In a 76-page tour de force, international tax lawyer and University of London School of Law Ph.D. candidate Bernard Schneider takes on the U.S.’ unique practise of taxing people who do not live in the country nor receive any benefits from it. His paper, published in the Virginia Tax Review in October, was posted on SSRN yesterday. A sample quote:
The worldwide taxation of nonresidents can also be seen as a form of tax imperialism – the United States is overriding the incentives that foreign countries have put in place to attract U.S. taxpayers and investment. A foreign country’s decision to impose a lower tax rate than the United States reflects its judgment on how to tax and may even be specifically designed to attract foreign labor or capital. To the extent that the United States arrogates to itself the right to tax the difference between the foreign country’s effective tax rate and its own, even when its citizens reside in that foreign country, the United States is breaching inter-nation equity.
Schneider goes into copious detail to demolish every one of the myths and lies that Homelanders have come up with to justify extracting tribute from U.S. Persons abroad. Unlike many previous papers on the topic, he not only discusses the issue of tax owed (which is typically dismissed by Homelanders with snide and uninformed comments about the “great tax breaks” we get), he also covers the difficulties of compliance — such as the significant costs of filing Form 8621 under PFIC rules which apply to non-U.S. retirement plans — and goes on to bring up the issue of green card holders abroad, who face the same tax issues as citizens but without even having a vote, a U.S. passport, or a guaranteed right to return to the United States.
Interestingly, Schneider also takes the time to dismiss one of the popular but logically weak arguments in support of the FEIE, that U.S. citizens abroad deserve “tax breaks” because they are helping the U.S. economy. He concludes his paper with a detailed proposal for the U.S. to adopt a departure tax system similar to Canada’s.
Bernard Scheider. “The End of Taxation without End: A New Tax Regime for U.S. Expatriates”. 32 Virginia Tax Review 1, 2012.