— U.S. Citizen Abroad (@USCitizenAbroad) August 7, 2013
Attention Senator Baucus, Representative Camp and the Ways and Means Committee:
In 1996 James Dale Davidson writing in “The Sovereign Individual” noted on page 287 that:
Unless there is an astonishing and most radical change in policies, the successful investor or entrepreneur in the Information age will pay a lifetime penalty of tens of millions, hundreds of millions, or even billions of dollars to reside in countries with the fiscal policies like those that have enjoyed the highest living standards during the twentieth century.
Absent, a radical change the penalty will be the highest for Americans. The United States is one of just three jurisdictions on the planet that impose taxes based on nationality rather than residence. The other two are the Philippines, a former U.S. colony, and Eritrea, one of whose exiled leaders fell under the spell of the IRS during its long rebellion against Ethiopian rule. Eritrea now imposes a nationality tax of 3 percent. While this is a pale imitation of U.S. rates, even that burden makes Eritrean citizenship a burden during the information age. Current law makes U.S. citizenship even a larger liability. The IRS has become one of America’s leading exports. More than any other country, the United States reaches to the corners of the earth to extract income from its nationals.
If a 747 jetliner filled with one investor from each jurisdiction on earth touched down in a newly independent country, and each investor risked $1000 in a start-up venture, in the new economy, the American would face a far higher tax than anybody else on any gains. Special, penal taxation of foreign investment, exemplified by the so-called PFIC taxation, plus the U.S. nationality tax, can result in tax liabilities of 200 per cent or more on long term assets held outside the United States. A successful American could reduce his total lifetime tax burden as a citizen of any of more than 280 other jurisdictions on the globe.
The United States has the globe’s most predatory, soak-the-rich tax system. Americans living in the United States or abroad, are treated more like assets and less like customers than citizens or any other country.
Holding a U.S. passport is destined to become a major drawback to realizing the opportunities for individual autonomy made possible by the information revolution. Being born an American during the industrial revolution was a lucky accident. Even in the early stages of the Information Age, it has become a multi-million dollar liability.
To see how great a liability, consider this comparison. Under reasonable assumptions, a New Zealander with with the same pre-tax performance as the average of the top 1% of American taxpayers would pay so much less in taxes that the compounding of his tax savings alone would make him richer than the American ever would ever be. At the end of a lifetime, the New Zealander would have $73 million more to leave to his children or grandchildren. And New Zealand is not even a tax haven.
I am a great fan of Mr. Davidson’s work. Note that this book was published in 1997 (and presumably written in 1996). If anybody noticed this comment, I expect they would not have believed him. Note this comment that:
“Special, penal taxation of foreign investment, exemplified by the so-called PFIC taxation, plus the U.S. nationality tax, can result in tax liabilities of 200 per cent or more on long term assets held outside the United States.”
Those countries contemplating FATCA IGAs need to understand how the application of the PFIC rules will steal from their treasuries.