A recent poll conducted jointly by the Associated Press and GfK Custom Research finds that 53% of Homelanders are in favour of raising taxes and raising the retirement age in an attempt to save Social Security, against 35% who would prefer cutting benefits. There was a big split along partisan lines, with 65% of Democrats and 53% of independents agreeing with higher taxes, against 38% of Republicans.
GfK conducted the poll in English and Spanish in an effort to be inclusive, but of course there’s one demographic group they didn’t bother to survey: U.S. Persons abroad — this despite the fact that many are subject to FICA taxes.
Social Security is a divisive issue among U.S. Persons abroad, likely far more so than among Homelanders. Americans who worked all their lives in the U.S. and then retired abroad are both more likely to depend on Social Security (and U.S.-source dividends) for their day-to-day expenses, and also less likely to have local bank or investment accounts that might be affected by FATCA. Often, they are living in developing countries in Latin America or Southeast Asia and do not trust or understand the local banking systems. Their main concern is the ability to maintain bank accounts in the U.S. into which they can have their Social Security checks deposited, and to have U.S. brokerage accounts so they can hold and trade the U.S. stocks with which they’re most familiar.
The gap between the attitudes of the average Isaac Brock Society reader and members of this group can be quite large, as is best illustrated by this comment responding to this Slate article from last month in which Andrew Leonard accused FATCA opponents of being “Tea Partiers” and expressed disbelief that anyone outside the U.S. would have more than US$50,000 in a bank account:
Beauzeau, Saturday, Jul 28, 2012 02:13 PM GMT: I became an expat when I retired eight years ago and have never once needed a bank or financial account of any kind where I live. All my accounts remain in the USA and I use local ATMs for my cash needs and easily negotiated wire transfers for large sums.
The only American expats I know who MUST have local accounts are looking for one of two things: a. they have a criminal past in the US and are trying to hide their whereabouts and protect their funds, or b. they’re trying to cheat on their US taxes.
Big crooks, little crooks … no difference except the big ones rarely ever get caught and prosecuted.
U.S. Persons who were born abroad or emigrated at a young age for study, career, or family reasons are typically expecting to rely on their own savings and local pensions for their retirement, and many have little knowledge or attachment to Social Security. Contrary to how Homeland journalists like Andrew Leonard try to paint it, this attitude has little to do with one’s overall philosophy on taxation: naturally those who prefer lower taxes and small government will not welcome higher taxes either from the U.S. or their local government, but even those who support a higher level of taxes and a larger government are concerned first and foremost with their friends and relatives in the communities where they live and work, rather than people across the sea in a foreign country they have not known for many years.
U.S. Persons permanently resident abroad stand to suffer from, for example, the extension of U.S. FICA taxes to what the IRS calls “passive income” — including appreciation inside non-U.S. tax-free retirement savings plans (which already face onerous and expensive IRS reporting requirements) and direct social assistance payments by non-U.S. governments. Even if FICA taxes were to remain restricted to “earned income”, raising them will still have a negative effect on those who take jobs with U.S. companies, as well as the self-employed — both groups are also likely obligated to pay into local retirement systems, and could find themselves double-taxed if their country of residence does not have a “totalisation agreement” with the United States.
Worse yet, after a lifetime of making full FICA payments as well as full payments into a non-U.S. system, many U.S. Persons abroad who qualify for Social Security will receive their benefits only at a reduced rate due to the “windfall elimination” provision because they are receiving non-U.S. retirement payments as well. And of course, the Medicare portion of the FICA tax is a complete loss to them, unless they plan to hop on a plane to the United States every time they get an infection. From a public health perspective that would not be the optimal outcome, to say the least — maybe the Centers for Disease Control and Prevention should be paying me every time I decide not to make a trip back to the Homeland. (Of course, American tax professors like Hale Sheppard have argued that one of the benefits of citizenship-based taxation is that it discourages Americans from going abroad in the first place and thus prevents them from becoming vectors for spreading SARS and other exotic foreign diseases to the back to the Homeland.)
Americans who are working abroad for a few years and plan to return to the U.S. share some of the concerns of both groups. They rely on local bank accounts in order to be able to cash paychecks and pay the rent. However, they are also expecting to depend on Social Security in their old age. As a result, they see paying into local retirement systems of the countries in which they are expatriated for a few years as a hassle, rather than as a right which is worth fighting to defend. Also, this group is often shielded from the added complexity of filings abroad by their corporate expat packages, which usually include tax equalisation payments as well as paperwork assistance from KPMG, Deloitte, or some other Tax-Industrial Complex member. Finally, this group has been filing 1040s all their lives and often sees the added complexity of filings from abroad as something temporary and even understandable that they will leave behind when they return home.
Anyway, for those looking for more information, American Citizens Abroad and the Association of Americans Resident Overseas both have useful pages about Social Security and U.S. Persons abroad.
Thanks for this post. Excellent points and well researched. Hale Shepherd’s comments seem bigoted to me. Avoid disease, stay in the United States! LOL.
Of course the purple elephant in the room (or was it a gorilla?) is that Social Security is 100% invested in US treasury debt. This places too much exposure on an asset that is extremely risky, not due to “default” risk, but to devaluation. At the current time, ZIRP (zero-interest rate policy), these treasury notes are not earning any significant income. Thus, Social Security has a significant problems: It has no funding whatsoever; future benefits depend wholly on current levels of taxation. The United States spent the money and wrote an IOU to Social Security. It is a 100% ponzi scheme, and I’ve written on my own blog and elsewhere, that the members of the US government (esp. Congress) who have committed this crime, should apologize to Bernie Madoff and take a place next to him in prison. The level of crime that has taken place is not less because Madoff ran private ponzi scheme and the Social Security is a public one. The level of crime is actually on a much larger scale and many millions of people are going to suffer.
This is a essentially a math problem. The Baby Boomers are retiring. They will overload the system with their rightful demands for benefits. In order to pay these unfunded liabilities (which any actuary can figure out is in the trillions of dollars, far exceeding the US national debt), the US will have to continue to run $1 trillion plus deficits. Then the currency will be so diluted that the US will suffer from extreme dollar devaluation. This is the future of the United States: Greece-like riots across the whole country.
As for Shepherd Hale and the Andrew Leonard articles: obviously American homelanders, the so-called smart ones, have no consideration for our plight and for the injustices being perpetrated against us. We are becoming a sacrifice on the alter of political battles in the United States. Leonard writes:
Then he says this:
So clearly Leonard knows about our complaints (as does Shepherd) and he doesn’t give a damn. He doesn’t give a damn because homelanders are losing their jobs because of the alleged trillions of dollars leaving the country. He just doesn’t give a damn if your UDHR rights are being destroyed–because they have to get those tax dodgers and they don’t give a damn about collateral damage. Expats are being sacrificed in order to get access to fleeing capital. But not only so, taxing expats will help homelanders, and all they care about right now is increasing revenue to stop the gaps in the budget. But the ship has too many holes. Taxing expats won’t stop the ship from sinking.
This is why it is necessary to renounce US citizenship if one is an Expat. The homelanders don’t give a rat’s ass about you. You will be a sacrifice on their altar. (The good folks in the US excepted of course–I’m thinking of Roger, Just Me, Patric, and a few others).
*Of course I am for preserving SS. At this time I would like to raise two years the retirement age and to to raise the cap of 110,000 for SS Tax considerably without raising the benefits, That is people who earn more will contribute to more for Social Security.
@MarkPinetree- the S.S. contribution cap is one of the biggest sops to the wealthy. The notion of a cap is groundless. There is no way that anyone who makes more than a certain amount of money is going to stop working if his/her s.s. contributions don’t cease. Wages are wages and all wages should be subjected to S.S. tax.
The other problem with S.S. is that it now operates as a cloak for the distribution of government benefits that would otherwise have to be done under welfare.
But maybe the most intellecutally dishonest argument is that which says S.S. is an unsustainable burden on the national budget. The truth is that S.S. is purely an internal liability and not an external one. No government can go bankrupt when it is paying an obligation that is denominated in its own currency to its own citizens. The notion that there is a crisis in S.S. is completely manufactured. S.S. is a human construct and not an Act of God. As such it is easily fixed by the humans who made it.
If I am wrong and the S.S. system is indeed a real ruinous government debt then the best thing that can happen is for U.S. citizens to voluntarily move abroad so that they can become part of the pension system obligations of another government. Wouldn’t a smart government want to then be able to share the burden of this debt?
Fixing S.S. does not require any input from expats since expats can only withdraw from S.S. according to the years that they contributed to the fund. Even if you have an expat who is eligible for full S.S. payments this person is still not a drain on overall U.S. expenditures because he/she by virtue of the none U.S. residency is not consuming any U.S. government services. This person can’t even receive medicare services unless he/she comes back to the U.S. for them and there are very few if any who will do that.
@Recalcitrant, Social Security is just taxes not a pension. People have to be aware that their social security is only as good as their government. Since the United States government is totally insolvent, then the SS is also insolvent. The crisis is in the math. Nothing else. You don’t have to worry about nothing if you can print money, except oops, the debasement of the entire currency system and the destruction of the whole friggin’ economy.
But I disagree about the increasing it on the rich. If it is a “pension” then the payments should be proportionate to future benefits. If it is tax and a welfare program, then it is just taking money from the rich and giving it to the poor. Just sell it as that and at least it is more honest–it would then be pure wealth redistribution. But to this day, people consider SS to be a pension program. Thus, the rich only pay to certain limit, because their benefits are also capped.
We stop paying into CPP too, you know when we reach a certain limit. Our benefits are also capped. But CPP is a genuine pension program, not a ponzi scheme.
Personally, I’d vote to get rid of social security. Or at least let me opt out. They can keep everything I’ve paid into it so far and pay me zero so long as I don’t have to pay anymore.
I just don’t understand why the US is so deep in debt? Where is all of the money that they collect going? They provide such shoddy service for taxes paid in comparison with the rest of the developed world. Where are the world class schools, first rate infrastructure or comprehensive healthcare system? I was going to recommend that they close all of their foreign military bases and become a national guard force, but then realised that they spend maximum 1.5 trillion per year on the military. Is the problem really just that the tax rates are too low? Obviously they need to raise the income tax rates and institute a national sales tax and it is a bit ridiculous that 50% don’t pay anything. Seems to me like there must be a ton of waste and inefficiency going on though as well.
@DonPomodoro- basically Americans want more government than they are willing to pay for. The Congressmen/women sell of the tax code so that they can win their election. And this selling of the tax code means that the whole government is awash in nothing less than what is “laundered” corruption.
None of the U.S.’s debt problems have anything to do with expats. Expats are actually a positive for the national debt because we don’t contribute to it by using government services. But in the logic of a Washington politician and the mind of the man on the street we are painted as immoral tax cheats.
Logic and truth will not win this extraterritorial taxation arugment for expats because facts don’t matter. What matters is having a convient scapegoat. Propoganda is one thing that the U.S. has always been good at and that is what we are subject too.
@Petros- the distribution of S.S. benefits according to one’s life time earned income is nullified for the rich in retirement since taxation in the end is dependent on total post retirement income.
Maybe what the U.S. needs to do is to scrap the whole income and payroll tax structure in favor of a V.A.T. The V.A.T. should bring in enough to cover everyday government operating expenses, including unemployment and S.S. payments. The S.S. payment should be replaced with a guaranteed annual income for those 65+ whose incomes are at or below the national poverty level.
@ Recalcitrant, on the nullification of benefits. I suppose that is largely true and in that sense SS does not act as a true pension, to which one is entitled regardless of income (which is what I thought SS was, but I suppose that is in jeopardy even if true). Of course, if income is high enough, one has to pay taxes on benefits.
Old Age security in Canada is clawed back completely for those who have other earnings. But that is really seen as what you suggest, a social payment to old people to make sure they have a minimum income. I will hopefully never qualify to receive that, but I am supposed to receive CPP.
@recalcitrant
The closer they get to the precipice the more you’ll see the desperate maneuvers to change course and the push to sell highly speculative remedies based on highly speculative reports:
‘The Tax Justice Network estimated in 2011 that $337 billion is lost to the U.S. every year in tax haven abuse. It’s probably more. A recent report placed total hidden offshore assets at somewhere between $21 trillion and $32 trillion. Using the lesser $21 trillion figure, and considering that about 40% of the world’s Ultra High Net Worth Individuals are Americans, and factoring in an annual 6% stock market gain based on historical records, the tax loss comes to $500 billion.’
James S. Henry of the Tax Justice Network’s began his report stating that estimating offshore wealth is nearly impossible, but has enough confidence in his analysis to challenge the IMF and World Bank to come up with a better estimate.
‘The subterranean system that we are trying to measure is the economic equivalent of an astrophysical black hole. Like those black holes, this one is virtually invisible and can be somewhat perilous to observers who venture too close. So, like astronomers, researchers on this topic have necessarily used indirect methods to do their estimates, conducting their measurements from a respectful distance. This indirect approach is painstaking, and has many inherent limitations, as we␣ll see.
…We believe that the resulting estimates of unrecorded capital flows and accumulated offshore wealth are the most rigorous and comprehensive ever produced.1 In the spirit of open research, we hereby issue an open challenge to the IMF and the World Bank ␣ to all comers, in fact ␣ to see if they can come up with better estimates.’
http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf
It might be a worthy read for the number crunching lovers out there, which I am not.
@recalcitrantexpat:
“the S.S. contribution cap is one of the biggest sops to the wealthy.”
Spoken like a true believer in the state’s power to steal from Peter in order to give to Paul. You are shameless, but even worse you whine when the state decides that you are one of the “rich”.
@bubblebustin- Thanks for that information. I can’t help but take the reports of the Tax Justice Network with a grain of salt. When people come out and say that the task they have taken up is nearly impossible and then proceed to go about that task anyway then I’ve lost all confidence in the results. When the methodology is itself nothing more than a stab in the dark it is wrong to put out the results as serious news. The Tax Justice Network is also very much an extreme liberal, left wing organisation whose work would appeal to the likes of Sens. Schumer, Casey, Obama and Speaker of the House, Boehner. All that the TJN does is to add more grist for the expat persecution mill.
@ConfederateH- in case you didn’t notice I am all for the repeal of the income and inheritance taxes.
I also would like to see a reduction in what things qualify a person to receive payment from the S.S. system.
But under the present system of taxation the cap is a sop for high earners.
@recalcitrantexpat:
“I am all for the repeal of the income and inheritance taxes”
But you would add “progression” to the SS ponzi scheme.
Even if SS contributions were accounted for in terms of grams of gold it would still be a ponzi scheme. It is nothing more than inter-generational theft.
Hey, but old people with benefits vote and young people without them don’t.
@ConfederateH- to say that S.S. is a Ponzi scheme is only to repeat an error that the right loves to perpetuate. The idea that the intergenerational nature of S.S. where the older generation gets something out while the current generation pays for them but will receive nothing in return is an error.
S.S. was always meant to be operated on a pay as you go basis as opposed to being a “true” annuity where any cash value was built up. As long as there are more workers than there are retirees and as long as payouts are managed properly there is no reason that any S.S. system cannot go on for as long as the government funding it exist.
As I said before, we set the rules governing payments and payouts. Removing the caps or raising the income caps on which payments are based is not hard to do. Too suffer deliberately by walking around with one hand tied behind your back when you need two is does not make your suffering laudable bot foolish.
@recalcitrant
That makes their report all the more creepy, that policy is being spun from its highly speculative results. There’s a lot to be gained from ‘truthiness’ in politics:
“The idea that the intergenerational nature of S.S. where the older
generation gets something out while the current generation pays for them
but will receive nothing in return is an error. “
Bwaaaaa! then why has the contribution gone from less than 1% to 12% in 80 years? And what will it be then? What it was supposed to be was a lie from the beginning. And now you want to
“Removing the caps or raising the income caps on which payments are based is not hard to do.”
It’s called Social Security Slave. Learn to love it. Its for your own good.
@ConfederateH- if the caps are adjusted up then the percentage will go down.
*Well, it seems that we are in disagreement here. In a capitalist country there must be socialized programs for the common good. Social Security is one of such programs. Medicare is another. I am for Medicare for all. But don´t call me a socialist ot worse yet a communist. I am all for free initiative and competition. I can not conceive of the US without these two programs in terms of human suffering. Insofar as Expats I believe they should be allowed to have a choice: participate or not in the two programs. Optional.
“if the caps are adjusted up then the percentage will go down.”
Only for the freeloaders that are “progressively” stealing from those whose retirement income is not proportional to the level of their past contributions. SS was not sold to the people as a progressive welfare benefit, and that is where the ponzi lies. You would turn it into yet another progressive redistribution scheme. Sorry, you are the problem and I refuse to be your slave.
Any state pension scheme that involves state “investment” of an aggregated pool of capital is not a good thing, by definition. Start with the distortion effects of that bloated wad on the market. Move on from there to things like endemic growth insanity that sees no alternative to decimating the western Canada portion of the planet in order to ship nasty bitumen to stoke the Chinese industrial behemoth – and incidentally rake off a little cash in the process. The only consolation is that (so far) the fatcats cannot escape living on the planet. Or dying their own human deaths.
@Don Pomodoro, It’s easy to understand the US debt if you just look at the US federal budget. Defense, Social Security and Medicare each comprise about a fifth of the total spending. The rest is made up of various little programs, and public education is done by the states. Social Security is still more or less solvent, but defense naturally doesn’t have any revenue, and Medicare revenue only pays for half of it. Medicare used to be solvent, but medical costs have soared in the US are now much higher than in any other country, I think they are almost twice as in Canada and western Europe. So most of the money that leads to the US debt is going to soldiers, veterans, defense contracting companies, doctors, medical assistants, nurses, hospitals and drug manufacturers. The big elephants in the room are defense and Medicare, not Social Security.
Soldiers, veterans, doctors and nurses are seen as heroes in the US and anything that proposes reducing payments to them is unpopular. In my opinion, the use of defense and medicine in the US is excessive and there is a lot of waste in them, but Americans seem to agree to pay more for things to “feel safe”. For example, people have insurance for everything here. The other day I found out that people have pet insurance (health insurance for pets). Is insurance so popular in Canada and western Europe too? People here also seem comfortable paying for things that they don’t use, such as expensive phone plans, because they want to have the extra minutes “just in case”.
Continuing the comparison with Canada and western Europe, these countries have higher tax revenue as a percentage of GDP than the US, and they are also in deep debt. The only countries that seem to be well financially right now are those in eastern Europe (including Russia), China, and petroleum exporters (mostly Arab countries and Iran).
@Shadowraider, thank very much for your comment. I appreciate very much your participation.
Social Security is sitting on a pile of US treasury notes–it has no other investments. It is several underfunded , as a pension plans go; it is really a ponzi scheme. In terms of breaking even, it is starting to pay out more in benefits than what it takes in the form of payments. The Canadian Pension Plan (CPP) actually own something besides a pile of government paper–for example, private sector investments that have ROI.
This means that whatever SS pays in the future, it will have to tax the American people or borrow it. It has nothing in it. Just a bunch of IOUs from the US government which is currently also insolvent.
Sorry for repeating myself. But I guess you felt that it was really some kind of kooky thing to say, or perhaps you didn’t see what I wrote earlier.
If I am running a pension plan, and I take the money that your employer gives me and I write out a piece of paper an IOU and then I go and spend the money on myself instead of investing it in investments with an ROI, I am running of a ponzi scheme. That is what Bernie Madoff did. And that is what the United States government has done with Social Security.
@Petros- even private sector pension plans are not immune from collaspe. Witness the private sector plans that have been taken over by the federal government:
http://pbgc.gov/
Currently this low interest rate enviroment is hurting all private sector pension plans. The reality is that treasury issuances form a significant portion of the investment portfolio of most private sector plans because they represent the best security against imminent obligations. The only institutional entity that can run a pension plan with a 100% guarantee of payment is a government one.
To be biased towards a private sector plan because it may invest more funds in the market gives no assurance that the money will be there when it is needed. It is a fact of investing that the higher the return the greater the risk.
Unless we as a society want to start running risk/benefit analysis of a person’s age determined value I think that we will always have pensions and the safest ones will always be those which are run by the government. Even private sector pension plans are ultimately of any value because of the stability of the government that they are incorporated under.
@recalcitrant, I don’t have a pension. I have a self-directed retirement plan. I wish everyone had this freedom.
But I disagree with your statement that government plans are the safest. There are piles and piles of government paper that are worthless from various fallen regimes that have mismanaged their finances. Having a government pension takes on major third party risk, that of the government itself. It is true that private plans are under risk because of unstable government–I’ll grant you that. But I think that the DIY plan has the best possibility of a high rate of return–which is what everyone needs if they are going to beat the continual degradation of currency devaluation.