear your talking points as well. How does your nationality proposal affect green card holders who leave the USA? They are neither US citizens nor do they have US nationality. Right now they are no rights, nobodies who are only there “for the purpose of taxation” as far as the USA is concerned. Good luck at your next meetings and thank you so much for hanging in there.
@Shadow Raider, I downloaded and viewed your powerpoint. You will always get people that have suggestions to improve but you know what?
Great concept and presentation!!
I say that as someone who has prepared formal presentations for use by Congress in “my prior life.”
I think you already know this but this argument is like India creating OCI for its nationals that have forced relinquishment.
Your fix is a right fix, an ethical fix and is a win/win for both the nationals and the country.
Who would not like it? Those that want to punish.
> Who would not like it? Those that want to punish.
And this is the problem. The American society is a very punitive society.
@noone,
And when I think too hard, I get out of this world angry at our Conservative government for sneakily handing us over for punishment on the back end of an OMNIBUS!
If things don’t start to turn around soon (whatever that means I don’t know) then I think people like NativeCanadian. CharL, ChearsBigEars, and others have the right idea when they talk about massive protests. This has GOT TO END!
@Shadow Raider
Thank you for continuing to hammer away on US lawmakers as to how intolerable the current situation is for us.
I don’t really understand why you are compromising on residency based taxation, when it’s any change to the status quo that US lawmakers appear to be against. What we do know is that according to what Victoria learned on her recent trip to DC, it is the renunciations that are getting their attention. What we also know is that there is a direct relationship between the increase of awareness of CBT and the renunciations. What if we could project to US lawmakers what the world would look like in the future, when Americans simply stop emigrating and those who already live abroad continue renouncing? I would think maps of the globe showing decreasing concentrations of US persons over the next 20, 40 and 60 years would be visually moving, don’t you? What would they think the world will be like in 60 years when American values are no longer being spread throughout the world through human relationships on any significant scale? I see nothing to stop the eventual extinction of Americans abroad under the way CBT is being administered today. Would that be important enough for them to take note?
@noone
Great point. If US lawmakers could be made to see that they are punishing themselves, we might get somewhere with them.