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.
@Petros- if you are worried about the potential of holding worthless government paper then even a private pension plan or retirement savings plan won’t help you to the extent that its major assets are valued in the now worthless currency.
Your argument is a good one in support of international diversification of one’s investments. Hopefully all of world’s currencies won’t go bad at the same time. I thinkg that part of FATCA’s goals is to stop U.S. citizens from investing in other countries and their government treasury issuances. This is something that the wealthy like to do and I believe that it is reasonable for them to do so.
Obviously the U.S. government believes otherwise.
The currencies are bad, but possibly owning things that are only “denominated” in currencies may actually help solve the dilemma of inflation. I like investments which are “real” rather than “safe”, like spam, gold, silver and real estate–stocks if they own real assets like petroleum or gold in place.
International diversification is extremely important if you are US resident. At this point, I have all my wealth in Canada. The geo-political risk is low here, for now.
@Petros, Thank you for explaining it further. I agree with what you wrote earlier, social security is dependent on the government being solvent, and in the case of the US it’s more critical because it is totally invested on US government debt notes. The government has borrowed a lot from the Social Security Trust Fund for other purposes, so even if in theory the fund exists, the government will have to eventually tax the people to pay back the debt to the fund. But the social security revenues are still more or less the same as the payments, so paying back the debt to the fund is not urgent. The Medicare revenues, however, only cover about half of the payments, and the rest must be paid with general revenue already. The total payments from both programs are about the same, so in my opinion it’s much more critical to deal with Medicare funding and costs than social security.
On a more general observation, I have come to the conclusion that the whole reason for the current global economic crisis is the very idea of debt. Very few investments today are based on appreciation, almost the entire economy is based on debt and interest. People have all sorts of debt: credit card, student loans, mortgages. Governments fund their regular operations with debt. Even companies sometimes treat stocks as debt. Banks don’t really have the money that people deposited there, as they lend it to other people, companies and governments. This way, money is fictitiously multiplied, as the lenders think that they still have the money they invested, and the borrowers also think that the money is theirs. People, companies and governments end up spending too much money that they don’t really have, causing inflation of everything and becoming bankrupt.
I propose the following: a whole restructuring of the fundamentals of the world economy, leaving debt only to unpredicted or exceptional circumstances, like emergencies or disasters, and ending the practice of charging interest; allowing people to lend to each other, based on trust, and letting lenders decide if the loan is justified; ending the idea that companies and governments are legal entities, and instead holding their owners and employees directly responsible for their actions, accounting the companies’ revenue and taxes personally to their owners, and accounting revenue and spending personally to the government representatives that order them; ending the practice of insurance for regular payments, using it instead only for emergencies, as the original idea of insurance was; a whole restructuring of the fundamentals of democracy, ending the illogical idea that elections are won by one person, electing all candidates and giving them voting power or splitting terms proportionally to the votes they got in the election (not with political parties as it is done in many countries, but proportional voting power to each candidate individually); abolishing the idea of districts and letting people vote for whoever they want (they can still vote for someone in their area if they want to, but there is no need to define artificial boundaries between districts); and leaving war always as the last resort after leaders of the countries involved have tried to deal with the issues by personally talking to each other, and after all other options have been clearly exhausted (although I don’t think such limitation could be enforced).
Of course, I know these ideas are too radical and people don’t like them because almost everyone (including myself) would be negatively affected by one or more of them. Who would agree with losing the interest on their bank accounts and easy loans? Who would agree with paying for medical costs out of pocket, even if over a lifetime it were cheaper than insurance? Who would agree with being financially responsible for their parents and relatives at old age or through financial difficulties? What parents would directly pay for education of their young adult children, and buy them a home when they get married? What company owner would agree with being personally responsibile for the company’s actions? What politician would agree with losing power? What country leader would agree with talking personally with an enemy? Well, at least I can dream.
@ShadowRaider, much of what you propose is common sense. The problem is very much debt based money system. Perhaps you are aware of the podcasts of Chris Martenson, his series called, “Peak Prosperity: featured voices“. He and several of his guests explain that the problem is too much debt in the system.
The solution is not no interest, but to allow the market, not central banks, to set the interest rates. Today, I would accept nothing less than 25% for my money with more than 1 year term deposit required. Surely the market rates for interest would be in the neighborhood of 8-20% for loans. At present, I can borrow at 3%; my mortgage is below 3%. ZIRP has led to the utter devaluation of the currency and bankrupting of pension funds. So what is need is for the market not the central banks to determine interest rates.
@Petros, That is fine too. Although I don’t like the idea of interest, I feel like laughing when my bank tells me that it’s offering me a “great” annual rate of 0.15% in my savings account.
The basic idea behind my proposals is perhaps utopic, that people can just trust each other, without all the illogical complexity that the “adult” world has invented. No need for loans, interest, insurance, certifications, licenses, pension systems, government assistance, or travel restrictions. Friends and relatives can just help each other out. Maybe I’m too naive, but if you think about it deeper, isn’t our whole society ultimately based on trust? We trust that the people will vote for the best candidates, that the people in the government are honest, that the owners of companies are honest, that laws are obeyed by everyone, and that the government will catch the ones who disrespect the laws. I see the unnecessary complexity of today’s world as the result of a failure of people to trust or help each other, choosing instead to trust in faceless entities called companies and governments.
Recalcitrant –
It is a fact of investing that the higher the return the greater the risk.
Far too simple-minded. This is not a “fact.” Consider only: (1) There are many kinds of risk. Risk is not a unity. (2) Risk varies with information. The markets are not a level playing field and all participants do not always have the same information. (3) Risk varies with intelligence. It is a fact of investing that stupidity will lead to loss. (4) Risk tolerance varies with personality. Nothing ventured nothing gained is not just an old saw. (5) Risk varies somewhat inversely with time committed to investment monitoring. All value traces back to efficient time allocation – all other factors being equal. In the end, no one can buy time. Time itself cannot be hoarded by any individual. (6) The presumed safety of “government” can morph into runaway risk overnight. Have you ever heard of a run on the banks?
@ShadowRaider, Utopia indeed. I made a loan to a family member. When I was charging interest, I received regular payments. Once I forgave the interest for the year previous, I stopped seeing payments. The only reason to pay back was the increased cost of holding a debt to me in the form of accrued interest.
USX, I think your summary of risk is good. My DIY portfolio consists of what Waterhouse rates as high risk assets only. I think it is largely going well. What makes up for the risk of losing 100% of principle? The fact that I have made as much as 5x principle invested in other parts of the portfolio. So far, however, I’ve yet to lose 100% on an investment (one was down around 90% down a few weeks ago though).
USX- I am quite aware of what it means to have a run on a bank. When it comes to reducing risk in investments it is important to have some diversification amongst asset classes. One of those asset classes is government. The U.S. government with the imposition of FATCA is dictating just how diversified a person can be when it comes to allocating currency and tax task risk of different governments.
Until you can settle your tax obligations in something other than U.S. issued Treasury bills then your asset risk are pretty much locked into the U.S. government and its policies.
Of course there are other things that make for risk. I don’t deny that at all. However the greatest risk is the risk that government rules pose for the investor. This is why it is so important that investors be able to freely move their capital around the world. Territorial taxation is the only system of taxation that allows for free capital movement.
recalcitrant wrote:
That’s absolutely true. Buffet once wrote something like this: his C D and E shareholders are the Federal, state and municipal government. They take dividends but they never invest capital–nor do they accept a share in the losses. The biggest risk in the US to investors is obviously what the US government does in taxation and monetary policy (inflation being an insidious form of taxation). Even if they plunk their money down on gold, the US government may decide to confiscate it. Mopsick made it clear that the IRS has an insane interest in the gold holdings of US persons.
What is the nature and size of the ‘risk’ to the US in alienating US persons ‘abroad’ and their countries of permanent residence and dominant citizenship through FATCA and the insane and confiscatory FBARs and other penalty structures? How could we attempt to quantify it?
The US is not ‘investing’ in its citizens abroad – instead it persecutes them and sows fear and anxiety, forcing us to pay in order to become compliant, and to renounce. We will be the very opposite of ‘goodwill’ ambassadors. We will divest any interests we had in the US, and will refrain from any investments or any other relationship with the US – as much as possible. I will never invest there, or bank there or buy there (as much as possible). Many now will not travel there unless we must – for family emergencies. Many of us have or are intending to renounce/relinquish – and most would not have had any reason to do so before the events of recent years – persecuting those having the nerve to have been born, or live permanently or longterm outside the US. We are trying to discourage or alert as many as possible not to buy US property, immigrate to the US, or in any way become ensnared by the US and become US persons. We lobby our governments against the US, and try to disentangle our children. Our non-US spouses and family now distrust and may vilify the US. We will discourage our children from ever falling into the US clutches through residence or greencards.
I can’t place a value on the cost to the US of our opposition, but I hope it constitutes a sigificant ‘risk’ that the US ends up realizing as a loss. And thereby reaps what it has so deliberately sowed.
I agree with badger; the US is not investing in its citizens abroad and it will feel the negative consequences in the near-future.
Ultimately, the world at some point of time will stop blindly financing US Treasury bills and the US will be left in a situation where it will no longer be able to print money at will to meet its trading and fiscal needs.
Hence the US will become a lot more dependent on exporting goods to finance its imports. Keep treating US expats like this and you will see many renouncing, severing ties with the US or unwilling to help the US grow abroad economically lest they themselves get hit with a tax burden.
@badger
And the pain they have inflicted-intentional or irresponsibly-extends beyond us to those who we have a connection to in the US, those who are aware of our suffering. Nothing good can come from that which came at such a great cost to their own.
@badger & bubblebustin The only problem if the World “grows a backbone” is that the inevitable outcome is bad for everyone, most likely up to and including military action (in other words war,) I feel that it’s an outcome in which it’s not a free world, not one made up of democracy and freedom, it’s a World of war, and fighting and death. One thing I’ve come to realize from my education and just reading history is that the US doesn’t ever do anything unless there is some positive tangible benefit at the end for the US. We’re big freaking douchebags, I don’t think the future is bright for anyone on Earth if the US “falls,” hell I think war is in the cards even if USD remains reserve currency, the future is looking pretty bleak.
Badger – Nice extension of the risk scenario.
Whoa – Good lesson from history.
Time for a 30 second interlude from a prophetic peek into the future. If you ever watch or rewatch the whole film, pay close attention to the gasoline theme.
@WhoaItsSteve, Thanks for these reflexions. I think you might find interesting this post:
Blame Canada : Who is next in the United States grab for power?@whoaitssteve
You’ve either experienced an epiphany or you’re being sarcastic. If it’s the former, you’ve come a long way. There are many of us who wouldn’t even use the term ‘douchebag’ in describing the behaviour of the US. You must be extremely disappointed. May I ask, why the change in attitude?
@bubblebustin, the d… word is not sandbox material, that’s for sure. Yeah, I was thinking that whoitsteve has had small transformation. I’ll tell you what transformed me. The HEART act. Then after renouncing my citizenship, a few Americans have been understanding (like Al Lewis), but for the most part I either receive incomprehension or derision. Yet I do what I must to protect my family.
And that is frankly why we have nations in the first place: to provide for the common defense and welfare of a people living in local area. That’s why, given the US threats to my welfare and hence to my wife’s well-being, that I had to choose between family and country. Well, that choice was easy for me.
@Petros Hmm, well I don’t know if we’ll even have to annex, did you see the story about Costco in Washington? http://bc.ctvnews.ca/u-s-facebook-page-calls-for-american-only-hours-at-costco-1.912612 http://seattletimes.nwsource.com/html/businesstechnology/2018941957_canadians18.html
Hehehe. I mean I love this country, I love American’s, I’m proud of American’s and when American’s or America does good things. But I have to agree our government is out of control, and has been mainly hijacked by corporations and their interest over that of us the people and our interest.
@ WhoaIt’sSteve: When the store shelves in the US are empty because of dollar collapse, Canadian will stop shopping in the US. Then annexation will become more attractive.
@bubblebustin & Petros Not being sarcastic, I’ve known that we’re not as altruistic and the stereotypical “good” guy since college and my first History of the US 1865 – Present, class I was a freshman and the Professor was an awesome guy, he’d lead us in to discussions about what the real motivations were behind our actions and foreign policy’s. I then came to the conclusion that we’re not the white knight, we’re human, we do what ends up being good for us, nothing else. Still, the first response I can muster when I see someone bashing the US is like “shield’s up” you know?
As for transformation, it’s more like I think that some of you, most of you aren’t bad people, and shouldn’t be punished for just trying to live your lives inexplicably 😛 outside the US. My first choice and advice will always be if you can come here, do it, it’s the best country on the Earth! But you all are good people and don’t deserve to be punished.
Now as for the future, I don’t know where is going to be best to ride out the tumultuous 8 years or so ahead, I think here inside the belly of the beast will fare better, but others may disagree, and that’s fine, I just hope that by 2020 when the economic cycles are supposed to reset and we see real economic growth and a boom time start again, we’re all alive and well to talk about it.
@whoa, petros
There are a great many on earth whose lives will not change in any tangible way should the US fail, as they have already nothing to lose. Americans are raised to believe they are entitled to the spoils of the ‘dream’ and will need to come to terms with their disappointment when that doesn’t happen, and that because of behaviours of the past will likely have to accept a standard of living that falls behind many countries they once thought of as less developed or too socialist. I fear that rather than undergo an attitude adjustment and face the reality of their fate, they will take from other nations what they feel for various reasons is due to them. FATCA is only one example of this happening already.
Peter, it all depends on their “agenda”. If they don’t want the dollar to end, it will not. The US can bully any country into any bad deal because they can. It has always been this way, or at least since the last 200 or so years.
For me, I don’t like US Citizenship because of the hassles it creates overseas. I left there because I wasn’t happy, only to discover that they are still trying to control my life though FACTA, FBAR, etc.. Even if I were making a lot of money (I wish!), just the need to pay people to file my taxes isn’t worth having a US passport. It’s despicable that they make it so difficult to cut the ties. If US Citizenship is so great, or as great as the journalists say it is, why do they make it so difficult and expensive to give it up?
@WhoaIt’sSteve- well said.
@ Whoa
“My first choice and advice will always be if you can come here, do it, it’s the best country on the Earth!”
Practically everyone here at Brock has been there (USA) but you may have noticed we are not flocking back there, especially to live there. (Some, like myself, will not even visit the USA anymore.) There is no “best country on the Earth”, only one country which is constantly throwing its “exceptionalism” out there for everyone else on earth to shake their heads at.
@petros
Chilling clip there, kind of ‘War of the Worlds’ ish. But unlike extraterrestrials, we know that the debt is very real.