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.
Overview
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?
Details
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.
http://www.opencongress.org/bill/113-h243/text
In that latest bill, mentioned in Brock last week, I searched with words “income exclusion”, “foreign”, “earned income”, and others, and I did not find the foreign income exclusion mentioned. Is this correct? Has it been removed from Simpson-Bowles 243?
No, it’s there. Look for “Section 911 of the Internal Revenue Code of 1986 (relating to citizens or residents of the United States living abroad)”. I suppose they call it by that obscure moniker rather than referring to the provision by its actual name in order to make it difficult for people to find and understand what they’re talking about.
yuk
*To the Progressive Council any person who has US citizenship who lives outside of the United States is, by definition, a tax evading traitor, and the only right they have is the right to be punished for such a tratorous act.
As I read this it still seems to me that the U.S. citizen living abroad that they are talking about is the one who is “temporarily” out of the country for work purposes while yet retaining some kind of ties with the homeland. This is the same confusing wording that is used in the Canada/U.S. Tax Treaty. I say this because the bill refers to eliminating such things as the overseas home exclusion, which is something that doesn’t at all affect those who permanently reside abroad because we DON”T have a U.S. employer who is subsidizing our residency.
They should distinguish permanent overseas residents from temporary ones. What is needed is a proper system for giving up U.S. residency and for them to stop asserting that they have the power to do something that they can’t- which is to subsidize our activities with another country’s treasury. The answer to that is of course simple, which is to just stop putting all U.S. persons under a legislative forced residency and adopt a territorial tax system. Stop assuming that the U.S. has the right to tax the world via those who are unfortunate enough to have U.S. citizenship even if they have never lived in the States.
“So they claim this will save $71 billion over ten years”
I estimate it will raise $450 per head. Once.
71 billion over ten years. Big fat hairy deal. The deficit is about 3-4 billion per day. So we are talking about stopping about 23 days of deficit spending. What are they going to do about the other 3627 days?
This is pure demagoguery. 70 billion in ten years. It is laughable. These American leaders are laughing stocks. They deserve derision. If they want to solve their problems in the US they should start drastically cutting their spending and their monetization of their debt (=quantitative easing). Otherwise they will face hyperinflation. It happened to the Romans, the Germans, the Argentinians the Zimbabweans, the Chileans and many others. There is no reason to think that the laws of economics don’t apply also to the Americans.
@recaolcitrantexpat, I fear that the only action that is ever going to stop the US from exerting its “God-ordained” right to tax US citizens who live outside of the United States is for several foreign countries to stand up and be counted by forbidding the US from levying and collecting taxes within their soverign borders and by making it illegal for US citizens resident in those countries to pay taxes to a foreign government on income from sources within the country where they reside.
But there are few indications this is about to happen. The US has managed to enshrine in every tax treaty it has with other countries the acknowledgement of that country that the US has the absolute right to tax its cizens who live in that other country. This is called the Saving Clause. It could more appropriately be called the Bullying clause. As long as this clause stands, then Congress concludes that it also has the right to impose FATCA reporting on every foreign bank and financial institution in the other 192 coutries of the world, and duly punish any and all foreign banks that fails to comply with this US legislation.
When are other countries of the world going to stand tall and demand that this clause be deleted from these so-called bilateral tax treaties? With this clause they are not bilateral at all, but very much biased in favor of the United States and its fiscal imperalism.
Why do other countries so passively accept this clause and allow the US to drain wealth from their own countries to enrich its own treasury? And why are they all desperatily doing what is necessary to obviatge the necessity these banks have to violate the privacy laws of their own countries by signing IGAs with the IRS which would allow this revealing of confidential personal and ban account data to a foreign governmen and thus superceed their own laws?
US tax policy reminds me very much of the old Spanish colonial policy with which that country justified plundering its colonies in the Americas: What was that? You take milk from cows, honey from bees, so it follows that we take gold from Indians. The US policy is to subject US persons resident in other countries to US taxation by extracting tax revenues from the ecoomies of those foreign countries. And so far, the other countries just peacfully submit to this American Exceptionalism. But don’t let a tiny country like Eritrea get away with this same policy, because for them to do what the United States does is a violation of the basic human rights of their citizens who live abroad.
@Roger, I was re-reading official commentary in the Federal Register, in response to public comments they had solicited on changes and”clarifications” to the FBAR, – the result of which were to make it even broader in application, and more punitive and onerous. The official rejoinder from the US government official from FINCEN, said that people affected *’chose’ to live outside the US, and so basically, we’re to accept anything and everything the US imposes based on exercising that ‘choice’. They declined to address at all, the effect of FBAR reporting on joint account holders who were NOT USpersons – such as non-US spouses, business partners, employers, etc.
*”With respect to the comments raised
by United States persons living abroad,
FinCEN does not believe that an
exemption is appropriate simply
because a United States person chooses
to live outside of the United States.”
Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Rules and Regulations
10237 31 CFR Part 1010
RIN 1506–AB08
Amendment to the Bank Secrecy Act
Regulations—Reports of Foreign
Financial Accounts
Since this was directly in the Federal Register, it reflects the true mindset of the US government – that anyone who lives outside the US is fair game, that we all actively ‘chose’ to live outside the US (ignoring all those born outside the US – in other countries – with inherited US status, or whose parents were non-US citizens on temporary US visits, or whose family left when they were minors). It reflects an official US position that we must accept any and all punishment and burden that the US inflicts on us if we were born and/or live in another country, and so must any non-US spouse, child, family member, employer, business partner, etc. who ‘chooses’ to enter into any relationship with us which the US chooses to subject to US extraterritorial oppression.
Not sure of the chances of success for this legislation, but I note that the attack on “International Tax System Loopholes” makes reference to bill text from Senator Levin. If that text is from the “Stop Tax Haven Abuse” legislation, be warned. The language seems to require US persons to report receiving money or property from a PFIC even if they are not shareholders of the PFIC. It would create a presumption that for proceedings to determine or collect tax, a US person who has an interest in or receives money or property from an entity with an account in a non-FATCA jurisdiction, controls the entity. In the same type of proceedings, anything received from an entity with an account in a non-FATCA institution would be presumed to be previously unreported taxable income of the US person. The presumptions can be rebutted, but foreign documents would have to be authenticated in open court by an individual with knowledge of the document (you would have to fly your banker to the US to testify).
Ask Tierney to define “similar“. We’re already paid up in full to one country – where we actually live and receive services, in the Non-US country where we were born, or have naturalized, or are permanent residents. There are lots of US citizen residents INSIDE the US who are not reporting income, or paying taxes.
See: http://www.boston.com/news/local/massachusetts/2012/09/25/rep-tierney-and-challenger-tisei-face-questions-about-tax-returns/jTDC6fq5lSkayHqxMWeOcK/story.html
….”Tisei, the former Republican minority leader of the state Senate, paid
no federal income taxes in 2006 or 2008, after reporting losses from his
Lynnfield real estate firm and two rental properties, according to 10
years of tax returns he provided at the request of the Globe.”……
……..”Tierney, meanwhile, has resisted disclosing any of his returns despite a
public pledge to do so, numerous requests by the Globe, and new
questions about whether he and his wife should have reported to the IRS
at least some portion of the $200,000 that federal prosecutors say his
wife received from a brother’s illegal gambling business, from 2003 to
2010.”……”Tierney, a Salem Democrat seeking his ninth term representing the Sixth
Congressional District, has said the money his wife received from her
brother, Robert Eremian, was a gift and therefore exempt both from
federal taxation and requirements that he publicly disclose the source
of the money.”
Roger,
You are absolutely correct in calling US extra-terriorial citizenship-based taxation, along with many other aspects of US practices, what it is — BULLYING. The bully of the neighborhood; the bully of the world. What an example the US provides for so many other forms of bullying.
Bullying is more and more being exposed and dealt with, as it should be. When will other countries see that the US is ‘stealing their lunch money’ or ‘stealing from their own treasuries’. If they would ALL stand up to the bully, perhaps the bullying would stop — or at least be lessened.
The other countries of the world need to come to acknowledge that all tax treaties with the U.S. are nothing more than backyard Hollywood sets- complete fakes. Between citizenship based taxation, FATCA, FBAR, FEIE, FTC what you have is an American way to cheat the treaty that they have signed. The treaty is nothing more than a form of U.S. citizenship imprisonment and the tool that legitimizes U.S. claims on their treasuries.
No one has the will to admit the presence of the lie. The U.S. Congress and Executive are the last places where morality and justice rule. It is bullying of the worst kind.
Well, I’ve always believed that it would get worse down there before it gets better — and I’m not sure it will ever get better given the refusal of media to give this any real coverage.
If this goes through, Americans abroad will have two choices: move back to the US or renounce. The so-called middle ground — try to comply with IRS rules while maintaining a “foreign” domicile — will quickly lead to financial ruin.
*I was previously in this so called ‘middle ground’ but am slowly starting to realize the financial ruin coming my way unless something changes. Just selling my house would result in an overnight USD 100’000 tax liability much of which is due to currency appreciation.
*@Southherner. You are right. There is no middle ground. It is either move to the US and leave your friends, and maybe even your family behind where you live aborad, or renounce your US citizenship. And should you, after you retire, decided that you would like to spend your retirement years in Florida or Sun City Arizona, then you can stand in line, like all other foreigners, to try to obtain an immigrant visa to live and retire in the US. As a former US citizen, You might not qualify.
But since renunciation is irrevocable, it is clear that your former nation does not really want you back ever again. And remember, if there is suspicion that your motivation for renunciation was to avoid US taxes, then under the provisions of the Reed Amendment to the Immigration Act of 1989, the Treasury Secretary has the authority to place your name on a blacklist of persons who shall never be permitted to set foot on US terretory, for any purpose. for the rest of their mortal lives. I don’t know if that provision would also prohibit the return of your body for burial in the US after your death, but if it does not then someone, sooner or later, will likely put a bug in the ear of some Senator or Congressman to introduce a bill to amend the Reed Amendment to include such a provision. That will show how really serious the US regards the act of renunciation.
I read the press release, including the passage quoted by Badger above, and it appears to me that the persons chiefly affected by repeal of the FEIE would be Americans working in countries with lower taxes than the US, whether they were Americans working temporarily abroad or effectively emigrants. Hence, other things being equal, an American working in Canada or Europe is unlikely to incur any additional tax burden, but someone working in, say Qatar or Singapore, likely would do so. Again, other things being equal, always a big assumption, and without any comment on the fairness of the measure.
Am I right?
@NorthernShrike — I think you are right. Remember though that the FEIE does not apply to pension income, investment income, or any other “unearned” income, so its benefit was somewhat muted anyway. And of course it is always calculated in US dollars, which means you can suddenly have (US) taxable income for no other reasons than your existing salary in Swiss francs, or Euros, or Canadian dollars rises above that $94K maximum because the exchange rate changed.
But my guess is that this is just the first shoe to drop. Once these guys have foisted this on expats, they’ll move to get rid of foreign tax credits as well. I know they specifically exclude that in this little missive, and I know that would violate the “no double tax” provisions of all their tax treaties — but that won’t matter, they’ll do it anyway.
The question is, how long are you (as a US citizen abroad) prepared to hang in there while they work through their agenda. It takes some time and planning to renounce, and there’s always the risk that they’ll decide you are doing it for tax purposes and, as Roger points out, throw the Reed amendment at you.
Consider this little parable about the frog who is really enjoying the nice warm water in the pot on a cold day, and starts to get nervous as the water gradually gets hotter and hotter — but really doesn’t want to jump out into the cold just yet. Before you know it, he’s cooked.
*
@NorthernShrike, in figuring out my 2010 taxes I had to use the FEIE, the Foreign Tax Credit, and charitable donations to arrive at zero taxes owed in the United States. This means that the fewer exemptions allowed to US persons abroad, the more likely the IRS will be able to extort taxes from them.
My own success in Canada as a DIY investor increased likelihood of owing taxes in the United States. I benefit from such Canadian tax advantages as eligible dividends–which promotes Canadians investing in Canadian companies that pay dividend. Such dividends are “foreign” dividends in the US and thus taxed at a higher rate. The investor’s income is thus detrimentally treated by the class warfare taking place in the United States that penalizes investors.
*@Petrros, be very careful of those “Charitable contibution” deductions. With very few exceptions, contributions to foreign charities are not deductible for US tax purposes. To be deductible they must be to charities that are organized in the Unted States and have been granted Charitable status by the IRS. US charities must submit annual reports to the IRS in order to maintain their status as a recognized charity.
See the section titled “Contributions to Foreign Charitable Organizations in IRS PUB 54 “Tax Guide for US Citizens and Resident Aliens Abroad” for further detaltails. It contains, for example, the statement “If you make contributions directly to a foreign church or other foreign charitable organization, you generaly cannot deduct them.
There are some exceptions for certain Canadian, Mexican and Israili chritable organizations wich meet the same qualifications that a US charirtable organization must meet. There is another IRS PUB 597 which describes specifically contributions to Canadian charities.
But these exceptions are not available for contributions to charitable organizations in other countries. When we lived in Peru and Brazil, for example, contributions to our local church and the local Red Cross organization there were not deductible for US tax purposes.
@Arrow, @Petros, @R Conklin
Thank you. Your comments were generally along the line of my own thoughts. I don’t see full double taxation coming in, but there are plenty of ways to chip away around the edges. And as for “foreign” tax deductions, all of that falls under my disclaimer “other things being equal”. (They seldom are.)
@Roger, thanks. If you will recall we had a similar conversation here:
Canadian Charitable donations may be claimed on USA taxes@Arrow, I don’t think the US would eliminate the foreign tax credit. That would be just too crazy, and violating a treaty with another country is something very serious. They are clearly saying that the foreign tax credit would be maintained without the FEIE.
However, something is bothering me. The big defenders of the foreign tax credit are US corporations with foreign branches (the way that the US tax code is written, the foreign tax credit is the same for individuals and corporations). If the US adopts a territorial tax system for corporations, to which even Obama now seems to agree, US corporations wouldn’t need the foreign tax credit anymore. After that, it would be an easy political target: used only by “unpatriotic Americans” who invest in other countries (as usual, completely ignoring Americans abroad and immigrants), and a “loophole” much bigger than the FEIE. But I don’t want to think about that possibility.
@Shadow Raider — you may be right – but it wouldn’t be the first time the US has ignored a treaty. Take a look at the history of the Canada-US softwood lumber dispute, and the incredible lengths the US went to to avoid complying with NAFTA’s dispute settlement mechanism. They lost almost every arbitration on that dispute, and even though NAFTA is actually enshrined in US law, they used all manner of chicanery to sidestep the rulings. They ended up collecting more that $5 billion in illegal tariffs over a three-year period — and forced a negotiated settlement in which they managed to keep $1 billion of that money.
I have no illusions at all about the US’ willingness to flout even its own laws to get its own way. Violating a treaty wouldn’t cause them any trouble at all.
@Northern Shrike,
“
I read the press release, including the passage quoted by Badger
above, and it appears to me that the persons chiefly affected by repeal
of the FEIE would be Americans working in countries with lower taxes
than the US, whether they were Americans working temporarily abroad or
effectively emigrants. Hence, other things being equal, an American
working in Canada or Europe is unlikely to incur any additional tax
burden, but someone working in, say Qatar or Singapore, likely would do
so. Again, other things being equal, always a big assumption, and
without any comment on the fairness of the measure.
Am I right?”
Taxes where I live are similar in magnitude to those in the US, but are structured differently, such that without the FEIE my tax bill would increase significantly even with the use of foreign tax credits.
Regarding capital gains taxes, even if tax rates were exactly the same, changes in exchange rates guarantee that each country “sees” a different gain from, say, the sale of one’s house, so even with foreign tax credits there will always be some double taxation — and quite possibly a very large amount of it.