UPDATE: September 7, 2013:
Interestingly, Mr. Harvey’s paper has been removed so the original link that Victoria provided no longer gets you to his proposal. You also must now register for the site, which I did. Luckily, Em has come to the rescue as she saved it before it was removed.
May I draw your attention to this interesting article by J. Richard Harvey called:
World Wide Taxation of U.S. Citizens Living Abroad – Impact of FATCA and Two Proposals.
In a nutshell Mr. Harvey has seen that there are “issues” with the perfect world of citizenship-based taxation. He admits that many Americans and Green Card holders abroad are adversely impacted by the marriage of CBT and FATCA. However, he is not willing to let us off the hook and he has a few criticisms of ACA’s Residence-based taxation proposal.
He has two proposals of his own that are worth examining – not because I think they are good solutions but because I think they represent a kind of counter-offer. “You folks want X? Will you settle for Y?”
Here they are:
He is also suggesting some relief for certain categories of Americans abroad. This doesn’t go far enough in my opinion. I would like to see a definition of “significant percentage of their lives” spent abroad. What does that mean exactly? His opinion is that only in a few very sympathetic cases (accidental Americans) all others (people who have lived abroad for 20 years, for example) should NOT be entitled to any relief at all.
What is encouraging about the paper is that he acknowledges the problems (a kind of progress). However, he is still in the mind-set of punishing those “rich tax evaders” and does not take into account the high price the US will pay if it continues along this path of trying to enforce CBT. And though he admits that there is a high percentage of middle-income expats that are being harmed because of government actions to demotivate the 1% from expatriating, he still feels these measures are justified. Mitigation, he says, is the key but I don’t think he goes far enough and I think he completely misses a very important motivation for middle-class expatriates – getting out from under all that paperwork and the associated costs for cross-border experts.
Just because Mr Harvey’s suffering from a bit of conscience, doesn’t mean he isn’t capable of more dumb ideas.
Thank you Roger for those reminders re the history and frailties of the FEIE. Any tweaking type solution such as Harvey proposes re making RBT somewhat less injurious is entirely subject to the whims and caprices of the US and attitudes towards those of us abroad, who have no real or effective representation, no universal right to vote from abroad, and seemingly few stateside friends in high places.
I do not believe that the US is capable of, or willing to ‘simplify’ at all. They lack sufficient motivation without some type of diplomatic or significant public crisis. Justice and fairness are just words that people like Harvey, and US organizations like the IRS throw around when it is convenient. If Harvey was truly interested in fairness or justice, he’d note all the flaws of FATCA, and question whether the pursuit of the ‘ultrawealthy’ truly can truly justify the cost that we have already paid and will continue to pay for his crusade. Who cares about the losses of a few million ordinary expats, their families and the criminalization of their already taxed-once local legal savings when you’re on a holy mission? Burn them at the stake today and let the higher power sort them out later.
@Polly
I also detest the assumption of guilt if your assets are over a certain level.
I haven’t time right now to read Mr. Harvey’s 32 page pdf — perhaps later. Meanwhile, based on the comments here (Badger’s in particular) I’ll just charge in like a bull in a china shop and babble a bit off the cuff — perhaps to my regret –perhaps not — no doubt to USxCanada’s utter disdain.
#1 — Increasing the FEIE threshold is of no use whatsoever to retirees or the self-employed — NO DEAL!
#2 — Punishing expats by limiting visits to family members still imprisoned in the homeland is mean-spirited to say the least — NO DEAL!
What do I think? I think Mr. Harvey is offering crumbs and I want the full meal FATCA repeal deal and I think CBT should be scraped off the plate into the dustbin where it belongs. What appears to be his interpretation of “mitigation” only makes me angrier. He sorta kinda maybe thinks RBT is okay-dokay but oh dear, it just can’t happen so let’s twiddle the dials on the CBT torture machine down to slightly less than extreme pain. I say, “You can’t put lipstick on a pig.”
Unlike Mr. Harvey and Monalisa I am NOT concerned about the uber-rich abandoning America. I say go for it guys! After all, the big corporations have done the same thing and done it with the benefit of very favorable tax arrangements which they lobbied the US government to give them. The wealthy should be free to leave and take with them everything they have earned. As long as it was earned legally and taxed once then I have no problem with that wealth and its owners going walkabout in the big wide world beyond the walls of Prison USA.
I am Canadian and I do not currently have a single penny that was “Made in the USA”. I returned to Canada many years ago with only a few bucks in my pocket (all taxes paid) and the sale of our US home was duly reported to the IRS with no tax owed (the gain was far below the threshold). As far as I’m concerned, I paid onto Caesar that which was Caesar’s and that should have been the end of my US obligations. I do not have a single penny I would willingly pay in “tribute” to the USA or any other foreign country. My pennies are all Made in Canada now. (I know Canadian pennies are not being made anymore — call them historical or hypothetical pennies.) Canada is my Caesar. Any kind of “fee” paid to the USA would be nothing but extortion. The USA did not birth me, raise me, educate me or even employ me. The taxes of various types that we paid while we were living the “American dream” should have been enough compensation for whatever “services” we used or “privileges” we had. We used the road system and other infrastructure but we never required police or fire protection services (contributing to their standby status was perfectly acceptable however). Everything else, including all of our medical expenses, were paid in full and out of pocket. We left behind a home that we built with our own two hands and continues to be a source of income for the various levels of government there. That’s fine with me because, unlike me, that house was “Made in the USA”. That house has a duty to pay for the “privilege” of its existence — not me. That’s all the “tribute” the USA deserves from me.
So Mr. Harvey thinks rolling one bad form (FBAR) and another bad form (8938) into a single form is “simplifying”. PTOSH! It most definitely does not create a good form. I think he’s simply trying to justify the existence of an outright assault on a person’s financial privacy. So wrong again, Mr. Harvey.
I’m not going get into grey nuances; I’m going to go for black or white. ACA’s RBT is right and Mr. Harvey’s tweaked CBT is wrong. Badger’s analysis is much better by far than Mr. Harvey’s Amerocentric half-assed proposals. Back to the drawing board, Mr. Harvey. You still don’t get it as far as I’m concerned. (My opinionated ranting here is subject to future re-evaluation should I take the time to actually read the pdf but the same should apply to Mr. Harvey if he ever starts to actually listen to what the outlanders are trying to tell him.)
Just renounce or relinquish. I have no confidence that even the inadequate recommendations of Harvey will even be considered, let alone lead to any modifications. In addition, the US administration and congress are simply too inept and ill informed to develop a coherent, reasoned and fair policy on taxation. And if they ever do it will be a very long time in coming and too late for so many.
Hear, here Em & Badger!
BTW, Canada’s recently discontinued copper coin in correctly known as the “one cent piece” here in Canada. The penny is Merkun (although I mistakenly call it a penny myself, it’s still a pet peeve of mine :-))
@ bubblebustin
I didn’t know that the penny is Canadian correctly called the one cent piece. That’s interesting. Thanks. I just hope you don’t mind me using the brevity of “penny” over “one cent piece”, unless I could have shortened it to the dreaded 3 letter abbreviation of OCP — the OCP that was, that is. I would have kept that coin but Harper didn’t like it I guess. I got curious and just read that after 1997 the copper one cent piece (95-98% copper) actually became the zinc one cent piece (98.4% zinc). And after 2000 the poor thing became a steel one cent piece (94% steel). See what I’m doing to avoid reading that Harvey pdf and my chores today? 😉
http://canadacoinhunting.blogspot.ca/p/canadian-copper-coins-to-look-for.html
@Em
You’ve made me smile, it felt weird, as I realize I haven’t done that for a few days. Thanks! I know what you mean about procrastinating. Yeah, I still catch myself calling them pennies but I don’t miss them. I only used to keep them to use so I wouldn’t get any back. My kids thought they were garbage so I’d have to pick them up all of the time, although if they were garbage they would have thrown them in the garbage can. I guess they were semi-garbage to them.
@ bubblebustin
Good deal. I got to rant (that feels good too). You got to smile. In the meantime I actually did get some of those chores done.
No mention that Americans abroad (as well as immigrants) can’t use the accounts available to locals because the IRS doesn’t recognize them except for work based pensions. So Americans abroad face higher taxes than the locals!
Now Americans abroad can’t even use the same financial instruments as the locals because of the PFIC rules. If they do they face punitive taxation and massive compliance costs.
Seems like a pretty big hole in his argument. Raising the income exclusions doesn’t do anything for this stuff.
If someone like Mr. Harvey is so concerned about this situation why does he not leave the U.S. and hold a forum with EXPATS who are going through this and hear our very real concerns in person. I would like for one official involved in imposing this mess on us all to have to actually see us face to face and hear our stories and answer our questions before they write a paper on the situation. They can not grasp the issues from afar. It just cannot happen. He may have meant well in trying to address some of this but, completely misses the bottom line. What is going on here is very, very wrong and there’s no way to make it right unless FATCA is taken back to the drawing board and long term expats, accidentals, ex green card holders, children born to one U.S. parent and all the other hapless folks caught in this are exempted.
They are absolutely lying that this was about going after billionaires off shoring and hiding money because if that was the intent they easily could have done so without causing all of this pain to average people all over the world and without violating the laws of other nations.
Mr. Harvey is writing a detailed paper without having spoken directly to a single expat in this situation in any other country.
@AtticusinCanada, your point is exceptionally well made. If anybody wants to make an honest effort to make this mess right, they would get a first hand accounting of what is happening to the innocent victims.
@AtticusinCanada
As posted earlier in the thread by USCitizenAbroad:
http://isaacbrocksociety.ca/2012/06/25/acas-jackie-bugnion-and-j-richard-harvey-debate-fatca-for-two-night-this-week/
After having read through the article, my reaction is that the author is, unfortunately (i) trying too hard to satisfy all of the perceived concerns and craft a legal argument and proposed structure to satisfy everyone, and (ii) has written the article from the perspective of a US law professor with a very US Centric View of the planet and little appreciation for the reality of the effects of CBT and FATCA on the ground. Rather than taking a more aggressive position to just simplfy and dump CBT, he tries to resolve pieces within an unworkable structure.
I suppose anything that raises the issue for discussion has the potential to help, but his proposed resolution does not simplify it complicates. I take particular issue with the proposal that a US citizen renouncing also has not only an exit tax but also estate taxes to potentially pay. As such the law would not only assume the US citizen renounces and as of that date ‘sell’s’ his/her assets but also that he/she died. Is all of this complexity reallly necessary just to deter the possibility that someone ‘rich’ will renounce and thereafter not pay US taxes?
@atticus, great suggestion. But they don’t have the courage to face us in person.
@Em, good reminder about the FEIE not being of use to retirees. And I am reminded that the US taxed Victoria’s unemployment benefits – paid to her from the coffers of the taxpayers of France – which she paid into as well. The US stole the fruit of French labors and the French fisc Same with them taxing the disability grants and RDSPs of dependent children with disabillities. The US steals bread out of the mouth of children and the vulnerable. It steals capital gains taxes from senior who sell their Canadian family home to fund longterm care. It steals from our children’s RESPs. As far as I am concerned, the US is nothing but a thief. It steals by extortion, it steals by intimidation, it steals by stealth from those born and those living abroad.
@bubblebustin, you’re right. The asset level shouldn’t matter. If it was created and is located outside the US, with no US economic connection, then it is just confiscation for the US to try and justify taxing it by rationalizing that all those with a certain income should be punished for renouncing.
Harvey never acknowledged that we have the right to renounce. And even US law says that.
How far will they go to prevent our expatriations?
I would like to see a debate on these issues in a forum like at a major US law school near DC that invites both US and non US law professors and others from academia and government – and to have it covered by the media. Let ACA debate the author on these points, and hear from some Canadian professors as to why CBT and FATCA are in violation of Canadian law, etc etc.
@Steve Klaus. Picking up on excellent points by Atticus, Badger and others — I agree on a forum, but I think law profs and other academics are the LAST people to be debating these issues. I used to be an academic, I’ve worked fist-in-glove in government with Queen’s Counsel lawyers, and believe me when I say this. Professors (even of law, certainly of economics) and government officials are NOT (with maybe a rare exception, in which case maybe I’d want them on the panel) personally affected by FATCA and CBT, this is all some abstract intellectual exercise for them. Feh. Feh. Feh. Get Attitcus, Badger, Blaze, Calgary411, Tiger, Victoria and a host of others I apologize for forgetting about on the panel, and make the morons from Congress and the pinheads from the US Treasury, IRS, and academe who think they know best how to write the laws and how to write the story of how the laws affect people, sit and listen for a change!
My God, I’d be ashamed to write any kind of article about the effects of FATCA and CBT without first having interviewed a LOT of real people who have gone through or are still in the wringer. Writing something like that without having done that isn’t research; it isn’t a contribution to knowledge; it’s science fiction of the worst and cheapest sort. But hey, maybe it will win a Nobel Prize for Literature; after all, Obama got the Nobel Peace Prize on even thinner evidence and for even thinner justification. Just goes to show how “exceptional” Americans can be.
@bubble, thank you for that link! Looks like bottom line is after their discussion period not counting minnows we still don’t matter.
Anyone seen the NDP”s page lately? Looks like they are all on board with FATCA and the “tax cheat” line of propaganda now. His comments on the G20 http://www.ndp.ca/news/conservatives-must-not-miss-another-key-opportunity-g20
I was an NDP member, as of now, not.
@shubert, I wish you were in charge of moderating any such forum! They’d never get away with a thing!
Here’s a response I wrote via email:
I also emailed him taking your lead. I am sure I will have zero influence but, barring Mr. Harvey coming here to get an education as to what he is talking about, it’s all I could do to be semi heard. I am sure my email will either not be read or be skimmed over as having little to no significance. The U.S. has made it very clear that the sufferings of expats are of no concern to them at all.
The only thing they are concerning themselves with are the poor, poor banks and their compliance issues. I can’t believe a country that bailed out criminal bankers who deliberately gave fraudulent mortgages and speculated against those mortgages is now policing the worlds banks and calling anyone “tax cheats” The bankers who were bailed out were supposed to start loaning again and did not, they took a lot of the tax payer funded bail outs as bonuses to themselves. If they wanted tax cheats they need look no further than their own corrupt home land system and the government.
Once again, a strong second to Schubert1975. This time on the topic of the prof with the law article. This academic genre has a lot to do with being a law prof and little to do with much else. In most cases, Brockers could more profitably read a tombstone or a limerick (or some other genre that they do understand the conventions of). The most useful thing about these law prof exercises is the assemblage of cited materials, which sometimes leads back to interesting and useful stuff.
I read the paper, and on the whole actually like it quite a bit. I had quite a dim impression of Prof. Harvey last year with his seeming disregard for the collateral damage caused by FATCA, but it does seem he has taken on the issue of finding a way to mitigate the damage caused by FATCA and the tax system in general. Given his influence in drawing up the FATCA legislation in the first place, I hope he can be equally influential with tax reform with regards to Americans abroad.
I didn’t really understand his lack of support for Residency Based Taxation — it seems to me that a Canada-style exit tax would prevent tax-motivated changes in residence. But his suggestions to mitigate the paperwork complexities for Americans abroad even if CBT is kept sound pretty good to me. I also wish he had discussed the problems with PFIC regulations; it is possible that they could become a non-issue under his proposals, but it should be explicitly addressed in any legislation that actually gets proposed.
Overall, though, this is the first positive glimmer of hope I’ve seen in years.
I wonder what the chances are that he actually gets assigned to any tax-reform legislation drafting committees.
@Foo, this is also how I felt. While I agree with others here that he overlooks important problems such as PFICs and seems oblivious to the collateral damage caused by the one-size-fits-all OVDIs, he is at least going in the right direction.
Victoria’s posted on her blog that she’s contacted Mr Harvey and that he’s indicated that he’s read our comments. The article apparently is no longer fully accessible.
http://thefranco-americanflophouse.blogspot.ca/2013/09/the-basis-for-great-conversation.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed:+blogspot/mjljN+(The+Franco-American+Flophouse)&m=1