This post comes from Anne Frank. I agree with the contents and thank Anne Frank for taking the time to organize these thoughts.
Practical Solutions Needed
In my view, the election has created a small opening NOW to pursue a pragmatic solution that will resolve MOST but not all of the injustice that FATCA and CBT generally have wreaked upon US Persons outside the United States and their families. What is needed is (i) a VERY SIMPLE and SUCCINCT summary of why this is an injustice that can be grasped by any voter in a coffee shop with the attention span of a four year old; (ii) a SIMPLE and CLEAN proposal to make the problem go away; and (iii) a Congressman or woman with the courage to take it on.
There is an opening in my view because a) the Republicans control both houses; b) the Republicans have apparently embraced repeal of FATCA and CBT as bad policies; c) Democrats Abroad at least have recognized most of the injustices US law perpetrates upon its diaspora and can be expected to endorse at least limited action to address the worst of it if not outright repeal of FATCA; and d) a Congress which has a double majority has some hope of getting a bill passed which – if consistent with principles the Democrats have at least paid lip service to – the President might not veto. FATCA may be bad law, but it sells politically because it targets “FATCAT” tax evaders. We need to let them solve that problem in their own time and in their own way providing they stop with the collateral damage! We all know Congress will have only a short honeymoon period where it has any hope of getting things done, so the best hope of getting something passed is early and not late in the lifetime of the new Congress. The pending Canadian litigation will serve to keep some level of political attention and heat on the issue (I don’t overestimate that factor in the US of course!).
I think our group can collaborate on the simple summary idea. The Democrats Abroad brief is not a bad one and could likely be an appendix to a short summary that highlights a) double taxation that persists despite tax credits and exemptions; and especially b) the ways in which the fines and penalties associated with “death by a thousand forms” subjects US Persons outside the US to discrimination and threats not faced by Homelanders. Real stories of real people will carry 100 times the weight of an academic brief.
What is the simple solution? Well, I tried to put together something as simple as what we put before Parliament when C-31 was being debated. Here is what I came up with (drafted as an amendment to the US Tax Code):
“General (1) For all purposes of this Title 26 and any other statute referring thereto other than Title 8, a person shall neither be considered to be a citizen of the United States nor a U.S. Person if the person would not be considered a resident of the United States (absent the existence of United States citizenship) under the substantial connection test in 26 U.S.C. para. 7701(b)(3) for the particular year nor any of the ten preceding years. This statute shall apply with retroactive effect.
Repeal (2) Title 26, U.S. C. para. 7701(a)(50) is hereby repealed.
Transitional (3) Any person who has filed any return or paid any tax or penalty prior to the coming into force of this statute shall have no claim against the United States government arising from the application of the law prior to the coming into force of this statute. ”
In simple terms, what the amendment to the US Tax Code drafted above seeks to accomplish is to cut the head off the snake. If CBT is the root of all evil, kill as much of it as we can as simply as we can. What I did was go to the source of CBT in the United States Tax Code which is Title 26 in the definitions section (para. 7701). This is where “US Person” is defined to include a citizen or resident. What my amendment would do is simply provide that for purposes of the Tax Code and any other statute that references it (but not the Immigration and Nationality Act which is Title 8), a US citizen is NOT considered a “tax” citizen if you will if they haven’t met the “substantial presence” test for the year in question nor any of the ten preceding years. For someone who left as a child or was born outside the US to US parents, this is a complete waiver. For someone who left as an adult, this limits their “problem years” to the ten years after they left.
The virtue of this is that it does not require the creation of any new tests, definitions or concepts which often involves the law of unintended consequences (and stalls things for a long time while such consequences are studied and debated). Substantial presence has been in the Tax Code for years – it may be a mess, but it’s their mess! Snowbirds need to be wary of it, but occasional visitors do not.
This is not perfect. People who have been out of the country for ten years or more have connections sufficiently tenuous to the US that it will not be hard to explain to Congress and Homeland voters that it is unjust to persecute them. Yes, it does mean that Eduardo Savarin’s of this world will eventually be able to get out of the tax net, but the IRS will still get to torture them for a decade before they get away. They can create new exit taxes for such people if they like. It won’t be hard to do. It does mean that the vast majority of Accidental Americans would simply be out of their net for all purposes and for all time unless they decide to establish themselves in the US.
The law would have retroactive effect (just as the amendments to the citizenship rules did back when they were changed in the 80′s). This would simply make the problem go away for almost everyone. The provision of para. 7701(5) being deleted is the root of “covered expatriate” in the existing statute (citizen for tax purposes until all obligations discharged under s. 877). They are free to come up with a new exit tax for the fat cats who may leave tomorrow if they like,
What I have NOT tried to resolve here is (i) giving citizenship back to those who were effectively forced to renounce; and (ii) refunding money extorted in the past. In a perfect world, a just government would address both of these issues fairly. I strongly suspect that if we try to bite off too much, we may instead get nothing. The perfect can be the enemy of the practical. On balance, I think this remedy is simple enough to explain that it has SOME hope of getting traction if the story behind it is compelling.
That leaves the problem of finding a sponsor. Maybe Rand Paul? Maybe even Ted Cruz? I leave that to others. I confess to having little insight into how this might be done.
My suggestion is that we try to refine these ideas and develop a near perfect “pitch” collaboratively that can be sold to one or more Congress people and let’s see if we can’t actually solve this problem at the source. FATCA will still be bad law imposing lots of expense, but it will effectively only hunt for or disclose US residents with the proverbial Swiss accounts.
No surrender! No CBT-Lite!
Honor those who said NO to tyranny in 1776. They refused to tolerate abuses that were far less than what is being forced upon Americans abroad today.
recalcitrantexpat,
Your comments today make me reconsider my complete thinking — you, again, are correct:
Fake, exploitative, morally bereft law, and yes, self-serving. The U.S. is ‘eating its own’ who have dared to leave the homeland and entrapping others (“accidentals”) into U.S. citizenship-based taxation with U.S. their pseudo residency, “U.S. residents for tax purposes” terminology. All the world must dance to the strings pulled by the U.S. Puppeteers.
And, some (because of lack of requisite mental capacity) set up so they cannot make it out of the U.S. entrapment web. The USA, long and exceptionally / hypocritically trumpeting itself as the beacon of human rights.
@Polly Says- there can be no opt in clause nor is there any need for one. RBT does not prevent someone from coming back if they want. Why should people who are not resident in the U.S. pay taxes, but collect no benefits, just in case they want to return when the majority of U.S. residents don’t pay taxes but are allowed to stay while receiving benefits?
Plus it still feeds into the false position that the U.S. is suffering a revenue loss when U.S. persons make a living outside of the U.S., which is something that isn’t true.
Lest we forget, our Shadow Raider has already rewritten the US tax code to flip it from CBT to RBT. They wouldn’t even have to strain a brain to do it. They could just copy and paste Shadow Raider’s blueprint for sanity into the appropriate pages, get a YEA vote in the now mostly Repub. Congress and then get the heck out of our lives — for good.
http://isaacbrocksociety.ca/2012/07/23/shadow-raider-is-rewriting-the-united-state-internal-revenue-code/
—Consider as one possibility just eliminating the phrase “nor any of the ten preceding years” and also whether a Canadian-style exit tax is or is not appropriate (I am not sure on this).
—Yes, of course we can decide not to worry whether legislation is revenue neutral, negative, or positive, and it is unfair that the victims have to consider this question — but this analysis will certainly be done by a Congressional office, and it seems reasonable for our side to try to come up with our own figures.
@recalcitrant
I was thinking along the lines of using healthcare or old age pensions without ever having paid into them when moving back stateside.
But most of us here never intend to go back anyway!
@Stephen Kish- eliminating those words is a start. But I can see no way in which the revenue neutral argument can be won given the presuppositions and the analysis criteria that the U.S. starts out with. Any discussion on the revenue neutrality of the elimination of CBT that doesn’t include the fact that the U.S. government incurs absolutely no expenditures on expats is doomed, since it allows the U.S. to assume that it is doing expats a favor by not taxing them. The assumption is that the U.S. is purely incurring losses and not avoiding any costs.
Any discussion that doesn’t acknowledge that U.S. persons are not all in the same boat by virtue of their U.S. person status is going to be inadequate. What difference should it be to the U.S. if English law allows a U.S. person to sleep on England’s park benches?
In other words if we enter into the revenue neutral argument then we are assuming their rules and those rules are not valid. The whole argument is a repudiation of double entry accounting which has offsetting debit and credit entries or assets and liabilities. CBT is pure government assets and no government liabilities. You would think that a government body that is made up of so many businessmen/women would understand that.
@Polly- I understand now. I guess that it is possible but it would have to be exclusively on the condition that it would not present a barrier to RBT implementation. We can’t afford to lose sight of the fact that in the eyes of the U.S. the goal is always to extend its tax reach as far as is possible and it will use any reason to do so.
I would prefer if such a provision were linked with not only tax filing but also with the maintenance of actual residency. Anyone without actual residency should be barred from such access and associated tax filing requirements.
I agree that CBT is a moral outrage, and should be abolished on those grounds alone.
I also agree that that won’t happen. Worse, I fear that if the argument becomes purely a matter of what is right, it becomes a litmus-test issue for both parties; each party will polarize around a different definition of what is “right,” and it will in fact become advantageous to both parties to never have the issue get resolved at all. They would rather have a contentious issue kept alive to energize and polarize their bases. And then we all lose.
Better to do the revenue analysis ourselves, so we can show that the proposal is revenue-neutral or -positive. And if it isn’t, then we should modify the proposal to make it so. That is, if we want anything to get done. And yes, we should make sure that anything proposed is something we can live with in our lifetimes, because a second chance to revisit or tweak things will likely not come for a long time.
I’m now moderately hopeful that something might happen within the next two years. But I hold no hope whatsoever beyond that.
How go I sign up to receive new comments without leaving a comment?
Five hundred people are on the ship. Unfortunately, it is sinking, and there is only room for 400 on the lifeboats. Shall we cut the lifeboats loose (maybe the lighter boat will sink slower), and risk letting all the passengers drown? Or shall we wait for the rescue ship that we think may be on its way?
And to all those ‘ex-US persons’ who at one time, considered themselves to be ‘American’, yet who breathed sighs of relief upon discovering they were able to claim relinquishment of US citizenship, why did you do this? You must have realized, that ‘accidentals’ with more tenuous ties, ironically, canNOT relinquish, and will go down with the ship if not given access to the lifeboats.
@WhiteKat,
I don’t think having a waiting period to be declared non-tax-resident is equivalent to denying lifeboats to anybody. Everyone gets the opportunity to get on a lifeboat eventually. Nobody is left behind with Anne Frank’s approach.
@foo, it seems I did not make my point clear. It appears we are both on the “save the 90% now while we can” side, as what I believe AnnFrank has proposed. I am in complete agreement with her suggestion. Although it is not a perfect solution, I fear that modifying it to drop the 10 year non-residence provision, would drastically reduce its likelihood of success.
I have a difficult time understanding the ‘all for one, one for all’ viewpoint, which would deny the lifeboat that is in front of 90% right NOW – that’s all. We know that there will be other rescue ships coming. Who says we all have to get on the same one together?
@WhiteKat,
Yes, on re-reading your comments, I realized that we may be in fundamental agreement. But I still don’t agree that the 10-year waiting period leaves anyone off the lifeboat. Everyone would eventually be able to get on one. Calgary411’s son would be able to get on one right away, even.
I don’t even really see it as CBT-lite. It is RBT with a qualifying period.
To clarify, the CBT-lite comment refers to Samuel Adams’ objection, not to WhiteKat’s position.
@White Kat- the fact is that all expats are on the same boat and should be treated the same. The attempt to engage in class warfare with regards to expats is wrong. There should be on rule for all. If we allow any distinctions it will be a matter of divide and conquer.
To be a part of the 90% may seem comforting but how long will it take to whittle down the 90% to 70, 60, 50 etc. What we are fighting is the erroneous concept of revenue loss and extraterritorial application of U.S. law. When an expat moves abroad he/she automatically qualifies for equal tax treatment in the new country of residence. When the expat moves abroad he/she automatically is disqualified for favorable tax treatment under U.S. tax law. Therefore it all seems fair to me to nix the idea of a qualifying period. How many years should one spend in purgatory for exercising the fundamental right of emigration.
The greatest way to surreptitiously restrict the outflow of capital is to restrict emigration. The best way to restrict emigration is to restrict access to foreign banks which will restrict access to foreign jobs. Any waiting period is just an arbitrary and vindictive attempt by the U.S. to get its pound of flesh. And is potentially another door to be closed. Do we really want a resolution that is not a resolution? How long should we allow expats to be a Congressional football?
@recalcitrantexpat,
I don’t see AnnFrank’s suggestion as leaving anyone PERMANENTLY waiting to be rescued. Truth is, all expats are NOT the same. Those having to wait close to 10 years, will due to their short time outside of the USA, be lest invested financially outside USA, and thus should on average have less compliance burden than those who have become totally immersed into a normal Canadian (or Australian, etc) financial life having lived outside USA for decades or more.
And if we have a reasonable chance at saving 90% right now, versus a not so reasonable chance of saving everyone NOW, why not try for the 90% now. No one said the 10% won’t have other options down the road, and like I mentioned above, they are the ones who should be less invested financially outside USA. I don’t begrudge those who can claim past relinquishment for their good fortune for having a ‘get out of jail card’, yet they are more ‘American’ than I am.
@ recalcitrantexpat re: “@White Kat- the fact is that all expats are on the same boat and should be treated the same”.
This is TOTALLY not true. ‘US persons’ ( I won’t use the term expat because this sounds like someone who left by choice as an adult), have varying situations which I don’t need to list out to you. Neither are the solutions for getting rid of the taint going to be the same for everyone. Its not always about making everyone ‘equal’ – its about reality, and practicality. To suggest that if only some have an opportunity to get out, than NONE should be allowed out is selfish in my opinion. Try telling that to the ‘relinquishers’ that breathed HUGE sighs of relief when they discovered they did not have to meet the 5 years of past compliance and did not have to pay a renunciation fee. Are you suggesting that they should NOT have been allowed to do that?
@foo: “But I still don’t agree that the 10-year waiting period leaves anyone off the lifeboat. ” I don’t think you are saying anything different than what I am saying. All ‘US persons’ benefit by AnnFranks’ suggestion.
@WhiteKat- all non-existent U.S. persons are in the same position and only have accountability to the laws of their country of residence. What you truly want is a kinder version of C.B.T.
All problems can easily and fairly be resolved by R.B.T.
@recalcitrantexpat, You are missing the point of this post. There is a short window of opportunity, NOW, to save 90% NOW with Ann Frank’s proposal. This is not a post about the merits of RBT versus CBT.
@WhiteKat- I have not missed that point at all. I disagree vehemently with it. There is no cause to settle.
@recalcitrantexpat,
OK, I understand. You are saying that if AF’s proposal can save 90% of US persons now, leaving 10% with a longer wait, that since we can’t save 100% now, we must NOT try to save the 90% subgroup, even though we think there is a reasonable shot at saving 90% now, and very little chance at saving 100% now.
This makes perfect sense – NOT.
@WhiteKat- Any thought that we can save 90% is delusional and is just bargaining with ourselves. It shows weakness and desperation.
@recalcitrantexpat, re: “Any thought that we can save 90% is delusional and is just bargaining with ourselves. It shows weakness and desperation”
And you know this on what authority? What if you are WRONG? – no biggie, its only 90% of us that will have missed out. But hey, at least we don’t look weak or desperate.
AnnFrank, I think your proposal is pure genius, and really hope we can take advantage of this limited opportunity to save 90% of US persons NOW. It disappoints and infuriates me to no end, to listen to people such as Recalcitrantexpat say it is not good enough. Why ANYONE would pass up an opportunity to help ALL US persons world-wide right NOW, with 90% being offered a perfect solution, and 10% a less than perfect solution, boggles my brain.