Shadow Raider says
YES! YES! IT WORKED!!! The Senate Finance Committee had its meeting on international competitiveness today (instead of May 23 as scheduled), and it included notes about individuals! It’s considering the proposal in Bernard Schneider’s paper!
Excerpts from the meeting notes (my comments in bold):
“The United States income tax rules applying to cross-border income are based on two core concepts: the residence of the taxpayer and the source of the taxpayer’s income.” (Are they abandoning the concept of citizenship now?)
“Nonresident citizens: U.S. citizens living abroad are generally taxable as residents of the foreign country where they live. They are also required to file U.S. federal income tax returns annually and pay tax to the U.S. on their worldwide income, subject to the foreign tax credit and an exclusion for a limited amount of foreign-earned income. Other countries generally tax their nonresident citizens only on income their citizens earn in their country of citizenship. Some believe certain employers overseas are reluctant to hire U.S. citizens because of the associated tax burden and compliance costs.”
“NON-RESIDENT U.S. CITIZENS
1. Provide an election to citizens who are long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions (Schneider, “The End of Taxation Without End: A New Tax Regime for U.S. Expatriates,” 2013; similar to the law in Canada) (You read it right, they mentioned Canada!)
a. Require a minimum period of residence abroad
b. Impose an exit tax on electing taxpayers where deemed to sell all assets at the time of election
2. Repeal the foreign-earned income exclusion (H.R.2 (108th Congress), Jobs and Growth Tax Relief and Reconciliation Act of 2003, sponsored by Rep. Thomas)”
I can’t believe it! feel like jumping around right now!
Does the Bernard Schneider proposal, now being reviewed by House Ways and Means Committee, offer the “best” chance of (low odds) success in moving to RBT? If so, I wonder whether there should be a coordinated effort to support the proposal.
There have been some enthusiastic comments of support in the IBS forum (“Schneider is my hero”) but comments from others including myself, on the “bad ending” exit tax component of the submission and on the fairness of any exit tax are mixed. Schneider argues that RBT will not happen without some exit tax (Is he correct on political grounds?).
Fairly clear to me is that the exit tax would be imposed on “gains” occurring only as US resident, and not before becoming a US resident or after becoming a US non-resident (e.g., p. 85). Exit tax would also be imposed on long term expatriates such as myself because I have complied with the IRS system, hold a US passport, and am unfortunately not “unaware” or “accidental.”
So, what then are the assets/gains that would and would not be exit taxed during US residency and how would this be applied? I don’t think that the Schneider proposal, which calls for a Code Section 877 TYPE exit tax (in his summary submission) clearly spells this out (am I correct?). However, as gains occurring while non-resident would not be taxed, I suspect that most (?) expatriates (e.g., all those who left early in life), might not have to pay any tax assuming the exclusion was reasonable.
If the Schneider proposal is important, what should be the next step? Possibilities include 1) do nothing and let House Ways and Means Committee sort it out; 2) flood Committee etc. with letters of support for Schneider plan, as written; and 3) flood Committee with support for a Schneider but with exit tax eliminated, revised, or clarified in a way that it is “fair.” We could do this as individuals and/or in a co-ordinated way.
My own reaction, shortly after Shadow Raider’s bulletin, was to email Canada’s Finance Ministry office asking that, should FATCA (which I oppose) be signed off, it should be conditional on (treaty) agreement between Canada and US incorporating Schneider proposal (but without the departure tax).
Would we, as a whole, be better off if the Schneider plan were adopted–even with some exit tax?
How important is the Schneider submission relative to all other submissions made to the Committee—and what should be the next step, if any? [Yes, there is always default Plan R.]
I believe it was Fareed Zacharia who on his program last week said something like this: many changes in government policies have come about from the thoughts and writings of intellectuals. Let’s hope this same holds true for Bernard Schneider’s contributions to tax reform, and drowns out the rhetoric that comes from the likes of Schumer and Reed.
@Bubblebustin, since my posting above on Schneider I decided to send a letter to my Congressman who sits on the House W&M committee.
I am still slowly working on the draft that does not end, and this might not be what you had in mind, but I will be faxing a letter asking in part that he carefully compare the relative merits of the Schneider (and ACA) proposal in solving our problem vs. the alternative “solution” of Schumer and Reed.
There is always a risk but I have to hope that a side by side comparison by a rational person might be helpful and will “drown out” that mean-spirited way of thinking of Schumer.
Good on you. Both sides offer a “final solution”, don’t they really? Schneider’s would bring a happy ending to the taxation of US citizens abroad, while Schumer’s would contribute to the end US citizens moving abroad. Problem solved! Which do you thing they’ll choose, a healthy diaspora or none at all?
The arguments for the Exit Tax are something akin to:
You can’t take the benefits you got from this great country and just leave.
In the case of U.S. citizens abroad the only Exit Tax they should have to pay would from the “benefits you got from this country”. In the case of long term expats this would be no benefits.
This would solve the problem of Homelanders renouncing and still allow U.S. citizens abroad to live a “livable life”.
I would argue for the ACA version. It is a bit more concrete and specific in its proposals.
@Bubblebustin, If I predict honestly the likely outcome, I would never send the letter.
@USCitizenAbroad, I agree that the ACA is much more specific and potentially (I think) less harmful than the Schneider to long-term expats, but suspect that most of us would be “ok” with either Schneider or ACA (and would be astounded if either passed).
In my letter to my Congressman (Jim McDermott), I will mention first the Schneider (then ACA), as it was Schneider that was singled out by the House committee for mention.
[BTW, if anyone happens to have info on McDermott (senior member of House W&M), please let me know–but even if he is a Schumer clone, I will send the letter anyway.]
Miracles can happen, even in America.
@IRSCompliantForever, I contacted Jim McDermott’s office last year, and his assistant told me that he was already aware of the problems of citizenship-based taxation. He didn’t want to meet with me but allowed me to send him my suggestions by email. Also, Jim McDermott has asked the Government Accountability Office to study the foreign earned income exclusion.
Thanks for the information about McDermott. I am not going to be in DC anytime soon but will try to set up a brief meeting with his assistant when I visit Seattle.
I read the link you provided on the FEIE but can’t quite figure out if McDermott’s study of the “US competitiveness” of the foreign earned income exclusion will likely be helpful or harmful to us.
Lonely Bipartisan Push to Overhaul Tax Code Finally Gets Noticed
It’s a bit of blah blah blah on little visible progress
Baucus is expected to release a tax code revision drafts within 2 weeks. No mention of US persons abroad here:
In case you didn’t catch it, the committee also has a Twitter handle:
@Bubblebustin, it’s mentioned here:
CITIZENS FOR TAX JUSTICE KNOCKS TERRITORIAL STUDY FUNDED BY GE.
I didn’t read the full Drabkin, Serwin, and Tyson paper, but none seem to address territorial taxation for the individual, only corporations.
SENATE WANTS FEEDBACK FOR CITIZENSHIP BASED TAXATION
thank you for sharing the proposed Republican National Committee resolution with me. On November 19, Senate Finance Committee Chairman Max Baucus (D-MT) released an international business tax reform discussion draft. Although this discussion draft did not address changes to the federal taxation of U.S. citizens living abroad, the chairman specifically asked for the public to provide feedback on this issue. You can find more details on the discussion draft and the comment procedures here: http://www.finance.senate.gov/newsroom/chairman/release/?id=f946a9f3-d296-42ad-bae4-bcf451b34b14. As my colleagues and I on the Senate Finance Committee move forward in the tax reform process, I will keep your comments in mind.
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