Joining Dennis Ross (R-FL) and his recycled plan to raise taxes and pile paperwork on U.S. Persons abroad to pay for tax cuts for Homeland corporations, the Congressional Progressive Caucus has reintroduced their own plan from last year to raise taxes and pile paperwork on U.S. Persons abroad to pay for services for Homelanders that we can’t use. The Government Printing Office doesn’t have the full text of their bill yet (they didn’t even manage to get today’s edition of the Federal Register up on time), but the Washington Post has a copy of their press release.
Apparently, harassing and vilifying emigrants while posturing that you’re standing up to Big Oil is what passes for “progressivism” in the United States these days.
It used to be that at least a few years passed after each attempt to kill the FEIE before the latest Congressional staffer cluelessly thumbed through the Joint Committee on Taxation’s list of so-called tax expenditures and decided that axing this foreign whatchamacallit for those mink-swathed un-Americans living the high life in Paris would be a great way to raise revenue: don’t tax you, don’t tax me, tax those traitors across the sea! But now we’ve seen two such proposals in less than a month, one each from the donkey and elephant side of the aisle, and something like half a dozen in the space of a year and a half.
“We have two parties here, and only two. One is the evil party, and the other is the stupid party. I’m very proud to be a member of the stupid party. Occasionally, the two parties get together to do something that’s both evil and stupid. That’s called bipartisanship.” — allegedly a joke told to a group of Communist dignitaries visiting the United States.
As Phil Hodgen would say, consider this a gentle tap with the clue stick. Carl Levin (D-MI) managed to get FATCA passed without any bipartisan support by sneaking it into the revenue offsets section of a bill at the eleventh hour. Chuck Grassley (R-IA) got his beloved FEIE stacking the same way. So imagine what will happen to a so-called “tax expenditure” which both Republicans and Democrats want to gun down?
Here’s how the CPC insultingly describes their plan this time around — as “closing a loophole”. They think that Americans who physically move to another country for reasons of study, love, or career — the exact analogues of the immigrants to the U.S. whose interests the CPC so loudly claims to represent — are contemptible tax dodgers exactly like corporations which transfer intellectual property to tax haven shell companies and pretend that a very tiny man in a Bermuda mailbox makes all their worldwide profits.
Apparently the Congressional Progressive Caucus is so filled with ethnocentric nationalism that they think their country is 100% right in all matters, and so they can’t possibly imagine any reason that anyone would emigrate besides taxes. Or to put it another way, the CPC is giving a ringing endorsement to the U.S.’ current social, military, and economic policies.
Close Exclusion of Foreign-Earned Income Loophole ($71 billion) – Sec. 231
Closes an exclusion enabling U.S. citizens working abroad to avoid paying any federal U.S. taxes on incomes below $95,100 for individuals and $190,200 for couples. This allows citizens to shelter income and violates the principle that U.S. citizens with similar income should incur similar tax liabilities. This measure closes the exclusion, but retains the tax deductions and credits for taxes paid to a foreign government and housing benefits for U.S. citizens working abroad. (bill text from Rep. Tierney)
So they claim this will save $71 billion over ten years, or nearly 10% of the revenue their bill raises. In otherwords, they’re going by last year’s Joint Committee on Taxation estimate of the “cost” of the FEIE. Note also the interesting name there at the end: John Tierney. Yes, he’s at it again. Apparently he sees the FEIE as a subsidy to oil companies, so he doesn’t care at all about any of the collateral damage that will occur by ending it.
But what’s even more disturbing is that the Congressional Progessive Caucus is going along with Tierney’s pet project by claiming that it promotes “horizontal equity” — with equal disregard for the dignity of those of us who have chosen to exercise our human right “to leave any country, including one’s own” and to work towards becoming members of society in the places where we actually live and already pay taxes.
A betrayal of the Congressional Progressive Caucus’ alleged goals
The CPC claims to want to “protect the personal privacy of all Americans from unbridled police powers and unchecked government intrusion” — except for us traitors who dare to live outside The Homeland, who unlike any other Americans are obligated every year to prove our innocence by giving an inventory of all the assets we and our non-American families own, and have our personal information sent to insecure government and private databases all over the globe.
They purport to be seeking to “re-build U.S. alliances around the world” and “restore international respect for American power and influence” — so they plan a direct attack on the people who are actually on the ground rebuilding those alliances.
And on top of it all, they dare to pretend that their goal is to “eliminate all forms of discrimination based upon color, race, religion, gender, creed, disability, or sexual orientation” — so they propose levying higher taxes and discriminatory compliance burdens on immigrants and the children of immigrants who moved to their ancestral countries to escape racism and pursue the social mobility that the U.S. denied them, Muslims who are banned from returning because of the no-fly list, mothers who are blocked by IRS rules on “foreign trusts” from using the social support system of their countries of residence to care for their disabled children, and gays and lesbians who emigrated to Europe or Latin America because the U.S. immigration system refused to let them sponsor their partners for visas.
Focusing on the FTC is a big mistake. It is just as big of a mistake as it is when a person goes to buy a car and is only concerned about the monthly payment without any regard to the actual purchase price and the price after financing charges are taxed on.
The value of the FTC is a function of too many moving targets that exist in both competing tax systems, and in itself is not even a full shield preventing you from paying tax on tax that has already been paid. There is a big difference between a credit and a full blown deduction. Credits are only partial tax exemptions and as such you can only utilize a percentage of the tax already paid. This means that the FTC is a violation of the double taxation provisions of the tax treaty.
The only concern that the U.S. government has is for how many ways can it continue to fleece defenseless emigrants and immigrants.
*While the US citizen livng in working in Canada or in Europe, where tax rates are a high or higher than in the US, they may well end up owing zero tax to the IRS. That is indeed correct. However they mjust file a US tax return along with numerous other tax forms and may be subject to also fliing FBAR and FATCA reports, so his “compliance costs” may well be very significant. These payments end up in the pockets of the professional tax advisors rather than the US Treasury. The US citizen aborad must be very careful in selecting the firm to provide this professional tax assistance. If they really know what they are doing, their charges will be very significant indeed. The risk of trying to do it yourswelf, unless yhou are a CPA or Chartered Accountant who really understands US tax laws as they apply to US persons resident abroad. And employing a professional who says he can do it, but does not really understand it, can result in massive fines and penalties which you, not the tax professional, has to pay.
The penalties for errors or omissions, or for failing to file every necessary tax form, are very steep, And the penalty for willfully failing to file a US tax return, because you knew you would not owe anythng, is $25,000 if you did not do it because you insisted that it is not necessary. You must, or you cannot benefit from Foreign Tax Credits or the FEIE and you will indeed owe taxes on your foreign income.
*I likewise don’t think the US is about to prohibit the application of foreign tax credits to offset the US tax liablity, but let’s face it: With some 91% of the tax returns from citizens abroad producing zero tax revenue for the US Treasury I consider the Foreign Tax Credit to be vulnerable. An awful lot of Government resources are spent in processing thes tax returns, all for nothing..
So never say never.
I would like to point out that double taxation also comes in the form of the IRS “prohibiting” expats from engaging in certain investments in any form they may take. The inability to maximize the productivity of your capital means having to endure diminished returns which is otherwise better known as an opportunity cost. If you have to make a choice in order to avoid a government penalty then the lost opportunity should be viewed as an off balance sheet tax.
I totally agree. Thankfully, the UK is one of the very few pension systems recognised by the US. But generally speaking, it’s pretty much impossible to benefit from tax deferred investing. For a UK ISA (same as an IRA) it is exempt from dividends and capital gains tax in the UK. For FATCA, it is an exempt product in the UK IGA. To the IRS it is untaxed by the UK and therefore totally available to the US to tax.
I think the whole PFIC regime is hideous. Apparently, the US government believes that the only legitimate collective investment scheme is denominated in US dollars and distributes dividends and realised capital gains every year. Such collective investment schemes only exist in the US because the rest of the world considers distribution of capital gains yearly as counter productive to tax efficient investing.
How do you match assets and liabilities if you can only invest in US dollars? And the PFIC regime is horribly punitive. You can’t offset PFIC gains with PFIC losses so you pay tax on the gains but get nothing for the losses. It’s also a totally separate tax for which there is no foreign tax credit (at least that the case with the excess distributions regime). It also taxes at the US highest marginal income tax rate irrespective of your income level. Double taxation at its finest which will produce, for me, marginal tax rates on dividends and capital gains of probably in excess of 50% for UK tax free income and 90%+ for non-tax free. Yet another example of US arrogance that their system is the only system and if you use any other system you will be punished severely. I have boatloads of foreign tax credits but face ruinous double taxation for having invested locally.
Petros February 7, 2013 at 6:42 pm –
Regarding charitable contributions. Not to be missed is Item 8 at
http://usxcanada.wordpress.com/2011/12/13/2011-dec-13-valli/. A solid long paragraph or two there on a serious Canada/US mismatch. I quote only this sentence: The calculation of the tax benefit for charitable donations generally yields more favourable results in Canada than the US. Possible consequence: pay extra tax to the stingy grasping US government, since conditions in Canada are more favorable. Here’s a nasty little twist that deserves more Brock scrutiny.
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