GAO begins doublespeak already in the title “Economic Benefits of Income Exclusion for U.S. Citizens Working Abroad Are Uncertain ” The entire report –investigating removal of the FEIE “tax expenditure” reads like the script of 1980’s shortwave Radio Moscow—full of “some experts say” and “it can’t be shown” doublespeak. Already on the 1st page “GAO made no recommendations in this report.” . GAO doublespeak already says that “uncertain” in its title means it has “No recommendations.” The table of contents itself is full of doublespeak conclusions.
In order to fully understand what the 74 page General Accounting Office (GAO) report is saying, one really needs to have fluency in doublespeak—-to grasp the real meaning. For those who can read doublespeak, this report might best be read alone in that quiet place after having your morning coffee. Otherwise, I will attempt to provide a translation.
May 20, 2014, The Honorable Jim McDermott, The Honorable Michael Honda. The Honorable Carolyn Maloney, House of Representatives
Apparently the report was commissioned by the well-meaning, yet passively-aggressively naive Abroad Caucus, in response to repeated visits by ACA/AARO.
The immediate cause of the caucus naive error is in commissioning the study to G.A.O. –the General Accounting Office. This band of merry men has a self-interest in making as much form filing work as possible, even though its extra-territorial taxation method might never create any tax revenues.
GAO then went on to interview the normal lackeys “government officials, experts, and stakeholders, including groups representing citizens working abroad and employers”. The list (described in Appendix 1) is stacked with “experts” in creating complicated compliance law in their own interest. The last on the list is American Citizens Abroad who has been profiling itself as “THE Voice of Americans Overseas” . AARO with a similar approach. As we know, there are still no other expat organizations than these two 40-yr-old organization
As the biases are built into the report by its authors and experts, it understandably comes up with a list of options in Appendix 1, Table 7, which range from worse to bad:
-Repeal the FEIE & tax all foreign earned income.
-Reduce the maximum exclusion
-Increase the maximum exclusion
-indexed for the cost of living.
– convert the exclusion to a credit
-targeted to employees of selected industries. —(oil & gas, construction, engineering, UN work)
-Uncap the exclusion and exclude all foreign earned income from taxation (but not enact RBT).
-Impose an exit fee on U.S. citizens and U.S. resident aliens living in a foreign country & exclude all foreign income for eligible individuals living overseas (ACA proposal).
Note that well-meaning-but-submissive RBT-ish ACA proposal created some GAO interest–mostly the GAO was excited about an expat proposal for an exit tax upon its own (read closely–GAO empasis is on exit tax)
The title page already clearly states Treasury’s (GAO’s) incoming CBT given-assumption : “Because section 911 reduces income tax liability through special tax provisions, both the Department of the Treasury (Treasury) and the Joint Committee on Taxation (JCT) identify section 911 (FEIE) as a TAX EXPENDITURE. The costs and benefits of this tax expenditure have been the subject of policy and economic discussion. Some have defended the tax expenditure on the grounds that it enables U.S. workers overseas to better compete for jobs with non-U.S. foreign nationals (who typically pay no taxes on overseas earned income) and that it thereby encourages the overseas employment of Americans, who play an important role in promoting exports. However, others have highlighted that some of these claims lack evidence, or are based on outdated assumptions, given changes in the global economy over the past several decades. From a tax policy perspective, some have debated whether or not the tax expenditure provides economic and other benefits to the United States when compared to its costs.”
If the writer (GAO) already comes in with that given-assumption (that FEIE is an expenditure), it would be quite pointless commissioning that writer to produce a 78-page document which questions GAO’s own fast-held principle. Basically, it commissioned a confirmation of GAO’s previous beliefs.
I have translated some of the GAO doublespeak (in italics)
On the title page: “While about half of those GAO interviewed said that employers make overseas hiring decisions based first on the candidates’ qualifications, or that the cost of prospective employees was not a primary consideration, about half also told us the added tax costs of employing U.S. citizens could influence some employment decisions.” (We present this information at the end of a sentence to discount its importance, and early in the document so as to be able to discount its importance and validity with the rest of the document)
…”However, uncapping the exclusion could compound the challenge that IRS has in administering the tax expenditure, given the
misconception that those with excluded income do not have to file and report income to IRS. (GAO doesn’t want people to just experience RBT, it demands the right to continue demanding their tax-form slavery)
…”uncapping the exclusion could create incentives for higher-income professionals to move abroad to deliver their services” (the rats are leaving the ship!) “and to shift some investment income to be paid as earned income.”(gibberish)
…..”It would also reduce federal tax revenue (we need your money), and any perceived unfairness could erode voluntary compliance for domestic taxpayers (Homelanders are jealous over those who’ve left the plantation).
“In terms of good tax policy, there is room for debate regarding how potential revisions to the current tax expenditure may affect choices about where to work and who to hire. (Don’t forget that it is the U.S. government who shall decide where you should live). The current tax expenditure (just slipping it in that FEIE costs us money) may have positive and negative effects on both the efficient allocation of labor resources and on equity. The magnitude of these effects is unknown, making it unclear whether the tax expenditure provides any net economic benefits. (our “experts can’t prove that their FEIE gift is beneficial). These uncertainties also make it difficult to draw definite conclusions about certain policy alternatives. Repealing the tax expenditure (eliminating FEIE) would reduce the tax inducement for U.S. citizens to relocate to lower tax countries (leaving the plantation), but would also make U.S. citizens more costly for any employer to hire than citizens of most other countries, which do not tax foreign earned income. Removing the maximum limit ($99,200 for 2014) for the exclusion would eliminate the tax cost differential with other countries, but would allow high-income individuals to avoid U.S. taxes on foreign earned income (the entire expat policy is driven by the progressive chase after the 1%’ers). Targeted tax relief may be justified for extreme cost of living areas, and the design of any alternative would affect the complexity for taxpayers and the Internal Revenue Service (IRS), as well as the federal tax cost.” (we could try to recognize that some low-tax countries are also high-cost of living, but that would be too much work for us)
Regarding the GAO desire to unfairly tax citizens abroad, which begins on p 67: Is the Tax Expenditure Fair and Equitable?
……….. “In order to apply any of these equity principles, it is necessary to identify individuals who benefit from the exclusion. This identification is complicated by the fact that the individual or business that is legally obligated to pay a tax—or that receives a tax benefit—is not always the one (or, at least, not the only one) that bears the ultimate burden of the tax or receives the ultimate benefit. The ultimate burden or benefit is known as the incidence of the tax policy, and it depends on how various individuals and businesses respond to the policy. For example, in the case of the tax expenditure, even though individual employees claim the exclusion on their own tax returns, the resulting reduction in their total taxes may make them willing to work abroad for a lower pretax income than they would have accepted without the tax expenditure. As a result, the foreign employers may share in at least some of the benefit by being able to pay lower salaries than would otherwise have been needed to hire U.S. citizens.” (This isn’t really hurting you, this is hurting your corporation)
….”In terms of the benefits principle, some of the experts we interviewed noted that U.S. citizens working abroad for the long term receive significantly smaller benefits from U.S. government services than those living in the United States, and that this difference may justify some tax relief for the former. Other experts noted that a large portion of federal revenues pay for services—such as national defense, foreign affairs, income maintenance, and basic research—that produce social or humanitarian benefits that are not directly apportioned to specific individuals. U.S. citizens living abroad likely benefit from some of these services. Many of those citizens also benefitted from years of public investment, for example, in their education, the cost of which is typically recaptured from citizens over their lifetimes. (your American education makes you an indentured servant.) Moreover, some observers note that the choice to retain U.S. citizenship while living abroad provides some insurance with respect to being able to return and live within the United States whenever one wants. They maintain that citizens abroad should be willing to pay some tax for this insurance.” (“Some of the experts” say that homeland research and the wars in Syria Ukraine, Somalia, Yemen, and Libya are for your benefit)
….”Citizens living abroad benefit from services provided by their hostcountries’ governments to which they pay taxes. Given that credits for
foreign income taxes paid reduce the amount of tax that these citizens pay to the U.S federal government, any attempt to quantify discrepancies between federal benefits received and federal taxes paid should account for the foreign tax credit.” (You got the foreign tax credit crumb, now go eat it and be happy)
Appendix 3 analyzes 3 different tax situations — implying that each situation represents 33% of the situation. But, the 0% tax example only represents 2.2% of the expat population. And the 10% example represents less than 2.2% of the expat situation. (we “analyze” by looking at 4% of the population and make it look like it is 2/3rds of the population)
We could go on and on.
What to learn from all this? Recognize that GAO and other lackeys will always respond in its interest and against ours (we already know that) Recognize that the GAO stacks the cards against us. Recognize that other small groups have tried but with little success. More resistance, stronger resistance organization, litigation, flight, and voices louder than the big machine are needed.
I ran across this work of fiction while searching for something else. Hope that it hadn’t been posted by someone else when it was first fabricated. Or not. Sometimes you read a fiction one year, forget it, and need to read it over again later.
@Polly – “YEAH LOLOLOL! It ended with a kind of “I`ll call you dont call me” thing. I didn’t really want somebody like that in my life. I felt misused as his wailing wall. Imagine you just meet somebody and he unloads on you like that?”
Ha ha, yes, it sounds like he didn’t lose any time getting down to what he was most interested in – himself! 🙂
There is a lot of truth in what you say, much of it dies apply to myself and much does not. Yes, I could become a Japanese national but never Japanese. Regardless of my fluency in the language or assimilation I am forever an “outside person” or gaijin. While there is discrimination and ill treatment of foreign employees, you’d be hard pressed to find how they treat their own any better. Being worked to death was something it thought only existed in my sea chanties with in the so called developed world. Sadly it is not. It happens here to this day and the Japanese are most often the victim.
The composition my boss sent last Fryday I think it was is for no pay. However, I do get more simulated patient sessions than my coworkers and have thus far been protected from my highly accredited colleague who convents my elective classes. He has a masters and I just a bachelors degree. My actual students do payment handsomely too, but the work can come at odd times with very short deadlines. These also greatly increase my knowlegge and experience and often lead to bigger things or at least more work.
Yes, I do have too many masters, but less than before. Ironically, this is its own protection in a way. I have spent more time with my two and a half year old than most men I know here who are kaishain-company men have ever spent with their now grown children.
You know, I used to think it a mistranslation when my students referred to joining their company as “entering” it. Not a mistranslation. One enters a Japanese company as one enters the service. The company owns you lock, stock and barrel. Joint ventures are cemented with marriages of a young man from one of the companies to the daughter of one of the managers of the other. While not as common as it once was, I was shocked to learn that the practice continues. These arranged marriages were still very common between young male employees at the ministry of finance and daughters of bankers as recent as ten years ago. A different world. One I am much more comfortable being an outsider from. But there is nothing I will not do to protect my family. But misteps in our issues hurt them more than me.
I am not afraid to say no, but I also have a shipboard engineer’s mentality of it must be fixed or go down with the ship. I am loath to quit something Once I start it. However, as I type this, I realize that I once was very much like your “go to guy”. That was me through college. Not now by any means. “I owe, I owe so off to work I go” is the main motivator and the grueling hours in the engine room learnt me what I am capable of in terms of very long hours of intense labor.
After coming ashore, I always thought these rough patches to be temporary. In one way they are, my schedule used to be far worse. But I am not as young as I was. The long hours are taking their toll on all levels. I really thought I would be sailing in smoother waters by now. I should be.
You speak German? Is that the nationality you took?
“himself” – yes- that is a very astute way of seeing and calling it.
Under these circumstances, it seems impossible for you to be the head of the family. Your wife has to be. If you want to be the breadwinner and the leader- you might have to move back to America?
I speak german and french. I have lived in Europe since I was 10, so I am very much a member of society in Europe. I could live in London or Vienna or Paris and feel pretty much a part of it all in western Europe. If I learned swedish or italian or spanish I could imagine living there too. Going further east it starts to get to be a problem with the differences in mentality for me. I would have a hard time with a sense of “we”.
Yeah, that sense of “we” is not something that suits my taste.
Oh, I am not the bread winner, not by any stretch. That’s why I would have to quit my jobs to look after my child if he his kicked out of school. My unemployment would not hurt the family, I just would not be able to contribute to them nor pay my bills. My debts are mainly from before marriage.
Can not move the family back to the States. That would mean trying to get a spouse visa for my wife. Three friends of mine have tried that. Costs are comparable to FBAR fines and with one friend after two years of dealing with moving goal posts, his wife died of dysentery in the Phillipines. Her family had the bright idea of keeping his daughter in hopes that he would send them child support. US and PI courts disagreed and when the PI military went to get the girl, this was during a period of civil unrest, a coup I think and there were no police, the family fought and people died. He got his daughter but for associated reasons, ruined his navy career in addition to losing his wife. My other two friends, one a former Marine whose wife is Japanese the other employed with the EPA with a wife from a Central American nation I can not recall, spent tens of thousands of dollars over many years before their wives were allowed a spouse visa.
Believe it or not, bigger issues than CBT, FATCA and FBAR do exist for cross border families.
Besides, it would be very hard for us to find a location where we both could work. And I’d still be on the hook for FBARS and over tens years of unfiled tax returns. Not a viable option.
Yeah well- I guess I have exhausted my repertoire. It`s your call now.
Good luck to you on whatever you decide!
Back in the 1970s, the withdrawal of the FEIE caused a great deal of trouble. Otherwise unemployable petroleum engineers working in various middle eastern countries complained vehemently. It also caused a lot of trouble for missionaries in Africa, so evangelical churches were unhappy. Nowadays the removal of the FEIE would create a massive backlash among the very low paid, who only cope with CBT because the FEIE makes it possible for them to do their own taxes. If U.S. citizenship is going to cost them $300 to an accountant or $2,350, some people are going to be really and truly stuck and it won’t be the 1%ers.
If you could get enough paperwork together for Streamlined, is that what you would want to do?
I used to calculate everything out using the spot rate (even though it turned out I didn’t have to, d’oh!). The fed has all of the dollar/yen exchange rates in one place: https://www.federalreserve.gov/releases/h10/hist/dat00_ja.htm . The relevant exchange rates can be copied from the website and pasted into a spreadsheet (using the option paste special unicode text). You will need some sense of when you got paid, but maybe you can figure this out for the past few years. All you really need to show is that you don’t owe them money to get them off your back.
FBARs are a comparative doddle.
So “spot rate” is what they call that. I like the idea of just showing them that I do not owe and they’ll leave me alone, but then there is their threat of massive fines. However, it is something that I can start working on, which helps.
I really haven’t looked into streamlined. I studied OVDI and OVDP a seeing how untrustworthy they have been with these it didn’t seem realistic that they would be honest brokers when they open up Streamlined. But will look into this. Thanks.
My issue with FBAR is that it is not my assets I have report. I have never had enough to trigger the reporting requirement. It was the joint account with my name and my wife’s earnings that triggered this requirement.
Out of curiosity, how did you end up with a joint account? I didn’t think such things existed in Japan.
It was called a “family account”. It was under my name and each of us had an ATM card under our own names that drew from the same account. I do not know how common they are nor if you can still get one. We each deposited into it, she the lion’s share, and had all our household bills paid from it via automatic withdrawal. She had some, but not all, of her assets attached to it in one way or another.
Many, many people who have spent far longer in Japan than I ask the same question. But then again, I didn’t discover it, my wife did. I thought it was usual but I am one of only two foreign men I know who have a joint account with their wives. Guess I’m special.
Googling around, I see a couple of different banks offering such accounts. As you say, legally they are just single-person accounts, but with extra ATM cards for partners. Maybe this is a new(ish) thing, or something that has always been around but only if one knew to ask for it? They certainly don’t seem to be very well advertized, anyway.
In addition to FBAR/FATCA issues, I would worry about Japanese gift tax issues with such an arrangement.
Anyway, learned something new! Thanks.
No they do not advertise it. I have no idea how my wife knew of it. She knows a hell of a lot that know one else does, btw.
Nope, can’t be concerned about gift tax. It could be a mosquito buzzing in my ear or a seagull trying to pluck my eyes out. If I let go the pump handle, I sink.
Anyway, we closed it as soon as we could after I learned about FBAR. Took three months to do so. Probably has been reported via FATCA.
Oh, I should say that we opened our family account either twelve years ago.
There is so much out that there, rules, laws, requirements, offers, services whatever that even the most experienced and knowledgable can not know but a fraction. Especially when there is no reason to suspect the existence of them and many reasons to think such things do not exist. Few people have the time to look for things they have no reason to know exist.
12 years ago would have fallen under what I was thinking of as “new(ish),” when I wrote that. But actually, I see my local bank does not have such accounts, so that would not have been an option for my wife and me back when we were first setting up the family finances anyway, even if they did exist somewhere then. Perhaps a lucky thing, in retrospect, having been completely ignorant of FBAR at the time. (Of course, FATCA did not exist yet.)
I really wish we did not know of it either. It really mucks things up when you are required to spy on your spouse for your own gov.
Just a thought here, and feel free to ignore it, but might it be more productive to focus on finding a single, full-time job to replace the scrambled mess of part-time gigs? With your experience, I imagine you could get hired by a company that specializes in scientific editing, for example. Or by a big company for in-house training. The pay may not be great, but the stability would have to be a huge improvement. At least then you would have some time freed up to work on other issues like taxes and citizenship, without having to worry about your kid losing his daycare slot.
My experience with a full time here was lots of unpaid overtime even less control of my schedule and thus less time and economic freedom.
In my current situation, if I get an additional class or lesson I am at least paid for it. However, I am currently looking at full time positions in the hopes of finding one that does take full time to mean 24/7.
I am also looking into other alternatives along the lines of repairing things that one might describe as toys of the rich. Amazing how few people there are filling such needs and how much people pay for their work.
Looking into all sorts of alternatives.
Well, too many alternatives can be a bit daunting because they will always be on your mind. I have looked at the Streamlined Procedures page and it does say that if you follow the rules listed then accuracy-related penalties will not apply, so if you do your best that should be enough. Obviously I would save that page in several different ways and keep it in a safe places! Streamlined only involves back-filing three years of submissions. You would need to do this year and three back (but at least it is not ten, which would do anyone in). Then there are the FBARs, but that is not a particularly difficult form. My sense with the earlier programs is that the U.S. government was completely swept up in its own fantasy world at the beginning and is learning that its expats aren’t all the Richie Riches they thought we were, but the government is very slow on the uptake. Judging from the confused comments under compliance condors postings on Facebook, I would guess that the U.S. is greatly overestimating how aware citizens abroad are (many are still saying What? or, even more worryingly, Que?). Older English language teachers in several countries have complained that they earn enough to file U.S. taxes but not enough to afford tax preparers.
An article at accountingToday, “Owe Back Taxes? Lose Your Passport” links FBAR fines with passport revocation.