I often find myself in discussion with some Homelanders and Obama supporters about whether US citizenship-based taxation is a human rights abuse. Below is my argument, first published August 21, 2012, to say that it is unfair. Now I argue that with the implementation of FATCA, the USA has become a serial human rights abuser. Clearly, most people of reasonable conscience accept these kinds of arguments. Even yesterday, I manage to get a chuckle out of an AP reporter who was asking for my story. I mentioned my birth in Chicago, Illinois, and moving as a baby to Alaska. Off the cuff, I said, “Yet Illinois isn’t chasing me around the globe expecting me to pay state income tax.” That’s because once you leave a state, you can no longer benefit from the proceeds of taxation. It is a no brainer. Yet it is not self-evident to Congress and the IRS, which are pursuing US expats across the globe with FATCA regulations in order to make them pay taxes for the benefit of Homelanders.
Many Homelanders are a special breed of bigot who believe that you live abroad so that you can shirk your responsibility to pay for their Social Security, their Food Stamps, their welfare, and their wars across the globe. Well, I for one am sick of this unfair treatment. We pay taxes in our countries of residence, and in Canada in particular, our tax burden is already much heavier than what Homelanders pay. So it is really time to emphasize that Citizenship-Based Taxation is a violation of the fundamental principles of Western democracy, and it is a human rights abuse.
Fair tax, unfair tax: or When is it paying my fair share?
by Peter W. Dunn
In studying historical tax rebellions, I have observed that governments have frequently been ready to commit mass murder in order to maintain their tax hegemony over a people. South Korea committed mass murder against the poor tax revolters on Jeju Island, who rose up in rebellion in 1948; Californians rode out to suppress the Indian tax revolters in 1851; Britain waged war against American colonists who unilaterally declared a permanent tax holiday from King George; the Romans razed the Temple at Jerusalem and crucified the anti-tax zealots in the Jewish War of succession in AD 66-70. Even George Washington, the beloved president who cut down the cherry tree but could not lie about it, personally led the troops against the Western Pennsylvanian tax protestors in the Whiskey Rebellion. No nation which wants to be taken seriously can ever allow a tax revolt. That’s why Irwin Schiff, father of investor Peter Schiff, rots in a Federal prison.
There are lessons to be learned from these examples. The revolts in question in every case took place because the protestors felt that the taxes were unfair. If the tax really is unfair, then protestors will revolt in large numbers, forcing the taxing authority to act. So I’ve decided to point out some aspects of fair taxes which people are willing to pay, compared to unfair taxes that leads to tax revolts.
Fair taxes seem to me to have the following characteristics:
- A fair tax is not onerous and well within the ability of the citizen to pay.
- A fair tax is part of democratic process in which the citizen has a right to vote for a local person who represents the taxpayer’s area in a legislative assembly. Representation in the legislative assembly is also proportional to population.
- A fair tax is proportional, i.e., charges all citizens proportionally to their means and not disproportionally.
- The proceeds of a fair tax must benefit the community of which the taxpayer is a part.
- Penalties for failing to pay a fair tax are proportional to the crime and the damage to the government which claims a right to collect taxes.
The following are characteristics of unfair taxes which will lead to revolt:
- An unfair tax is taken without local representation in a legislative assembly that makes tax law.
- An unfair tax is disproportional and onerous.
- An unfair tax does not benefit the community of the taxpayer but rather, it benefits the needs of others.
- An unfair tax is a weapon to destroy the taxpayer’s community or to make sure that that community never rises in prominence or wealth.
- An unfair tax comes with stiff penalties for disobedience–penalties which include destitution, detention, and death.
- An unfair tax results in the alleged protector becoming the chief enemy and persecutor of the taxpayer.
As any casual observer can see, the United States taxation of its expats fits the description of unfair taxes that I here provide. (1) It is done without local representation; (2) it is disproportional and onerous, not taking into account the taxpayer’s other tax burdens–e.g., Canadians already pay about 50% of their income in Federal, Provincial and Munipal taxes–including taxes for which there is no foreign tax credit (GST/HST); (3) it is done for the benefit of Homelanders not for the communities of the expats; (4) it unfairly taxes the expat’s home countries tax bases to the weakening of those countries for the benefit of the profligacy of the United States; (5) the penalties for failure to comply with US extra-territorial taxation may result in the detention and destitution of the taxpayer–it often leads the taxpayers to renunciation of citizenship, and can even result in exile [Reed Amendment] or death, if the taxpayer commits suicide or resists arrest; (6) The United States has made itself the chief enemy and persecutor of expats.
Historians seldom look back favorably upon regimes that institute unfair taxation. History is now in the making. Will the United States continue down this path of demagoguery and despotism? Will it commit total annihilation of its own expat community through a form of Expat Cleansing which forces all Americans abroad either to renounce their citizenship or return to the homeland? I think so. I see no real signs that this situation will change but only that it will get worse. I hope that I am wrong. Historians will remember this generation of leaders in the United States under a very dim light, and the Isaac Brock Society will be a primary source for their understanding of this period.
@Johnson
Global adoption of RBT is something more than one of us has explored. Em created a particularly good scenario that I’m sure she’d repost for our benefit.
Unfortunately, using this logic with homelanders and left wingers only fuels their delusion that US exceptionalism make the US stronger.
Americans abroad are renouncing US citizenship to cleanse themselves from the following pathogens which are all linked to the cancer of citizenship-based taxation (CBT):
– Double taxation
– Forms and penalties from Hell
– FATCA
– FuBAR
– No direct representation in US congress
– No access to US public goods or services
– Exit Tax
– Reed amendment and Schumer corollaries
The US has created a new form of Ethnic Cleansing by forcing Americans abroad to renounce US citizenship and banish themselves from their nation of birth forever.
Good job Uncle Sam, the Nazis and Soviets would be envious.
@ All. I’ve attempted to explain CBT, FATCA, and the impossible problems it causes US citizens abroad to my family members down on the plantation. Generally they’ve been understanding and supportive, but I believe its all kind of academic to them. Just like any other kind of abuse you have to personally experience the full negative effects of CBT to understand it on a gut level.
From their perspective, just like many other things that they sense are wrong with present day USA, there is not much they can do about it. They know their government is dysfunctional and out of control, they know the country’s finances have reached a tipping point from which there is no return, they know that many of the things that their government is doing in their name are despicable, and they know it will ultimately end in disaster.
I liken them to cattle formed up in a long queue that ends eventually at the slaughter house, all hoping that somehow they will be able to find a way to step out of the line before their turn comes.
But of course! It is so obvious to me and you and it should be to everybody else too!
But then Canada`s government prints: America has the “sovereign right” to make their own tax laws.
Is that a sovereign right? What about other country`s sovreign rights? What about citizens sovereign rights? Of COURSE it is a human rights issue. WHO else is being doubly taxed and having it called a “fair” share? WHO else is being punished with ruinous penalties? WHO else is calling 30% withholding tax on banks FAIR?
WHat the hell is going on?
@ bubblebustin
I could only find the long version of that scenario. I thought I managed to compress it once but I can’t find that version. I’ll keep rooting around in my files. Meanwhile there’s the excellent hypothetical scenario written by Andy Sundberg which Just Me posted here:
http://isaacbrocksociety.ca/2012/02/16/what-is-the-systemic-risk-to-the-worlds-economy/
Here’s my embarrassingly long version of CBT Insanity:
Citizenship-based taxation (CBT) is insanity. Not everyone who moves to another country is a tax evader. Most are ordinary people who move for adventure, for love, for family, for a better future or for all manner of reasons which have nothing to do with taxes. Picture a world in which ALL COUNTRIES HAVE IMPLEMENTED CBT and then consider the following hypothetical scenario.
An American marries a Canadian. The newlyweds have to choose one country over the other because they can’t afford to live in both. They choose Canada. They only seek a happy life together but thanks to CBT they are now filing taxes in TWO countries — Canada and the USA. The Canadian and US tax codes do not mesh so the couple try to keep their finances uncomplicated (simple savings and checking accounts only), otherwise they would need to hire a tax specialist. Investments and retirement savings plans are not a good choice for this couple. The cumbersome, complex US tax code is fraught with pitfalls and huge penalties for foot faults. An innocent error or omission on a FBAR or 8938 form, for instance, threatens them with thousands of dollars in fines … and those forms have nothing do do with calculating any tax owed. They are detailed annual reports of all their financial assets in Canada. Canada requires a similar report for their US assets but hasn’t adopted the over-the-top punitive penalty attitude of the USA … not yet anyway.
A few years later an extraordinary job opportunity arises in New Zealand so the couple moves there to work, live and begin raising a family. Remember, in this scenario, ALL countries use CBT. Now this couple is paying and filing taxes in THREE countries (New Zealand, Canada and the USA) because neither wants to give up his or her birth citizenship. They grimace and bear all the added paperwork and expense involved. A professional tax preparer is definitely needed at this point to attempt to reconcile three sets of tax codes with the US tax code being, hands down, the worst and most vindictive of the three.
More years pass and the extraordinary job in New Zealand unexpectedly turns into the agony of a layoff. Now the couple have a New Zealand born child to consider as well. Their search for work in New Zealand proves futile but the couple tries to hang on while their savings rapidly dwindle away. Soon they no longer can afford to make a move back to either Canada or the USA to start all over again. New Zealand has won their hearts; it’s the birth country of their child; and it’s where they truly want to live — at least for the foreseeable future (perhaps until aging parents in either Canada or the USA need their help). They have permanent residency (PR) cards for New Zealand and have begun the process of becoming New Zealand citizens which would give them dual status with their birth countries. Their situation is dire.
Then, just in the nick of time, a good job offer comes up but unfortunately it is in Australia. Luckily the company will pay all their moving expenses so the family moves to Australia, by necessity, but they know they will eventually return to New Zealand, just as soon as the job market turns around there. For this reason they maintain their New Zealand PR cards. They also temporarily stop the process of obtaining New Zealand citizenship. Now this poor couple must prepare taxes for FOUR countries: Canada (by citizenship), the USA (by citizenship), New Zealand (by maintaining their PR cards) AND Australia because that’s where they are currently living and working. Now their tax preparation expenses are wiping out a major portion of their income, even though taxes owed to the three countries they are not living in at the moment calculate out to be almost zero. Paperwork is consuming their lives page by page by page. Meanwhile their tax specialist is happily building a college fund for his children and a retirement fund for himself.
Luckily this scenario is hypothetical but what if other countries did follow the USA’s lead and switch to citizenship-based taxation? The world would soon become one in which emigration and immigration would become so hideously chaotic and cumbersome that everyone (except the very rich) would become prisoners in their home countries. Families with mixed citizenships would be torn apart. When will the USA finally accept that the international norm is residence-based taxation (RBT)? When will it abort CBT and adopt RBT, for sanity’s sake?
@Em
I LOVE the long version, thanks!
@ All or badger
What is that dirty trick called that makes it possible for the USA to change things at will in their tax agreements or treaties? I’m working on a Finance Canada submission and I thought I might work that in somehow.
@ bubblebustin
Wish we had a photo of CBT so we didn’t need a thousand words to describe it.
Em said Wish we had a photo of CBT so we didn’t need a thousand words to describe it.
How about this?
@Em
Savings clause?
Maybe The Animal can draw us a series of pictures. Remember in the cartoons those bombs that look like cannon balls with a fuse on them? Maybe one of those chained to the leg of someone going about their business, with various world landmarks in the backgrounds of each.
Hmmmm…just a thought, but on a psychological level, maybe Americans are so disliked in the world, that US expats are just thought of as part of the whole corrupt system? Maybe this is why we get so little empathy?
…or is it “first in time rule”?
@ OMG
Thank you! I think I recognize one of those hands.
@polly
Yup
@ bubblebustin
Thanks to you I found it — Last in Time Rule. Here’s what badger wrote:
Plus, as we know, the US can change anything in the FATCA IGAs unilaterally using the ‘last in time’ rule and there is nothing that Canada could do about it.
@Polly most people are not equipped to feel true empathy for others unless the situation effects them directly in some way. Plus the whole nobody likes an American thing is very real. I’m married to an American and I don’t like Americans!
I can’t post JPEGs but if you go to the link below, look at the image on the right and change “250 Million Americans Infected” to “7 Million” you have a picture of the effects of CBT (sort of). 😉
http://en.afrikinfos.com/2014/02/11/us-and-eritrea-tax-canadas-fatca-capitulation/
The Naturalization Oath of Allegiance to the United States of America
http://www.uscis.gov/us-citizenship/naturalization-test/naturalization-oath-allegiance-united-states-america
begins as follows:
“I hereby declare, on oath, that I absolutely and entirely renounce and abjure all allegiance and fidelity to any foreign prince, potentate, state, or sovereignty, of whom or which I have heretofore been a subject or citizen; … ”
Similarly, it used to be the case that a US citizen who swore an oath to a “foreign prince, potentate,” etc. automatically lost US citizenship. That was until the US Supreme Court ruled that such a person had to have intent to relinquish US citizenship by swearing such an oath. Originally that ruling protected the rights of expatriates who wanted to remain US citizens when they took out another citizenship.
Now the situation is entirely reversed. Because of its citizenship-based taxation, the US Government finds it in its interest to retain people as “tax citizens” as long as possible after they have intentionally relinquished US citizenship by taking citizenship elsewhere. So, while the US stigmatizes people for “expatriation to avoid taxation”, it is itself guilty of “refusing to recognize expatriation to continue taxation.”
They have cynically exploited the Supreme Court decision to turn what originally was an improvement in human rights into a violation of human rights by making retention rather than relinquishment of US citizenship the person’s presumed intent. They are saying, “All right, you can lose US citizenship by becoming a citizen of another country, but until you inform us of your action and intention, according to our rules and procedures, we will continue to claim you as a US citizen for tax purposes, whether you like it or not.” To me that is a clear abuse of human rights.
If a person takes out citizenship and residence in another country with the intention of relinquishing US citizenship, it should be that person’s right to simply stop filing US tax returns and, of course, stop behaving as a US citizen in any other ways.
I originally planned to hold off on my decision till perhaps 2017 in hopes they’ll be reform but concluded that the stakes were too high so went ahead and renounced in order to simplify my life. If nothing else, I feared that the numbers expatriating would surge so high that it will eventually take years just to get an appointment available. It was heart-wrenching but still believe I made a wise decision.
@Bubblebustin ,@omgheesstillanamerican…… and others:
I have found a way that I could make my family, and others understand what FATCA is: I am married to a USP, I am a Cnd citizen, born in South America, my sister and brother in Germany. I will tell my siblings how they would view the German Tax Authority informing them that Germany practices CBT, and consequently, her assets with her Cnd-born, citizen husband, and joint accounts and income will be taxed by Germany,(& Canada, of course). And, furthermore, there will be penalty amounts of approx 300% because both she and my bro have not filed asset info and tax forms in Germany for the past 45 years.
@omgheesstillanamerican
I like the picture. It depicts my sentiment to a T.
Also to note, it’s not just Americans grabbing this red bars anymore, it’s pretty much anyone that has US ties. I even see my wife holding onto those bars just because, and only because, she’s married to me.
I’m still very sad that Canada signed the IGA, but that matter wouldn’t even have happened in the first place had the US simply adopt RBT.
@OMG, that cartoon is GENIUS. 😀 😀
@mjh49783
I know exactly how your wife feels. For the first time in over 25 years I’m actually going to go out and open a bank account that has my name on it only. We’re saving up for something which requires alot of cash and obviously I won’t be putting it in any of the exempted type accounts since I plan to use that money within the next 18 months or so. I’m not even going to open the account at the same bank where my husband and I have joint accounts. I don’t want anybody to know he’s with me when I open the new account to make a large deposit : )
@monalisa1776
Those hands holding the bars could even represent entire countries that were economically blackmailed into signing a FATCA IGA.
The cartoon is certainly genius, and even diabolically so.
@omgheesstillanamerican
My wife and I separated our accounts about a year ago in preparation of FATCA, but it doesn’t change the fact that normal couples should be able to have joint accounts if they want to.
maz57, monalisa1776-thank you both for your inspirational posts today…..I love the term “expat cleansing”. it perfectly describes FATCA, FuBar, 8938, , OVDI/OVDP and all the other CBT based abuses.
would be interested in your feedback on the term “taxpatriot” as a strapline to describe IBSers….
stay well , stay strong….. the world needs people like y’all and the IBS community-too many to name individually….