On my post of November 11, 2015 I asked the question:
Why do Homelanders believe it is okay to impose taxation on Americans abroad (meaning people who reside in other nations and on income earned in other nations).
I believe that there is little chance of achieving RBT without understanding the “Homelander World View”. The comments to the November 11 post were incredibly articulate and interesting. Before going further I want to make it clear that “Not all Homlanders Are The Same”. There are many Homelanders who see the injustice of “place of birth taxation”. There are others who do not. I am concerned with what I would call the “critical mass of Homelander Opinion”. I would also point out that the “critical mass” includes the tax preparation industry. It is important to focus our educational initiatives on: Mainstream Homelanders, Tax Compliance Homelanders and Politician Homelanders. The problem is to get their attention.
In any case, both the comments to the November 11 post AND an interesting article in the Wall Street Journal by Eric Scali of HR Block, raise the question:
Do Homelanders even know that Americans abroad pay taxes in the countries where they live? As crazy as this sounds, I am increasingly of the view that:
1. Homelanders simply do NOT know that Americans residing outside the United States are required to pay taxes where they live; or
2. While recognizing the reality that Americans abroad do pay taxes in their country of residence they regard the taxes that are paid to the country of residence as a kind of “additional tax” that exists over and above their primary obligation to pay taxes to the Homeland; or
3. While recognizing that Americans abroad are subject to two tax systems, they don’t understand how the U.S. tax rules applied to Americans abroad make it impossible to live as an American abroad.
Here are some comments that generated interesting discussion.
First, from Walt:
Do homelanders know that #Americansabroad pay tax where they live? "that's terrible why are you paying tax there?" https://t.co/oOpSv21s5Z
— U.S. Citizen Abroad (@USCitizenAbroad) November 17, 2015
Something that just dawned on me.
Whenever I tell homelanders that we pay plenty of taxes to the countries where we live. They look at me almost in disbelief. Sometimes they even say, “that’s terrible, why are you paying there?”
It is as if only the US has some sort of exclusive right on taxing us, no other country should be allowed to do that. Yes, homelanders are actually that US centric in their way of thinking.
Second from Patrick Mooney to the Wall Street Journal article:
Puncturing Common 7 Myths about U.S. Expat Tax Rules https://t.co/m2IVafTdlJ via @WSJ – But #Americansabroad already pay tax where they live
— U.S. Citizen Abroad (@USCitizenAbroad) November 17, 2015
It is extremely odd that homelanders view the FEIE & FTC as some sort of “gift” that expats do not deserve. I often wonder if those in the US really understand that we are already paying tax on that income in the countries where we live (and more importantly, earned it). For the US to tax on money earned outside the country amounts to nothing more than stealing from the economy of the other country. No other country bases taxes on citizenship (which is not the same as reporting on worldwide income). Eritrea is often quoted but it is in no way similar.
Why the tax compliance industry is a special problem …
The comments to the Wall Street Journal post reveal that:
There is no relationship between knowing what the rules of U.S.
place of birth extraterritorial taxation are AND how they affect people’s lives. Time after time we see this disconnect revealed in the posts of tax professionals. They describe the rules in terms of “Forms” and potential “Form Crimes”. One gets the feeling that if they understand the implications at all, they see them as a minor inconvenience. They don’t understand that U.S. place of birth taxation destroys the lives of those who attempt to comply with it. It has become increasingly clear only those Americans abroad who are NOT U.S. tax compliant can survive.
In any case, if you are so inclined, could you comment on the following three questions:
1. Do Homelanders know that Americans abroad really do live under the tax rules of the countries where they reside (even if they are Americans and should have special privileges)?
2. Do the tax compliance people understand what the rules actually mean in real life and real time?
3. What are the best strategies to educate the tax compliance industry?
Homelanders also believe the following:
1) The taxes they pay are too high;
2) Therefore they pay the highest taxes in the world;
3) Evidence of #2 is the constant mention by politicians of “overseas tax havens”;
4) Therefore anyone who lives abroad is avoiding taxes.
Thus, there are multiple levels they need to learn, one at a time, like schoolchildren:
1) Other countries tax people who live there;
2) Americans who live in other places also pay tax to those other places;
3) Canada, Australia, and European countries all have higher tax rates than the USA
4) Tax havens are real. But very few Americans actually live in such places (i.e. Cayman Islands). Most US expats live in places like #2.
5) Only Americans have to pay tax to both their resident country and the USA.
6) Whether or not you (Homelander) thinks US taxes are high or low makes no difference, because US expats pay to two places.
My point being that they have to be fed easy-to-digest facts one bite at a time. Hammering Homelanders with diatribes which combine numerous points into each paragraph simply goes over their heads. This also feeds into my notion that we need to use religious methods to get our points across. Preachers repeat the same words over and over and over before they move to the next simple point. It isn’t necessary to go deep into logic. Bullet points, repeated often enough, will sink in.
Q1. Do Homelanders know that Americans abroad really do live under the tax rules of the countries where they reside (even if they are Americans and should have special privileges)?
A. I don’t think ‘Homelanders’ care. Not about overseas tax, not about double tax, not about taxing over 100% of income (think of the Carter years and the abolition then of FEIE), not about PFIC. For them, it would come as a surprise to learn there are Accidental Americans denied pensions, tax-postponed savings, disability savings, etc. That there are Americans without the funds even to renounce citizenship and those forced to divorce to protect spouse & children’s solvency (or sometimes to protect newborns from acquiring US citizenship).
Q2. Do the tax compliance people understand what the rules actually mean in real life and real time?
A. The tax compliance industry has little or no interest in fiscal policy or tax theory, except insofar as it impacts its bottom line. Even Bruce Zagaris, who knows and write more on cross-border compliance than anyone else and at a higher level, has not to my knowledge involve ed himself in policy in any constructive way: after all, expats are not his client base.
Q3. What are the best strategies to educate the tax compliance industry?
A. For reasons in my answer to Q2 I think it isn’t worthwhile to try to convince the industry: it has nothing to gain. On the other hand, it might be worthwhile encouraging the writers of law review articles — at least to distinguish between tax exiles and Accidental Americans. And to point out that there are, or may be, millions of disaffected persons with US nationality who have never held a US passport, perhaps never been to the USA, with no assets or income or heirs in the USA but who are, technically, tax cheats subject to draconian penalties. The more a US law is inappropriate and unreasonable, impossible of enforcement and ignored by the majority of those subject to it, the more a whole system of laws falls into disrepute, scorn — and disrespect and noncompliance.
The IRS would go broke trying to identify, much less contact, even less penalise and prosecute, all those noncompliant Accidental Americans who refuse to be afraid. And/or count on their country of effective and dominant nationality for protection.
Canadian-Americans have more to worry about, perhaps, simply because of proximity. But even so, there are fewer cases of G-men kidnapping suspects in Canada (or on its border) than there are in Mexico. Compare Ronald Anderson (and some intrusions in Prohibition time and on Native reserves) http://www.uniset.ca/other/news/wp_ronaldanderson.html and Trapilo, Pasquantino, Miller, etc. (mostly customs and tobacco tax cases) with Alvarez-Machain.
Of course many of those cases — like Sidney Jaffe — involve bounty hunters. And if the USG privatises tax collection we might see more of that, perhaps combined with ne exeat republica writs like those served on the Barretts.
But what do I know.
Let’s not overlook what makes a homelander a homelander. What we are talking about is converting homelanders into thinking people. Is that even possible?
I’m going to go on the premise that homelanders believe that true Americans should live in the US. Nothing else matters. That belief goes for people born in other countries immigrating to the US, and those who choose to emigrate from the US. Why else is it so important to them to know that more people would want to become Americans than would want to renounce?
Being American is a religion to homelands, with the US their place of worship. How can you consider yourself a good American if you never go to church? That’s why it’s so easy for them to say “just go and denounce yourself then” as in their minds we’ve excommunicated ourselves anyway.
Why should we waste our time on a bunch of zealots?
The reply I get from Homelanders is: “Well, you have to pay US tax because some day you might want to move to the USA and then you’ll be using its schools or claiming Medicare and you won’t have paid for it”.
It’s either that or they nod politely but have zero interest in what I’m saying.
Might use Medicare? Let’s get one thing straight, anyone that’s paid 48 quarters (or 12 years) into Social Security is eligible for Medicare. If you don’t pay the 12 years, you’re not eligible for Medicare. I’m not sure where Medicaid comes into my scenario.
So there’s two kinds of people, those with 12 years and those without. So even if a Homelander left after 12 years and only returned when they retired, Homelanders have the same right to leave and not pay. For those without the 12 years, it’s a case of tough luck and possibly go back to your other country and the US will continue to try to tax you and give you nothing back in return while your ‘other’ country pays for your health costs.
Medicare and Social Security really are not an issue in this debate other than the US trying to tax self employment abroad with FICA.
The real issue is for me that I’m unwilling to pay all my US taxes abroad and be subject to a US tax calculation minus some FEIE allowance with the US tax allows being my minimum tax payable worldwide.
Even in Hong Kong, or Dubai where there’s no income tax, you get slammed with the cost of living ‘taxes.’ You don’t win.
Repealing FATCA is the only way to go and Homelanders need to realise the burdens expats carry is unfair.
A thought provoking comment indeed. Towards the end you write:
Actually, the USG has privatised tax collection. Person after person has said that they have called the IRS and the IRS response has been: “you must consult a tax professional for the answer to that question”.
What this means is that the the “tax professionals” both (1) MAKE THE LAW and (2) ENFORCE THE LAW.
Some thoughts on each.
(1) Tax Professionals MAKE THE LAW
We can see the attempt of some tax professionals to MAKE THE LAW on the issue of the proper way to interpret the Exit Tax provisions of S. 877A of the Internal Revenue Code. I am reminded of the following post that appeared earlier this year – 26 U.S. Code §877A – The “Exit Tax” rules: Do you see them as applying “prospectively” or “retrospectively” or both? :
This is an excellent example. The post discusses two groups of tax and legal professionals with conflicting views of whether the U.S. Exit Tax rules would apply to someone who relinquished U.S. citizenship prior to 2004. The consequences are staggering. One group argues that the rules are retroactive. The other group argues that the rules are prospective. That said: if enough tax professionals treat the rules as being retroactive, the rules will (in application) become retroactive. This is how tax professionals MAKE THE LAW. (Significantly this means that whether one pays an “Exit Tax” will NOT depend on what the statute means, but on how your choice of tax professional interprets (or chooses to interpret) the law).
(2) Tax Professionals ENFORCE THE LAW
This is quite obvious. People go to a tax professional for assistance with taxes and compliance. After having interpreted the law, the tax professional will then enforce the law on the client. In fact, the tax professional is likely to ENFORCE THE LAW in a manner that is least advantageous to the taxpayer and most advantageous to the IRS. This is the penalty (or “tax/form premium” that one pays for using the “tax professional”). Remember that all tax professionals are dependent on the IRS for their livelihood. Although you pay the tax professional, the the tax professional is working for the administration of the Internal Revenue Code (i.e. the IRS).
Tax professionals are in private business. They are NOT government employees.
So, what is actually happening here is this:
The combination of an Internal Revenue Code that is incomprehensible coupled with an IRS that is overworked (and probably doesn’t understand the rules of international tax any better than you do) has created a system where:
1. The IRS has downloaded the interpretation/creation and enforcement of U.S. tax law to PRIVATE “tax professionals”; who
2. “Take a cut” (in the form of their fees); for
3 Turning the person over to the IRS (which collects taxes).
Sounds to me as though the IRS has ALREADY privatised enforcement of the U.S. tax system and that the “tax professionals” are “bounty hunters” who receive a “cut” for turning their victims over to the IRS.
It’s about “People”, “Forms” and “Form People” …
Looks to me like the IRS is already using “Bounty Hunters”, or am I missing something here?
My late friend Roger Conklin educated me, a homelander, To the unjust double taxation when he was explaining why he moved back from Brazil and gave up a good telephone supply business because he had just 12% of his income when he paid both country taxes. I was also able to recruit him into my favorite cause as the solution for me and the expats.
I am an ardent advocate of the FairTax, which by its nature excludes expats. I have since had a double cause for non expat taxation. My grandson has been in Norway for 3 years and is being driven back to the U.S. because it is either renounce his citizenship after being the 12th generation here. He just cannot bring himself to renounce yet anyway.
Boy, if they do no know that we pay tax where we live, then…..then….ignorance truly knows no bounds. Do they think that legal aliens in the U.S. are not required to pay taxes in the U.S.? Why would US citizens living outside the U.S. not be subject to the tax laws of their resident nations? Although I never considered this and find it very hard to believe, it would answer a lot. Are they really THAT ignorant?
Beyond that, I agree with Andy05. They do not care. Some may be surprised to learn that our spouses and children are also harmed by this, but they shrug off any unpleasant feelings because of this with the greatest of ease, and quickly too. Most will not be moved to even discuss it in depth, so they certainly are not going to act as our advocates. Face it, we are not polar bears.
For the dingbats that say we must pay taxes to pay for the roads and bridges etc.. in case we return, no we do not!
I pay for all this in Japan maintaining it for the Japanese paying for the same in the U.S. for me.
Or as I like to put it, I am paying to support the bankrupt and corrupt gobernment of Japan for some poor Japanese schlub who is working in the U.S. and paying to support my corrupt and bankrupt gobernment in the U.S. on my behalf.
“Gobernment” above is not a typo. What we have is not “governance” and thus “government” is not the appropriate term to use.
Do they think that legal aliens in the U.S. are not required to pay taxes in the U.S.?
Yes, I think that’s exactly what they think. E.g. John Derbyshire, who used to write for the National Review and lives IIRC in a middle-class NYC-commuter town on Long Island, wrote in 2002, saying
Okay, that didn’t quite work, sorry. Here’s what he said:
Since acquiring my own citizenship last month, I have grown weary of people who, after congratulating me, add: “Now you’ll have to pay U.S. taxes! See how you like it!” (As a U.S. resident, first on an “H” visa, then on a Green Card, I have been paying U.S. federal, state and local income taxes, and F.I.C.A., since 1985, as the law requires.)
It worked for me Elinor. Welcome.
So paying taxes for these folks is some kind of rite of passage and synonymous with citizenship. It would be natural then that one would have to give up citizenship along with the responsibility of paying US tax. For a US citizen to not pay US tax is “unamurcan”!
Just what are they teaching people in schools down there about paying US tax if they believe such nonsense?
WOW! What to say to that?!
This reminds me so much of many of my college classes. Supposed to be a class for students of intermediate ability in English. About 60% are well placed, 5-10% advanced and the rest can not even able to write their name in English. How to bring those who know nothing up to the level of those you can actually speak?
The good news is, maybe, that we now know to begin.
First lesson, all legal residence pay taxes to the Fed, State and City in which they live. This means that the Toyota executive pays income taxes to the US and whichever State he works in and pays all the local taxes required of all residence.
Lesson 2. …
They are teaching AGW and how to be PC and call the police on anyone who isn’t.
Yes, indeed, there are some homelanders who do not realize that we pay taxes in the countries where we live. My cousin, for example. A couple of Aprils ago I sent her an email on a complete different subject but did say that I’d been busy because it was tax time. Her reply included: “Oh, do you pay taxes in Canada?” !!
I remember you telling us that story, Muzzled. Is the assumption that because they think of Canada as a socialist country that we don’t pay taxes here? If they think they’re the only country that pays taxes then they’ve completely forgotten the circumstances under which the US itself became a country!
They can’t “forget” what they never learned in the first place.
Living in the US one only thinks about the US IRS. All other taxing authorities of the world do not enter the mind space. Thus with homelander perspective of US person living overseas they may only fathom the US IRS after them and no one else. And if these overseas persons somehow get around the US IRS then they must have a free ride in terms of taxes. Simple.
I have also gotten the “do you pay taxes in Australia?” questioning from friends and family in the US. My take on it is that they think it’s natural that I ONLY pay taxes to IRS, because I was born in the US. It’s like the CBT mentality is instilled from an early age. It’s very frustrating.
Occasionally I get questions like “does Australia celebrate Thanksgiving?”, but we won’t go there.
@Sleepless: ha ha! The Thanksgiving remark reminded me of a question I once got from a Homelander when I lived in Germany: “You mean you guys don’t get July 4 off from work?” Then a moment of silence (without me saying anything) and then, “Hm, I guess that kinda makes sense.”
Kinda. At least that Homelander kinda realized her own mistake.
Kinda off topic but not really.
Has anyone read this WSJ article, “Americans: Pay Your Taxes–Or Lose Your Passport”.
I have seen it referenced but it is behind a paywall. It is reported that the new budget bill passed by both the House and Senate and on its way to the President’s desk has the passport revokation provision in it.
As I said, it is behind a paywall. I am not able to verify if the article says this or nor.
@Japan T: You can leap over the paywall by going to Google News and entering this as a search:
“Americans: Pay Your Taxes–Or Lose Your Passport” wall street journal
Will do, thanks.
Others may also wish to take a look.
Also, It took a while but I did reply to your question. No need to reply if you don’t want to, but just wanted to make sure it was there.
Read the article.
It is part of the Highway bill which has NOT passed. What is different this time is that both the house and senate have a passport revocation provision in their respective versions.
As I understand, in the past only the senate version had this provision and the house did hot agree to it during reconciliation. If they both have similar provisions, it seems to me that the odds are greatly in favor of some sort of passport denial and revocation begining Jan 01 next year as the WSJ says this bill would go into effect.
I re read the WSJ article. It HAS passed and is in conference between the two chambers.
According to WSJ, it is expected to pass and go into effect Jan. 01 next year.