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.
Jackie and Shadow raider, your message had stuck at one of my Senators, and the others had acknowledged my arguments also. My Senator had informed me that he was merging your ideas into their territorial corporate tax bill proposal.
I can’t find a link to the proposed legislation
The Senator’s arguments in favor of citizenship-based taxation are based upon non-existent, or wildly exaggerated at best, US government services/benefits provided to Americans living outside the United States.
For Americans living abroad, citizenship-based taxation amounts to nothing more than a camouflaged form of de facto involuntary servitude where Americans abroad work for the benefit of homelanders.
According to uslegal.com:
“Involuntary servitude refers to being forced through coercion to work for another. The term is sometimes equated with slavery, however, it does not necessarily imply the complete lack of personal freedom that accompanies slavery.”
http://definitions.uslegal.com/i/involuntary-servitude/
Hopefully ACA’s proposals will be successful. If not, ACA will soon need to change its name to Ex/ACA.
“When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another….”
History sure has a way of repeating itself.
@Mark Twain…
You may have said before, and I apologize if I missed it, but which specific Senator are you talking about?
I might see if he has a twitter account and send an encouraging tweet! 🙂
@Wilderness, hope you have seen Eric’s most recent post. Good ammunition for you.
Enzi. Barasso and Lummins are also supportive.
If time only allows for a quick response to the suggestion that I renounce US citizenship, my usual one is “If I had any citizenship other than US, I wouldn’t have to” and maybe point this out as another shining example of American exceptionalism).
BTW, today marks the first anniversary of our 2011 OVDI submission and still no word back from the IRS, not even a Christmas card. How should we celebrate?
@bubblebustin
ONE YEAR!! Wow…. They must really be bogged down. More evidence of their ridiculous program design. Assume you have read or commented on Steven Mopsick’s blog.
http://mopsicktaxlaw.blogspot.co.nz/2012/12/offshore-voluntary-disclosures-update.html
Commiseration on your anniversary @bubblebustin. Don’t know what to say. It should never have been necessary, and continues to be an unethical and unjust travesty. It continues for all of us, in all different relationships to it, and in all our unique, separate US-made hells.
Who can believe that this can truly be seen by the US as an appropriate or practical way to deal with citizens, or to pay down the US debt. How can the hours of IRS paid staff time, really result in anything the US truly feels is worth it – when they are spending it all on persecuting ordinary people living abroad – who’ve already paid tax to one country, and who have entirely legal assets where they live – rather than looking for tax evaders and fraudsters inside the US – who aren’t paying to any country?
What they got instead, is international opposition, and attention to FATCA that they were trying to avoid.
*@Bubble, I agree, it’s an absolute disgrace. I suppose though that in one sense no news is good news. At least they’re not hounding you but of course you want to get it resolved so you can have closure.
*Mike Enzi’s tax reform legislation is currently S.2091 with no cosponsors currently.
*FYI, Barroso is the other Senator from Wyoming and Lummis is the congressional rep at large for Wyoming. In Wyoming play up Alberta and Wyoming residents think fondly of Alberta from what I have heard.
*FYI Wyoming is also a “Tax Haven” state like Florida, Delaware, and New Hampshire with no income tax and weak incorporation transparency laws.
Enzi took over from Al Simpson—a true Cowboy. If you see the video, you will see that he looks the same, whereas Bowles is looking like he’s been through some sort of transition in order to balance the budget.
*One of the more prominent USP Canadian politicians is someone from Alberta named Ted Morton who was the former Finance Minister of Alberta(and close friend of Jim Flaherty and S. Harper). Ted Morton’s father Warrem was the speaker of the Wyoming House of Representitives and the Republican nominee for Wyoming governor in 1982. Morton’s mother is the daughter of former US Rep. Robert G. Allen from Pennsylvania.
http://en.wikipedia.org/wiki/Ted_Morton
Wyoming is only behind West Virginia in total energy production (WVa is mostly coal). Revenue from taxation isn’t that critical, services are funded well, and the legislators are logical, human, and accessible. Walk into the office and they apolologize that the Senator is not there to talk to you.
http://www.enzi.senate.gov/public/index.cfm/floor-statements?ContentRecord_id=820be0de-1bca-4e73-b387-a60eeee73641
http://www.govtrack.us/congress/bills/112/s2091
6% chance of getting past committee.
1% chance of being enacted.
Only 13% of Senate bills made it past committee and only 3% were enacted in 2009–2010. show factors
The following factors hurt this bill:
The sponsor is a member of the minority party.
Good news, everyone: Congress has listened! Here is a response from Eric Oman, assistant of senator Mike Enzi and the main developer of the international tax reform bill for corporations:
@Mark Twain, You were right, they really are planning to do something for individuals too. I guess all the contacts made by me, you, ACA and others finally had a result. There is still a long way to go, but the spark is now lit.
@Shadow Raider
Thank you for all the time you have put in on this matter. Wow, wouldn’t it be great to get this whole things discussed on the floor of the senate and the floor of the house.
Note that he had not known about those issues, nor had he not been assigned to look into those issues until you and Mary Serrato had been in his office. He referred to yourselves as being the source of his new knowledge.
@shadow raider, great work!
I’m sure it’s not something that was overlooked in yours and ACA’s communications with Eric Oman, but I’m sure he could benefit from a tete a tete with any of these individuals:
Reps. Maloney, Honda, Rangel introduce bill to create bipartisan commission on how U.S. government serves Americans living overseas
Today I talked to Zach Rudisill, assistant of representative Dave Reichert (R-WA), another member of the Ways and Means Committee. He was already aware of FATCA and seemed receptive. He said that the committee hasn’t looked at international taxation of individuals yet, so he thanked me for the information and said that he would discuss it with the representative. He also warned that right now it is very hard for Congress to approve a tax proposal that reduces revenue. I said that I don’t know if residential taxation would increase or decrease US revenue, but in any case the change would be very small compared to the total US revenue. I also explained how residential taxation can increase US revenue in some cases (more tax on US income paid to the US and less paid to the country of residence, while maintaining the same total tax paid by the person because of the foreign tax credit). He found this interesting.
I have a meeting scheduled for Monday with Robert Cogan, assistant of representative Diane Black (R-TN), also in the Ways and Means Committee. There is one more assistant who said that might meet with me. After that, I’ll have contacted (or tried to contact) all congressmen in my list.
I feel that this thing is going to work.
@Shadow Raider… EXCELLENT!
@ Shadow Raider,
It is great that you are feeling that what is happening with your and ACA’s efforts is going to work. I’m glad you and Jackie Bugnion have been able to collaborate. You can often trust those gut feelings. You have met with quite a few, and significantly representatives of the Ways and Means Committee, to tune your “radar”. I continue to be amazed at your tireless efforts and the immense work you’ve put into this on behalf of all of us. Thanks very much for all of your persistence and good work.
fantastic. If the Changes are significant, Contact Eric Oman/Enzi for an update in his work.
Barasso and Lummins are supportive.
Dear ,
Thank you for following up with me regarding tax policy. I appreciate hearing your continued support for repealing the Foreign Account Tax Compliance Act (FATCA), and how this impacts American citizens living abroad.
As Congress and the President engage in ongoing negotiations to reduce the deficit and extend current tax policy, it is my hope that Congress will be able to establish a framework that will allow for comprehensive tax reform, which will address the tax code in its entirety. The American taxpayer rightfully deserves a system that is simple, fair, uniform and consistent. They deserve a system that provides certainty and encourages success and innovation both domestically and globally. Most importantly, I believe, the American taxpayer deserves a system that is based on what is in their best interests and not the best interest of the government. Please know that I will keep your thoughts in mind as debate on tax policy moves forward.
Thanks again for sharing your thoughts on tax policy. I value your input.
John Barrasso, M.D.
United States Senator
@Mark Twain: Wow, that’s awesome, the senator really gets it! “Most importantly, I believe, the American taxpayer deserves a system that is based on what is in their best interests and not the best interest of the government.”