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,I wrote many politicians but only got a response from TJ O’Hara and Rand Paul. Yet, they don’t represent me. Thus, I’ve pretty much given up on American politics and US citizenship. Americans abroad have no political voice because we are spread out among the 50 States.
Update: I restructured the sections of my bill draft into two titles, and added a few more provisions. The first title concerns mainly Americans abroad, as it replaces citizenship with residence in the Internal Revenue Code and repeals the expatriation taxes and the Reed amendment. Assuming that the first title is approved, the second title concerns mainly immigrants as it repeals FBAR, FATCA, reports of foreign gifts, inheritance, trusts and corporations, and the PFIC regime. I don’t think that Congress will agree to all of these provisions, but this is just a proposal and Congress can change parts of it later. The link to the bill draft remains the same:
https://docs.google.com/file/d/0B7VqDyDIAgW2Ukhaam0xNzhpbFE/edit
I requested a meeting with three senators, individually: Jim DeMint, Mike Lee and Saxby Chambliss. I used the meeting request form on their websites, but haven’t received a response yet. Rand Paul doesn’t have an meeting request form on his website but I might call his office later to schedule a meeting with him too.
@ShadowRaider, again, your efforts are very appreciated, for those of us who cannot meet with US politicians ourselves.
Good news: I got a meeting for next week with senator Mike Lee’s legislative assistant for taxes. He said that the senator wants to completely reform the tax system to have something more simple and fair, but he is willing to address our concerns as long as it doesn’t complicate the current system. Perfect! Simplification of the tax code is exactly what my bill does, so I think he would be very interested in it. The meeting will be short, so I’ll prepare myself to be as concise and effective as I can.
Thanks for the good news and for all you have done on behalf of all of us — and those who don’t even know about any of this yet or who are ignoring, etc. My best as you go into your meeting with Mike Lee’s legislative assistant for taxes. Congratulations on getting this far. We’re behind you.
*@Shadow Raider, That is wonderful, that you so much for all you do!! It is so terrific of you to do this!! Good Luck!
I am new to this site but I support what you have done. Thank you!
*And I too am grateful!
@Yes, Shadowraider, thank you!
You may find this information beneficial on some level. It’s Wikipedia’s list of US members of Congress, current and former, who were born outside the US:
http://en.wikipedia.org/wiki/List_of_foreign-born_United_States_politicians
Thank you for all your encouragement. Today I had a meeting with Rick James, senator Mike Lee’s tax legislative assistant. To enter the senate office building, I had to go through security similar to an airport, but it took only a few seconds. The building is very big but organized, and there are many young people working there. I arrived at the senator’s office and there was a family of tourists there, I suppose from Utah which is senator Mike Lee’s state. The secretaries were very nice, and Rick James soon came and led me to his office, which is also large and elegant. I was impressed.
Since the meeting would be short, I prepared a presentation in my laptop, so I would be concise and remember everything I wanted to say. You can see this presentation here. Rick James looked like he already knew a lot of what I was saying, but he also took many notes. He said that he was aware of Eritrea.
Now here is the interesting part. After I finished my presentation, he thanked me for all the information, and said that he agrees with everything that I said. He said that he surely agrees that Americans abroad should pay taxes only to their country of residence because that’s the country that provides services to them. He said that consular services have fees, so Americans abroad do not receive any free benefit from the US, and accordingly should not pay taxes to the US. He also said that the tax code is way too complicated and ends up creating “criminals”, who are simply not aware that they have to file forms. Wow. He said these things by himself, I hadn’t included all of this in my presentation.
Then he explained senator Mike Lee’s current budget plan, called “Saving the American Dream”, which includes comprehensive tax reform. The tax reform part would replace all current federal taxes with a tax on “consumed income”, which excludes any income saved, to encourage investment. You can read all about the plan here and here. Great, but I asked who would be subject to filing and paying taxes under this plan. He said that only income generated inside the US would be taxed. I said that I was aware of proposals for territorial taxation of corporations, but he confirmed that the senator’s plan makes territorial taxation for individuals too. I was surprised, but it’s true, as you can see from senator Mike Lee’s proposed budget here (see section 504): “Individuals and businesses would be subject to taxation solely on income generated within the United States.” He said that therefore there would be no requirements to report foreign income or assets, consistent with the principle of territorial taxation. I responded that therefore senator Mike Lee’s tax reform plan would also solve all the problems that I described, and more.
He said that since the senator wants to achieve comprehensive tax reform, he doesn’t want to propose a bill that would amend the current Internal Revenue Code, as my proposal does. So I asked him if he thought that the senator’s plan would be approved by Congress. He said that the senator is fighting for it, and that it has many supporters. However, he said that in case another congressman introduces my proposal as a bill, senator Mike Lee would certainly consider it because it is a step in the same direction.
I also mentioned that Americans abroad feel that there are misconceptions about them, that some people think that they are tax evaders. I mentioned the various personal reasons that lead some people to move abroad, which have nothing to do with taxes, and the case of “accidental Americans”. He said that he surely understands this, and that only one in a million may consider moving to another country because of taxes.
We thanked each other again and talked about some general entertainment stuff. He seems like a nice guy. I then left the building and went home with a smile on my face.
My conclusions:
1. There are members of Congress who are aware of the problems that Americans abroad face.
2. There are members of Congress who disagree with citizenship-based taxation.
3. The proposal for territorial taxation that some congressmen support includes individuals too.
4. I have to get a meeting with another congressman.
@Shadow Raider. That is very encouraging. Thanks so much for all your efforts.
Great presentation. Thanks for also including the impact on immigrants.
Like many others already did, I am offering my help, if there is anything I can do.
@Shadow Raider,
Excellent presentation! I think your approach of seeking out people like Senator Mike Lee who are able to empathize with expats in order to gain their support will be more productive in the long run than trying to convert the likes of Grassely, Levin, Rangel, Schumer etc. Those guys just plain don’t like expats.
Once again, excellent presentation!
@Shadow Raider,
I was finally able to open your presentation — my computer cooperated and I’m glad I persisted.
Congratulations on being so organized with a brief but meaningful Powerpoint presentation for your meeting with Rick James and then the other points you pointed out. It is encouraging that Mr. James agreed with much of what you were saying and that some of Mike Lee’s work is on these very issues.
Again, thanks so much for your hard work and also representing us as well as yourself in your meeting(s) with government representatives. You are so appreciated!
*I really appreciate your hard work! Well done!
*@Shadow Raider, Thanks so much for all your time and hard work, it is so greatly appreciated by us all.. Great Job!!
Great work.
I hope to use it when I visit my Representative’s office during Christmas break.
@ Shadow Raider — Well done and thank you!
@ Mark Twain — Good luck in December!
That power point presentation is very useful. Glad I persevered to get it downloaded (temporarily disabled my cookie cutter).
To all who thanked me, you’re welcome.
@Christophe, If you want to help, you could try to arrange a meeting with your own representative or senator. You can use my presentation, and feel free to modify it if you want to focus on immigrants. If I remember correctly, you are in Texas, and you wrote that both your senators are against FATCA. Senator John Cornyn is on the Senate Finance Committee.
@Mark Twain, Thanks. Feel free to use my presentation and modify it as you wish. Have a nice trip in December.
I found that earlier this year, senator Mike Enzi (R-WY) introduced an international tax reform bill concerning corporations (here). He stated that his assistant Eric Oman helped write this bill. Both Mike Enzi and Eric Oman are accountants, and the senator is on the Senate Finance Committee. I thought it would be useful to contact this senator too, so I sent a meeting request to his office. Eric Oman responded that he would like to review my proposal, but he wants to read it before arranging a meeting. I’m planning to add more details about the proposal in my presentation, and send it together with my bill draft to him.
*Cool. I just don’t get it why the focus is only on corporations and not both corporations and individuals. Or, do they mean that individuals are corporations?
I sent my presentation and proposal to Eric Oman.
I also got another meeting! It will be next week, with Josh Lynch, legislative assistant of representative Marsha Blackburn (R-TN). She seems to oppose taxes in general. As a state senator in Tennessee she successfully helped prevent a state income tax, and in Congress in 2008 she cosponsored a bill to make the FEIE unlimited.
Great momentum @ShadowRaider!
I got yet another meeting, with senator Jim DeMint’s assistant, in two weeks.
@Shadow Raider
Great Job!
I think your focus on members of Congress and the Senate who are empathetic towards expats is right on target.
It is far more productive spending time with them rather than fighting a never ending uphill battle with the likes of Levin, Schumer, Rangel, Baucus, Grassely etc.
Once again, Great Job!
@shadow raider
you are certainly living up to your handle!