JC asks that the following be highlighted and discussed in its own post here at Brock.
@8888 Makes this interesting point about Citizenship Based Taxation
http://disq.us/8o0buo on the Washington Times article.
What is a tax? A tax is a government imposed LEVY on the Treasury account holdings of those who receive benefits and or compensation denominated in the none interest bearing debt instruments of the government’s treasury. This means that although all residents pay taxes not all tax payers are citizens. The only common denominator that obligates both citizen and non-citizen to pay taxes is, residency which gives both direct access to the treasury.
Expats have no such access to the U.S. Treasury because they receive their benefits and/or compensation under the jurisdiction of another Treasury and therefore are not under the taxation supervision authority of the I.R.S. Citizenship taxation is a fiction that exist only in the minds if those who don’t understand this basic principle of taxation. The U.S. is really taxing the Treasuries of other nations. This is something that is illegal under international law because all nations are equally sovereign. And no nation can tax another because that would subjugate one nation to another.If the U.S. cannot tax it’s nonresidents on their foreign account holdings with another treasury then the Foreign Earned Income Exclusion is equally fictitious as is any credit or liability that is connected to the income of nonresidents.In the end all taxation is residency based.
Perhaps we are doing some disservice to the cause by reinforcing the name “U.S. Citizenship-Based Taxation” as that name may get wrapped in the flag by patriotic *Homelanders* – the name including “U.S. Citizenship” triggers a patriotic response.
@8888 points out that in the U.S., anyone resident is taxed and you don’t have to be a citizen. So this “Citizenship-Based Taxation” does not describe what is going on. Something like this may be more descriptive and a better presentation:
America like all other nations of the world practices Residence-Based Taxation – they tax all residents whether citizens or not.
A key difference between America and all other developed countries is that America taxes its “persons” (including citizens and green card holders) resident in other countries as if they live in the U.S.
Makes sense to me — I have benefited from the wisdom of *8888* for several years now. I can add this to my list, the reason our *foreign financial institutions* are searching for *U.S. Persons* (not just *U.S. citizens*).
@Wilton,
Yes, I understand that. And if I thought it had a chance in heck of passing, believe me, I’d be frobbing the “Yes!” button with all my might. But I’m just not that optimistic.
@Orwell,
“No organizations supporting yet.”
So where are DA, RO, ACA, AARO, et al.?
PopVox has some nice features with the graphs and chances to comment and all. Organizations can chime in too. I can think of some that should: ACA, DA, RO, AARO, FAWCO …
You can track the progress of H.R.3078 here:
https://www.congress.gov/bill/114th-congress/house-bill/3078
And here’s Rand Paul’s repeal FATCA bill S.663:
https://www.congress.gov/bill/114th-congress/senate-bill/663
All I can say is good luck to both.
Thanks for bringing this to our attention, Orwell. I participated two days ago and participation has more than quadrupled since then. Outrageous no organizations have participated yet!
I wrote the first letter in 1985 and got a reply from Dan Rostenkowski that I was beating a dead horse that no congressman would ever consider it because of the loss of control of campaign money from Lobbyists.
He was a sodden criminal, and went to jail for theft of government property and sold it for cash, but he was right about the congressmen. However a loud mouthed minority sometimes can make a change. This session of congress our bill HR25 has 80 cosponsors at last count and Obama said he’d sign it into law if it ever passed. he is not my favorite person on earth but even bad people sometimes do the right thing.
Don’t anyone call me racist for not liking him. He is half white and I am half white. He is far left and I am Libertarian (far right) but I would accept help from anyone currently breathing for the FairTax. We have a very large paid membership and it grows daily. It won’t happen in my lifetime, but will be the ”go to tax” when the borrowing, overtaxation and anarchy forces the bad people to do right.
@Foo 3078 just was announced a few days ago by Democrats Abroad.
@JC,
Ah, good point. I suppose that constitutes their endorsement.
On the topic of revenue neutrality, I’ve been poring over the IRS statistics, and I’m afraid I have to agree that simple RBT would not be revenue-neutral (absent speculative changes in behavior).
For 2014, from http://www.irs.gov/pub/irs-soi/14databk.pdf
Total number of individual returns: 147 million
Number of ‘Other’ returns (International, Armed Services overseas, territories other than Puerto Rico): 1.5 million, of which I estimate 1.3 million are International (based on ratios of returns with refunds).
The total number of returns is about half the population of the US; assuming the same ratio applies to International filings, those 1.3 million returns would represent about 2.6 million people, or less than 1/3 of all US citizens abroad, depending on whose estimate one believes.
The total tax collections from International returns is $8.7 billion. Interestingly, half of that comes from “withholding+FICA,” and half from “payments+SECA.” I’m guessing the “withholding+FICA” means people working for American employers (who else would or could do withholding?) I.e., probably mostly people on expat-assignments.
In any case, going to RBT would lose $8.7 billion in revenues per year. IRS processing costs and lost dividend taxes due to standard deductions and exemptions are probably much less than $1 billion. So to make it revenue neutral, we need to come up with $8.7 billion somewhere.
Hmm, if there really are 8.7 million Americans abroad, then this comes to a neat $1,000/head. How about an option for a flat $1,000/year payment, in exchange for being freed of all other paperwork and reporting requirements? I.e., one submits “Form 1040-F”, with only name, address and social security #, along with payment of $1,000, and one is free from filing anything else that year. I could imagine taking that deal — it’s $1,000 more than I owe in US taxes now, but would save me the aggravation and stress of doing all the book-keeping and filing paperwork. It is also probably cheaper than it would cost to hire an accountant to do it all for me (which would still leave me at risk of that accountant screwing up).
Yeah, the numbers don’t really work out unless there is 100% compliance with the new rules. At current compliance rates (1 in 3, or less), it would require $3,000/head to come out revenue neutral, which seems too much to me. Plus one would probably want to exempt children, which would raise the cost further for the remaining persons. There would also probably have to be some kind of exit tax to quell fears of rigging. Plus maybe a 5-year waiting period to be able to take the option (to eliminate most expat-assignees)?
Still, kind of a catchy, round number. Maybe there is a way to make some variation on this work?
@foo, $8.7 billion is gross collections, you have to subtract the refunds of $1.2 billion, shown a few pages later, for a net revenue of $7.5 billion. But this number would not be zero under RBT, because a significant part is from taxes on US income and from US government employees abroad.
I did a more detailed calculation using this table from the IRS (tax returns with addresses outside the US filed in 2012, tax year 2011). I estimated how much was from Puerto Rico, US military and government employees abroad based on other data, so the remainder was CBT. The resulting revenue was about $4.5 billion. For RBT, I guessed how much of the income was from US sources, and applied the respective tax rates. The resulting revenue was about $1.6 billion. You can see my calculation here.
I also estimated the cost to process tax returns, using the total IRS budget of about $13 billion. Americans abroad are about 0.4% of individual filers (0.6 million in 142 million, after excluding US military and government employees), but their tax returns are more complex to process, I guessed 5 times the average taxpayer, so 2% of IRS costs would be spent on them, or about $0.3 billion. This results in a net revenue from CBT of $4.2 billion. For RBT, the processing cost is negligible because the tax would be collected through withholding without returns, so the net revenue is still $1.6 billion. So a change from CBT to RBT would result in a loss of $2.6 billion per year to the US government. This represents 0.1% of US federal revenue.
In sum, it’s not as bad as you thought, but still not revenue neutral, and certainly not the unrealistic estimate of positive revenue by ACA. Still, I maintain that this is not an obstacle, because Congress passes laws that decrease revenue all the time, and in this case it would be insignificant. The obsession about “revenue neutral” is overblown, in all my contacts with Congress I never heard anyone raise this issue. Many congressmen want tax reform as a whole to be neutral, but not every item has to be neutral, and some congressmen don’t even make this requirement at all. The revenue loss from RBT would be a rounding error in the estimate of entire tax reform. And I repeat, Congress already agrees with RBT in principle, they are just lazy to do the details.
@Shadow Raider,
Wow, thank you for that detailed analysis!
I guess it would be easier to slip in as part of general tax reform. I just fear general tax reform is too hard to get done.
Revenue neutrality would help if RBT is a stand-alone proposition (I have heard objections on that ground before, and it would be such an easy objection to raise that I have to imagine it would come up again). In that case, perhaps some fixed Non-Residence Fee would serve to accomplish that goal (though it would not be the ideal way to go, obviously). If it is only $2.6 million we need to come up with, then $1,000/adult/year might work after all.
‘I’m guessing the “withholding+FICA” means people working for American employers (who else would or could do withholding?)’
Any payer that has an affiliate which is a US-related company has to take US withholding.
In 2002, TD Waterhouse, then a Canadian company, deducted 10% Canadian withholding plus 30% US withholding from Canadian-sourced interest paid into the account of me, a resident of Japan. They refused to explain how US withholding could be taken from Canadian-sourced interest. Later the IRS explained that it was because TD Waterhouse had an affiliate which was a US company (then also named TD Waterhouse).
If my employer had an affiliate which would be a US-related company, would my employer have to deduct 30% US withholding from my salary? The IRS said yes.
As far as I can tell, my Japanese bank should have deducted 30% US withholding from Japanese-sourced interest paid into my account, because they also had an affiliate in the US. They didn’t but they should have.
I’m not sure if there are one or two ways in which FICA can be taken from a non-resident of the US.
One way is for a US person to be working for a US employer as you mentioned. Together with that, the US employer has to make a decision that their US-person employee will pay double tax of social security premiums, to their country of residence and to the US. The person gets no say in the matter. As far as I can tell, tax treaties do not prevent this kind of double taxation.
Another way, though I’m not sure if this would be called FICA or — oh wait, is that what SECA means? — is for the US person to be self-employed under US law. When I was self-employed under the laws of Canada and the US while living and working in Canada, I paid quadruple taxation of social insurance premiums, double to Canada (due to being self-employed) and double to the US (due to being self-employed). Part way through that, the US and Canada made a new treaty, so my US payments were refunded, just in time.
Later, I was treated as self-employed under the laws of Japan[*] but US law had changed so I was a company employee under the laws of the US, while living and working in Japan. So I had a narrow escape and didn’t have to pay triple social security taxes.
[* Actually I think not under the laws of Japan. I read later that my Japanese employer had probably violated Japanese law and I should have been treated as a company employee here too.]
…
Anyway, I bet that a large portion of that US$8.7 billion is supposed to be refundable, and the portion which is FICA turns into future social security benefits. If the US moves to RBT then the amount of legally obtained revenue will go down, but the entire amount of legally obtained revenue will be non-refundable.
The only real loss of revenue will be a decrease in penalties.
===
‘How about an option for a flat $1,000/year payment’
If that would be an income tax, it would violate tax treaties, and maybe violate income tax law because the amount doesn’t depend on income.
If it would be a citizenship tax, it might be legal. Now what about all those people who can’t afford the renunciation fee; can they afford the citizenship tax, year after year?
‘one submits “Form 1040-F”, with only name, address and social security #, along with payment of $1,000’
Including those who can’t get a social security #?
It does have the other benefits that you mention. On the other hand, for me it would come to a total of US$40,000 and counting, which is more than one year’s salary, and more than the amount that Monica Hernandez stole from me plus legal expenses in trying to get it back. It would still make me wish I had known to renounce decades ago.
Re Wrapped in the flag. In sum, it is wise to be careful and use extra words when talking about the inaccuracies of the name cbt and the injustices of cbt. I especially like the emphasis of taxing all those resident whether citizens or not in the US – to help get the thought of the rightfulness about taxing those resident. But, also the wrongfulness of taxing persons living overseas as if they live in the US. And the FIE represents a sinkhole not a loophole.
Re: Flag. Maybe an approach could be “right back at them.” Opposition to the injustices of cbt is an expression of American values and support for the founding principles of no taxation without representation. So should be spinned as opposition very much American. And even those here who are not American/No longer American may be more American in what they ask for then the US tax and compliance laws of issue. Even Solomon Yue talked about refreshing the Liberty Tree. So: Right Back At Them!
@Norman Diamond,
How about this: the $1,000 fee is earmarked for the State Dept., to support all those fabulous consular services we enjoy so heartily every day. In exchange, renunciations are free. (I’d like free passport renewals, too, for that much money…)
Write in all zeroes in that case. Maybe have the 1040-F serve as an application for SS# the first time it is filed. Or for some other kind of TIN?
“How about this: the $1,000 fee is earmarked for the State Dept., to support all those fabulous consular services”
Still not worth it. I still should have renounced decades ago.
“Maybe have the 1040-F serve as an application for SS# the first time it is filed. Or for some other kind of TIN?”
SS-5 is already an application for SS#, but already has problems for non-resident US persons. If the instructions for W-7 would be changed, W-7 could be attached to the hypothetical 1040-F. The instructions for W-7 say that US persons shouldn’t use W-7.
(I used W-7 when I was still a US citizen because the IRS sent instructions on Form 6401 telling me and my wife to apply for ITINs. Next, the IRS rejected the W-7s that the IRS told us to submit, until but not including my last W-7. My last W-7 was accompanied by a certified true copy of my Canadian passport, certified by its issuer the Canadian embassy in Tokyo, and the IRS issued my ITIN. I thought submission of my Canadian passport would relinquish my US citizenship, but the US embassy said it didn’t so I still had to renounce.)
Hmm, suppose the passport fee for a 10-year passport would be $10,000? For that matter, why isn’t it already?
@foo @Norman Diamond. The $1,000 fee sounds like a figure given in Main in the ADCS/IBS Submisssions to the Senate Finance Committee. What was suggested was something like a $1,000 per year passport fee. And this would be much more equitable than the current system whereby because of varying tax systems the price one pays for the “benefit” of being a US citizen varies widely from country to country. The question was asked how is this fair? One may think the benefit the same yet the price varies widely. Thus was proposed a $1,000 passport fee and end to cbt.
@JC,
Sure, you could call it a passport fee. Though it wouldn’t make sense to apply it to Homelanders who only need a passport for vacations, so calling it a “consular services fee,” applied only to non-residents who choose it (in lieu of CBT) might be an easier way to sell it. (But I don’t recall seeing the original submission, so maybe this was already how it was presented?)
As I read somewhere before on IBS, I’m still a huge believer in the “1040-FU” which is about all I plan to file, even if I have to modify one of their existing 1040s. Onward with the “passive” resistance!
@foo Here is some of the discussion in Main: While benefit of US citizenship may be the same for living overseas the cost of it may be vastly different depending on country.
Category 2 – General discrimination based on which country they reside in
U.S. law does NOT treat a U.S. citizen living in Canada the same way that it treats a U.S. citizen living in Australia.
For Americans abroad, the extent of double taxation depends on what country you live in.
How can this be? The answer lies in the fact that all Americans abroad are subject to exactly the same tax system. That tax system provides certain benefits for living in some countries at the expense of others.
Therefore:
The amount of FEDERAL taxes paid by Americans abroad is dependent on the country where they reside.
The tax compliance is very low even among state siders. 50% of those who have taxable incomes simply have never filed a tax return, and 80% of all tax return actually filed, are incorrect, in favor of the filer.
Whilst 50& of the tax returns, actually filed, are filed to claim a refund under the ”earned income tax credit”provision. For anyone who is confused, the earned income tax credit is a refund for filers who report low or no income but get a government check.
To soleve all the taxation problems we need what most congressmen cannot stand, because it takes away their leverage to extort campaign contributions, the FairTax. A National, on shore only, sales tax, collected by the states and only on new goods and services. No need for accountants, pretending that taxes are paid by anyone but end users, of the goods or service, goes away. The non filers no longer criminals and filers who cannot comply because of complexity, no longer have to live in fear of the IRS, because the IRS disappears under the FairTax,, because they are redundant. Off shore citizens can exhale and go about their lives unmolested.
This war can never be won by expats if the U.S. government gets to write all the rules. The idea that Congressional spending bills have to be revenue neutral is just a ploy to make it appear to the electorate that Congress is responsible. And to let the electorate believe that they can have the goodies that they have now and the ones they want at the next election.
The government could easily address its spending gap by cutting out the exemptions, deductions and credits that don’t benefit expats anyway because they are residency based. This won’t happen though because of the costs to the politician and the party.The whose goal is to be reelected and increase seats.
Revenue neutrality is just as stupid as the debt ceiling. Neither of them accomplishes anything meaningful. This war has to be fought on principles of justice. The cause is a just one.
@ recalcitrantexpat
Right you are. When Congress really, really wants something the ethereal “revenue neutrality” is simply tossed aside. When the “debt ceiling” is reached Congress merely stops the debt clock from ticking. That’s all smoke and mirrors but the havoc they perpetuate with CBT and have exacerbated with FATCA is very real.
@Anthony Parent uses “universal tax jurisdiction” 12.11 pm comment on this one:
http://theexpatwriter.blogspot.ch/2015/07/the-14th-was-big-day.html
‘Sure, you could call it a passport fee. Though it wouldn’t make sense to apply it to Homelanders who only need a passport for vacations, so calling it a “consular services fee,” applied only to non-residents who choose it (in lieu of CBT) might be an easier way to sell it.’
As a matter of fact it would make sense to apply the same $10,000 fee to homelanders who get a 10 year passport for vacations. They use more consular services than we do.
If a dual Canadian-US citizen, resident in Canada, gets arrested (whether or not they deserve it), do they get assistance from a US consul or from Canadian legal aid?
Here’s the assistance I got from a US consulate when living in Canada:
1. Unhelpful answers from the IRS office which used to exist in the US consulate in Toronto.
2. Passport renewals.
3. Adjudication of US citizenship, associated with one passport renewal, when I stupidly retained US citizenship when I shouldn’t have. (Well, it wasn’t really stupidity because at the time there was no way to know what was coming later.)
Here’s the assistance I got from the US embassy when living in Japan:
1. A mix of helpful and unhelpful answers, but mostly unhelpful, from the IRS office which used to exist in the US embassy in Tokyo.
2. Passport renewals.
3. Proof that US law prohibits issuing a tourist visa to my wife, so the only way for her to meet my parents would be for me to sponsor her for a green card, which I could have done at the time though it would mean she would have to reside in the US while I continue to reside in Japan. Though after some legally required rejections, some consul decided they would illegally issue a tourst visa to her.
4. Renunciation.
Vacationers get arrested for things like illegal drugs. Soldiers occasionally get arrested for things like rape or robbery but usually they get off and go back to the US in freedom. They’re the ones who should really pay that fee for consular assistance.
@Norman Diamond