As we’ve discussed previously, U.S. persons who live in countries which do not have totalization agreements with the U.S. face double Social Security taxation if they are self-employed or work for branches (rather than subsidiaries) of U.S. companies. This is because the 26 USC § 901 foreign tax credit applies only to income taxes under Subtitle A, Chapter 1 of the “Internal” Revenue Code, not to SECA or FICA taxes which are imposed by other chapters. Ain’t citizenship-based taxation fun?
On 30 June 2015, the White House announced that Brazil and the United States had signed a Social Security totalization agreement, which in theory would finally end this piece of the double taxation problem that plagued Roger Conklin, markpinetree, and other Isaac Brock Society readers with connections to Brazil:
The United States and Brazil seek to ease the burden on companies in order to facilitate job creation and growth, while enhancing the protection of our workers. To support this effort, the United States and Brazil have signed a Social Security Totalization agreement. This agreement will eliminate dual Social Security contributions, which occur when a worker from one country works in another country. It will also close the gaps in benefit protections for workers who divide their careers between the United States and Brazil. With trade and investment rapidly growing between our two countries, the United States estimates that this agreement will save U.S. and Brazilian companies more than $900 million over the first six years.
Later in the same press release, the White House also “welcome[d] the entry into force of the agreement between the United States and Brazil to implement the Foreign Account Tax Compliance Act”, which suggests that their commitment to “eas[ing] the burden on companies” and “enhancing the protection of our workers” is not very deep, but anyway …
I’d forgotten about this agreement, until a recent retweet by USCitizenAbroad prompted me to look it up, and the Social Security Administration says it is not yet in effect. The Brazilian side appears to be moving to ratify it (even though the President who signed it has been removed from office): the executive branch submitted it to the National Congress in July, and it is now under consideration by various committees in the Chamber of Deputies.
On the U.S. side, the administration must submit the agreement to Congress to start the clock running on Congress’ time limit for voting it down — if Congress don’t do so by the deadline, they’re deemed to have approved it. However, Obama shows no sign of actually submitting the agreement, which has already been left hanging for longer than any other new U.S. totalization agreement. Given what a political hot potato the 2004 agreement with Mexico turned out to be for Bush, the Democrats probably don’t want to bring this one up before the election. So it will be left hanging in Washington until after the next president takes office — assuming that whoever gets elected actually wants to honour the agreement.
The U.S. government can’t even be bothered to tell the public what the agreement says — for that you’ll have to turn to the Brazilian government, which posted the full text on the same day as they signed it.
How much longer is the U.S. government going to make U.S. Persons in Brazil wait?
I’m not certain how Brazilian law treats this agreement, but on the U.S. side, a Social Security totalization agreement is an executive agreement rather than a treaty. Much unlike legally-dubious FATCA IGAs, however, Congress at least enacted specific statutory authority for the president to enter into these agreements: 42 USC § 433 (created by Section 317 of the Social Security Amendments of 1977; 91 Stat. 1509, 1539). That requires the president to send the text of each agreement to Congress, and under § 433(e)(2) either house can prevent it from coming into effect by passing a resolution of disapproval within 60 days.
Congress has never actually passed a resolution of disapproval under § 433(e)(2). There’s been one case where they likely would have done so. Twelve years ago, the U.S. signed a Social Security totalization agreement with another large country to its south: Mexico. However, immigration-restrictionist groups and old-folks’ lobbies started mobilising against the agreement as soon as they heard about it, and Bush was so afraid of the political backlash that he let the agreement die a quiet death rather than formally sending it to Congress to be voted down.
The U.S. has only previously signed one totalization agreement with a country in South America: the Clinton-era agreement with Chile. That one faced no objections from Congress. On the contrary, Republicans expressed ideological admiration for Chile’s privatised social security system. Furthermore, Chile does not send so many immigrants to the U.S.; according to DHS’ Yearbook of Immigration Statistics, U.S. immigration from Chile peaked in 1990 with 4,049 people, and declined to barely more than a third of that level by the time the totalization agreement was signed. So that agreement did not turn into a political firestorm like Bush’s Mexican one.
A year of waiting, at best
Back in August 2015, Towers Watson claimed that the process to bring the new Brazil agreement into effect was “unlikely to be unduly delayed”. That prediction seems to have been rather optimistic. In February 2015, a few months before the Brazil agreement, the U.S. signed another totalization agreement with Hungary. The Obama administration submitted that agreement to Congress twelve months later, and according to the Social Security Administration it finally came into effect this month. That was already slower than average, as the below table shows:
|Signature||Transmittal to Congress||Entered into
|H.Doc. 107-234PM 100||2003-May-01
To summarise, except for the Mexico agreement, in the past twenty years presidents have only thrice taken more than a year to submit an agreement to Congress after signing it. They have never taken more than a year for a new agreement, which is naturally more urgent than a protocol or supplement amending an existing agreement. But 437 days (nearly 15 months) after the signing of the Brazil agreement, Obama has not submitted it to Congress. And even if he ever does, it’ll be another seven or eight months before it comes into effect.
(You will also note that the above table contains 18 entries — i.e. the U.S. government has signed an average of less than one totalization agreement per year since the 1990s, including updates to existing agreements. There are nearly 200 countries on the planet, and some of them are split into more than one tax jurisdiction. At this rate, the American diaspora will not be free of double Social Security taxation until the 23rd century, at which point Congress can finally turn its attention to the thorny problem of all the U.S. tax subjects who moved to Mars in the meantime. We have a bright future ahead of us!)
And definitely not in an election year
Now, the U.S. is two months away from another election. Even if Homeland politicians wanted to take into account the interests of American emigrants on U.S. Social Security, they plain old can’t: they — and the voters who elect them — are far more concerned with retirees and inbound migrant workers than the diaspora, especially in this election cycle.
The Mexico agreement made a lasting impression on Republicans. They sponsored more than half a dozen attempts to broaden the Congressional role in approving totalization agreements — H.R. 2339 in 2005, H.R. 279 and S. 43 in 2007, H.R. 132 and S. 42 in 2009, S. 181 in 2011, S. 767 in 2013 — though none of those went anywhere. They were more successful at using their control over the purse strings to express disapproval: nearly every year they insert a provision into an appropriations bill prohibiting the Social Security Administration from using any funds to implement the totalization agreement with Mexico:
None of the funds appropriated by this Act may be used by the Commissioner of Social Security or the Social Security Administration to pay the compensation of employees of the Social Security Administration to administer Social Security benefit payments, under any agreement between the United States and Mexico establishing totalization arrangements between the social security system established by title II of the Social Security Act and the social security system of Mexico, which would not otherwise be payable but for such agreement.
This language was first contained in amendments to the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2008 (H.R. 3043). Phil Gingrey (R-GA-11) put it in H.Amdt. 571 in July 2007, and it passed 254–168 with the support of nearly all Republicans and about a quarter of Democrats. The Senate also considered an identical amendment in by John Ensign (R-NV) in October (S.Amdt. 3442), which passed with even stronger bipartisan support: 91–3. The three opposers were all Republicans, though not very famous ones, but even if you don’t follow U.S. politics you’ll probably recognise the names of most of the non-voters: Biden, McCain, Clinton, Kennedy (i.e. Travel Control Teddy), and Obama.
A full table of where this language appears in appropriations bills:
|114-113||2029||Consolidated Appropriations Act, 2016||519|
|113-235||83||Consolidated and Further Continuing Appropriations Act, 2015||519|
|113-76||3547||Consolidated Appropriations Act, 2014||520|
|Not proposed in any appropriations bill for FY 2013|
|112-74||2055||Consolidated Appropriations Act, 2012||521|
|111-322||3082||Continuing Appropriations and Surface Transportation Extensions Act, 2011
(Was in S.Amdt. 4085 but not the final bill)
|111-117||3288||Consolidated Appropriations Act, 2010||522|
|Not proposed in any appropriations bill for FY 2009|
|110-161||2764||Consolidated Appropriations Act, 2008||526|
Both the House and Senate versions of the not-yet-passed of the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2017 (S. 3040 and H.R. 5296) include this same language too, in Section 519.
The only thing that’s certain about the U.S.’ system of extraterritorial taxation is the waiting and the wasted time. Want to fill out the forms so you can be “compliant” and prove you owe no tax? It could take you hundreds of hours. Want to book an appointment to give up your citizenship? If you didn’t get one by April you could be left waiting till next year. Want to know how many people gave up citizenship last quarter? Don’t expect that information to be published by the legal deadline. Want to know when the Brazil–U.S. totalization agreement will come into effect? Hurry up and wait, and have fun making major financial decisions in the meantime.