No matter how much money the IRS will lose, the IRS, Washington, and mainstream media want to tax US expats. The IRS and Washington want a government jobs program for accountants in the public and private sectors. And FATCA is the enforcement tool of USA’s stupid extra-territorial personal income tax system of Citizenship-Based-Taxation (CBT) (or US-person Based Taxation).
Note that USA and Eritrea are the only governments of the world that tax their expatriates and emigrants. But is USA making any money (tax revenue) out of the effort?
America’s first goal is to use U.S. expat citizens to fund the U.S. tax-preparer industry. A typical taxpayer is required to pay about $500 a year to hire a U.S. tax professional to fill out expat tax forms that are exponentially more complicated than tax forms for Homelanders. USA wants for the entire adult (over 25 yrs) U.S. expat population to pay for this. So, the compliance industry is fleecing the citizenry right good–a wealth transfer from those of modest means to tax preparation corporations (so what else is new?). But is the IRS gaining revenue?
We can look at what IRS costs are incurred, assuming that the IRS is successful in forcing every tax-eligible expat to file. The IRS is able to estimate the cost of each filer–unfortunately the IRS does not share those numbers with the public (it would defeat its self-serving job-security interest). Note that expat returns are at least doubly complicated than those of homelanders. Normally, the poor would be relieved of their need to file–-but with Obamacare, even the poor are required to file expat exemption papers. For example, expats can never be eligible for Obamacare, yet expats who file must file a form to exempt themselves from Obamacare penalties. Hence, it is likely that the entire adult expat population will file forms which can give IRS job security. 56% of the world are adults above 24 yrs, and there are 8.7 million U.S. expats. One could expand the analysis to try to determine the number of “US persons”, but this article will limit the scope to US citizen expats. (8.7 million)(0.56)* (processing cost of one filer)(doubled)(% above filing threshold).
In addition, there is a similar-but-different population of FBAR filers to consider. Each FBAR of every account of every expat who possesses more than $10,000 of financial wealth must also be processed. These FBARs must be filed and compared to the data which is obtained through the FATCA ethnic-identification system. FATCA’s public costs could also be considered in the calculation–FATCA is a big loser to the world’s economies. FATCA’s costs to the IRS government system are partly addressed in Wikipedia. However, “The I.R.S. “has been unable to ascertain all potential costs beyond those for IT resources”.
It’s important to remember that, despite media propoganda, FATCA and FBAR are not taxes and do not create tax revenue. They are expensive unconstitutional enforcement means of the money-losing extra-territorial tax regime system. Although sold to the public as revenue-enhancers by “increasing tax revenues”, enforcement methods and control systems always only add costs. This government doublespeak shows up in every Congressional spending bill (correctly stated as not a tax) but as “revenue enhancement”.
But does America’s extra-territorial taxation system take in any money? If America succeeds with its FATCA and finds ALL of its 8.7 million expat-chattel in the world, how many dineros will it bring to itself? Let’s calculate some examples using IRS tax tables.
53.7% of US expats live in countries which have higher marginal tax rates than USA’s top 39.6% rate. No matter what their income, US cannot tax them up. More than half of the people filing expat taxes should (rightly) owe nothing. Zilch. Zippo.
27.4% of US expats live in countries with tax brackets in the 35% to 39.6% region. With USA’s taxing-up method, it could gain a maximum of 4.6% tax (average 2.3%) from the richest of any residents. But a single person must make over $413,200 per year to pass this 35% marginal-tax threshold—however that person can exclude at least $100,000, so a person must make more than $513,200 per year to be taxed in this bracket. The only significant country in this category is Mexico, where 52.3% of the population is below the poverty line and 90% earn less than $33,000 per year. In order for America to get any money out of Mexico, they would have to fleece Mexico’s 1%’er’s . So, in Mexico, more than 99% of the US-expat tax filings would be wasted energy. To know how much money America could squeeze out of Mexico, one would have know the percentage of 1%ers who are dual citizens. The quantity of Mexican US persons to be taxed becomes negligible.
The other cash cows in this category include Algeria, Argentina, Cyprus, Ecuador, Morocco, Norway, Thailand, Turkey, and Vietnam. How many Turks or Argentinians could America fleece? (oops, side point: I forgot to mention that the IRS disallows tax credits for the Norwegian 7.8% tax it labels “social tax”. The IRS wrongly taxes Norwegian residents due to a loophole it wrote into tax treaties and tax regs)
Ok, so we’ve gone through 81.1% of the expat population’s tax returns — and the only thing that has been achieved is that 80.826% have (rightly) contributed no tax revenue to USA and less than 0.274% may have (unrightly) been taxed-up by USA by a tax ranging from 0% to 4.6% of their annual incomes. Oops, I forgot — only 56% of that population are adults. This whopping sum ought to pay for a few dozen aeronautical toilet seats.
I hope that you are beginning to see the ridiculousness of the situation. The GAO has full access to this type of data, and should have been able to calculate this same data. They should have been realizing that the costs of processing millions of returns is ridiculously high in comparison with the ridiculously low revenue potential to be gained from fleecing the 1%’er expats in Algeria, Norway, or Vietnam.
Well, politics is an endless source of black humor. You ought to know that the story just gets more and more ridiculous if one analyzes it further.
America’s extra-territorial US-person-based taxation (CBT) is a big big loser for America. And CBT helps even more to show that the taxing decision makers in Washington are truly a bunch of losers.
What no one has been able to explain to me in any informed way is this: if you live in Canada, or other countries for that matter, and have been compliant and decide to not comply further, what can the Irs actually do to enforce any penalties? If one has no US assets and never plans to return I am hard pressed to see how they can grab anything. Any thoughts? So far no lawyer or account can give a realistic answer.
Excellent point. In fact, the scenario you just described is exactly what I did. FATCA is not an enforcement tool but rather an information gathering tool. Even if the IRS has the information, they have no means of collecting from an expat who is gone for good and doesn’t have any US assets.
Business 101: the most important part of a business is the part that actually collects the money from the “customer”. Without that part functioning properly, every other part is a waste of time. The CBT “business” lacks that critical component and is therefore doomed to be a money loser.
@ Donald
what they can do is send you a letter in one of their brown envelopes.
what you can do is put that letter on the bottom of your bird cage (assuming you have a bird) otherwise you can shred it, put it in the fire place to light a fire or chop it up and put it in the mulch pile for your flower garden.
that is what I intend to do if I ever get one of their letters.
until a jack booted thug shows up at my door and drags me away in handcuffs I refuse to live in terror of a foreign government.
the great majority of my banking is done through a “local client based” credit union.
I have already lied to my financial advisors who have my 3 different rrsp in reguards to them wanting me to certify that I was not an American
nobody can give you an answer because they do not know just what the right answer is. lawyers and accountant by and large are part of the compliance industry and they want your business even if it means not the right thing for you.
it took me a long time to come to terms with never crossing the border again into amerika but I am now comfortable with that decision.
unfortuantly each one of us has different circumstances and levels of tolerance in dealing with the bully to the south. I fortunately have been able to say “screw it” and not look back. others my not have that ability
you have to make your own informed decision given your situation and then get on with your life.
sounds like maybe you should get a pet bird and not worry about amerika ever again.
Actually you do not need to apply for an Obamacare exemption if your income is so low that you do not need to file a tax return – that is one of the automatic exemptions as you can see at healthcare.gov.
What I meant is that an expat that does not have to file a tax return because his/her income is below the filing thresholds does NOT need to file a return just to claim the exemption – as I said those who don’t have to file are automatically exempt.
The US will never get much revenue. The rich are walking away from the US. The poor can’t afford the $2350 and don’t have any money anyways. The middle class mostly could scrape up the $2350 and would probably bail out if necessary before they’d become a ‘covered expatriate.’ Other scenarios would be ex-pats fighting the IRS tooth and nail through foreign courts. Are local governments also going to fund government lawyers to guide the IRS through its local tax collection system?
No matter which way you look at it, collecting money from ex-pats is expensive and time consuming. The first rule I was taught about taxes is they have to be easy to collect otherwise forget it.
@Don:
“The first rule I was taught about taxes is they have to be easy to collect otherwise forget it.”
Yes! That’s precisely why they have withholding for homelanders. Without withholding, they would even have a tough time collecting from people who actually live in the US. The most the IRS can do for expats is beg (coupled with a few toothless threats).
“The most the IRS can do for expats is beg (coupled with a few toothless threats).”
There are exceptions. I used to file US returns. The few times that the results showed tax owing, I overpaid and got refunds. The last time was when a retirement allowance was taxed at a preferential rate in Japan so the US got the difference between the US ordinary rate and the Japanese preferential rate. If I hadn’t told them, I doubt they ever would have known.
Though of course all of that was before the IRS taught me that it’s illegal to tell the truth on a US return. Now that courts have upheld the requirement to commit perjury, I doubt I’d do the same again, but I’ll never have a chance to find out.
But taxing Ex Pats TAX FREE pensions
Senator Sherrod Brown
Keeping the Promise of a Secure Retirement
Last week, I met with Rita Lewis of West Chester, in Butler County. Rita was in Washington to testify in front of the Senate Finance Committee in honor of her late husband, Butch. Butch worked as a trucker for 40 years with the promise that the pension he earned would be there to care for his family after he retired. But for Butch and Rita and thousands more Ohio retirees, that promise is under threat. A law Congress passed two years ago allows pension trustees to propose massive cuts to the earned benefits of retirees when a plan is running low on funds.
This is disgraceful. If a pension fund is in bad shape, it’s our job to fix it — not to break our promises to Ohioans who have worked their whole lives to earn that pension. I believed that two years ago when I voted against the law that allowed these proposed cuts, and I believe it now.
That’s why I have introduced two bills — the Miners Protection Act and the Keep Our Pension Promises Act — that would protect the benefits Ohio workers earned over a lifetime of work. And it’s why I am calling on the Treasury to immediately reject the proposed cuts to the Central States Teamsters pension.
Sen. Brown with Rita Lewis of West Chester, Ohio
Ohio retirees whose pensions are under threat are part of so-called multi-employer pensions, including retired coalminers and truckers. The United Mine Workers of America’s 1974 pension plan was almost completely funded before the financial collapse in 2008, but the plan is now in bad shape, putting the health care and benefits of retirees in jeopardy. The 1974 plan covers more than 100,000 mineworkers, including thousands of Ohioans. Another 47,000 Ohioans, who are Teamsters, are also part of the the Central States Pension Fund and facing a similar crisis.
Miners worked underground their entire lives to put food on the table, send their kids to college, and help power this country. Truckers crisscrossed the state and the country to pay the bills, support their families, and drive our economy forward. They deserve the full pension and health benefits they were promised, and that they worked a lifetime to earn.
Butch Lewis led the Southwest Retirees Pension Committee’s fight against cuts to their earned benefits. He passed away on New Year’s Eve due to a stroke, which doctors have attributed, at least in part, to the stress he faced over the proposed pension cuts. Rita’s widow benefits have already been cut and she faces an additional 40 percent reduction because of the proposed cuts put forth by Central States.
Butch said the cuts being forced on retirees amount to a war against the middle class and the American Dream — and he’s right. Ohio’s retired workers have earned their pensions and retirement savings over a lifetime of hard work — whether it’s behind a desk, on the factory floor, down in coalmines or behind the wheel.
We should honor Butch’s memory by continuing his work. That means coming together to support a bipartisan solution to protect Rita’s benefits and the pensions of tens of thousands of Ohio retirees.
“But is USA making any money (tax revenue) out of the effort?”
No.
But is USA making any money (penalty revenue) out of the effort?
Yes.
@Norman Diamond – What is the “requirement to commit perjury” that you’re describing?
CBT has never been about taxes or revenue. It has always been about punishment. It still is.
‘What is the “requirement to commit perjury” that you’re describing?’
If you know that an attachment to the return is false (e.g. Form W-2 from a US employer or similar from an employer in the rest of the world), or if you know that some of your computations are likely inaccurate because of contradictory instructions (e.g. three worksheets for one line of Form 1040 where instructions contradict each other) or other problems (e.g. Form 1116 has a limit on one line so that some computation won’t exceed 100% of the standard deduction, but when you have to do two Forms 1116 the total does exceed 100% of the standard deduction), or other problems (e.g. saying that we use US dollars in our daily lives such as income from employers and expenses for rent and food), or other problems (e.g. when we refer to previous years’ returns we often find mistakes that we didn’t notice at the time, and even though we didn’t notice mistakes this time we don’t really believe we’ve surpassed human frailties this time around) — i.e., when to the best of our knowledge and belief we know or believe there are inaccuracies — we are still required to declare under penalty of perjury that to the best of our knowledge and belief the lies are true.
A US Tax Court judge explained the reason to me. IRS employees are poorly trained. When I wrote honest declarations, IRS employees were confused. If facts are hard for me to understand then facts are hard for IRS employees to understand, which impedes administration of US taxes and is therefore penalizable.
The IRS wrote a settlement to reduce my penalties. The IRS coerced me to declare that to the best of my knowledge and belief a form from a Japanese employer was true and correct even though the Japanese government and Japanese court know the form was false. The IRS coerced me to commit perjury on other refilings too. The IRS needs returns to be processable, not accurate.
The IRS and courts never pointed me to IRB 2005-14. I found it by accident one time when searching for something else. IRB 2005-14 starts with a misleading preamble about reducing amounts of tax, which appears irrelevant since a zero can’t become any more zeroer, but then it proceeds to say that any alteration of the jurat is penalizable. It is illegal to tell the truth.
@Mettlemen….our friend @Don could buy a bird if he does not have a bird.
Then he would have a place for the letter.
Hmm, he would need a cage also. Maybe he could buy the cage sans/bird?
@George @mettleman
Get a document shredder and keep the birds in the forest.
It is true that the tax preparation industry is being artificially preserved and promoted. The very min someone said let’s not tax expats, there was a big check prepared to the K St lobbyists to go and pass some of it along to the members of the House Ways and means committee members with the message,””leave it alone” and they always comply, because not to do it the juice would dry up and several favored congressmen would loose in the very next election and democracy would start working for the people again instead of the government for the government, by the government..
We don’t matter to them.
I’m always left wondering what part of I-N-T-E-R-N-A-L R-E-V-E-N-U-E the treasury department doesn’t understand.
“I’m always left wondering what part of I-N-T-E-R-N-A-L R-E-V-E-N-U-E the treasury department doesn’t understand.”
It’s Congress that doesn’t understand I-N-T-E-R-N-A-L; the Treasury Department is just following orders on that matter.
However, the Treasury Department understands the word I-N-T-E-R-N-A-L well enough to close all the offices they used to have in embassis and consulates, and close the web site where they used to deliver useless pseudo-answers to questions from the diaspora.
In the 1990’s some of their publications said “IRS International”. I could guess what the R stood for, but needed help with the S. Someone said it’s Service, like the way a bull Services a cow.
The article seems to forget the whole host of taxes on unearned income? Regardless, if you were an American working for the same company as me on the same level, you get to pay 63 percent income tax on this years bonus compared to the 50 percent I pay.
Why?
Because to get the reduced rate you have to pay the bonus in to a company designated SICAV, or Belgian ended open investment trust. Right there in the primary conditions and as clear to read as can possibly be, NO US CITIZENS.
And, if he was again at the same level as me, he would be above the $100,800 overseas exemption.
$10,000 end of year bonus for us both.
$5000 net for me.
$3700 net for the American with FURTHER taxes on the $10,000 gross by the USA? And they wonder why renunciations are at record levels.
Many countries tax interest, dividends, and gains on sales of investments, at higher rates than the US does. So the US’s take on most unearned income is also zero (Form 1116).
One exception is gains on sales of non-investments. In the US you get a deduction each year for mortgage interest (accrued during the year or paid during the year, I don’t know which) but you get taxed if you have a profit selling the house. Of course 99% or more of the US’s diaspora don’t get any benefit from itemizing deductions. In most countries you pay mortgage interest yourself but you don’t have to pay tax on a profit when selling the house. So the US does get a chunk of that unearned income.
The article addresses what the taxing up law was supposed to raise, and excludes the scope of the reverse-tax loopholes that The Government finds to screw its citizens