Yes, we all know that the U.S. House Ways & Means Committee is focused on tax reforms for “businesses”, but the (Republican) Tax Reform Task Force does say:
— “In addition to these important reforms that will create a modern international tax system for businesses, the Committee on Ways and Means will consider the appropriate treatment of individuals living and working abroad in today’s globally integrated economy.”
Republicans Overseas (RO) has now released (see link) its “White Paper” summarizing key details of its proposal on “Territorial Taxation” for individuals.
Would the readers of this post who care about U.S. tax legislation be better off — or not — if the RO White paper were enacted?
You can send your point of view to the Members of the House W & M. RO says: “We welcome your comments and suggestions. Please email them to Mr. Keith Redmond at FATCA_Testimonials@outlook.com for our consideration and addition.”
From The Republicans Overseas FB site:
[Go to the RO FB page for details: https://www.facebook.com/republicansoverseas]
The gist of the White Paper is:
“Details of Territorial Taxation Proposal for Individuals:
What would be Taxed:
— Any wage, salary, pension, dividend, interest, commission, service or other income paid
by a bank, corporation or other entity organized within the U.S.
— Capital gains on sales of any assets, tangible or otherwise, located in the U.S. and
securities of corporations or other entities organized within the U.S. or listed or traded on
a securities exchange with the U.S.
— Any wage, salary, pension, commission, service or other similar income paid to an
individual resident in the U.S. by any corporation or other entity organized outside the
U.S.
— Any dividends paid to an individual resident in the U.S. by any corporation or other
entity organized outside the U.S. that is actively managed and/or controlled, individually
or jointly, by such individual to the extent such dividends are derived from earnings of a
business engaged within the U.S.
— Any dividends or interest of a passive nature (not from a company actively managed
and/or controlled, individually or jointly by the resident) paid to an individual resident in
the U.S. by any bank, corporation or other entity organized outside the U.S.1
— Any profit on any unincorporated (flow through) business engaged in within the U.S.
would be taxed in the same manner as for corporations, regardless of the residency or
citizenship of the owner(s).What would not be Taxed:
— Capital gains on sales of any assets, tangible or otherwise, not located in the U.S. and
securities of corporations or other entities organized not in the U.S. and not listed or
traded on a securities exchange within the U.S.
— Any wage, salary, pension, dividend, interest, commission, service or other income paid
by a bank, corporation or other entity organized outside the U.S. to a person not resident
in the U.S.
— Any dividends paid to an individual resident in the U.S. from a corporation or other entity
organized outside the U.S. that is actively managed and/or controlled, individually or
jointly, by such individual to the extent such dividends are not derived from earnings of a
business engaged within the U.S.
— Any profit on any unincorporated (flow through) business engaged in outside the U.S.
would be taxed in the same manner as for corporations, regardless of the residency or
citizenship of the owner(s)….”
Taxable – “– Any wage, salary, pension, commission, service or other similar income paid to an
individual resident in the U.S. by any corporation or other entity organized outside the
U.S.” – seems to be fine. If it is based on territorial, then only residents inside the US should be taxed.
“– Any wage, salary, pension, dividend, interest, commission, service or other income paid
by a bank, corporation or other entity organized outside the U.S. to a person not resident
in the U.S.” – this would enable expats to not have to pay taxes based on those earnings to the United States.
However for expats, it doesn’t stop having to file taxes and having to absorb the financial penalties (no matter how miniscule) of having to get someone to do our taxes to the tune of $2000/return for some of us. Residence Based Taxation is elimination of filing taxes to the nation that you are not resident in. And TBT still hits us financially.
@Animal I would think tbt would end filing based on how us social security is treated for filing
You can have social security above the filing limit but because its not taxable at that level no return is required.
But also remember the penalty for not filing an income tax return is based on tax owed. If you owe no tax and file no return there is no penalty.
Apologies as this probably has already been addressed before on Brock — but I have been trying to figure out whether a tax reform package that could contain territorial tax legislation for individuals could ever realistically pass the U.S. Senate before the 2018 mid-term elections.
I have been assuming that there is zero possibility of passage if a 60 – 40 majority vote is required given how the Democrats will certainly react to the Republican proposal and wondered whether a simple 51 majority would be enough.
Assuming that the below information, published in “The Hill” is accurate, (please correct if it is inaccurate), the answer seems to be that a 51 vote majority (which is technically feasible if all Reps vote for and all Dems vote against) is sufficient IF and only if the tax reform package will not result in any deficit:
“…Senate Republicans plan to pass tax reform with a simple majority vote under a special budgetary process known as reconciliation, which shields legislation from filibusters. But legislation is not eligible for protection under reconciliation if it increases deficits outside the 10-year budget window, as stated under the Senate’s Byrd Rule, named after the late Sen. Robert Byrd (D-W.Va.).
It’s essential that tax reform meets the budget rules, because few if any Democrats are likely to support it.
Ryan said that House Republicans’ plan would use dynamic scoring to assess the budgetary impact of tax reform, a process that takes into account greater economic activity spurred by lower tax rates.
While that scoring method will predict a smaller impact on the deficit than the traditional static scoring model — which does not take into account the stimulating effect of tax cuts — Ryan warned that it would not be enough to keep the legislation deficit-neutral.
“There could be $200 billion to $1 trillion in additional revenue from behavioral changes,” said one GOP source.
Dynamic scoring anticipates that tax cuts will encourage people to work more because they will get to keep more of their income. Under this model, the deficit impact of slashing tax rates would not be as severe as projected under a static model that assumes unchanging behavior.
House Ways and Means Committee Chairman Kevin Brady (R-Texas) is counting on revenue from the border tax to cover the rest of the cost of cutting income and corporate tax rates…” etc.
http://thehill.com/homenews/house/319588-ryan-tries-to-save-tax-plan
Technically tax treaty amendments don’t require revenue neutrality. So if a treaty amendment between Canada and the US that eliminated taxation of US Persons in Canada that would not be subject to budget scoring.
Stephen. The con don’s tax proposals are a giant bluff. They propose to simultaneously cut taxes on both corporations and on the wealthy, increase spending on infrastructure and the military, and decrease the deficit. Many Trump voters believe this can miraculously be done by cutting discretionary spending. However only 15% of federal spending is discretionary and non military. Everything would have to go-everything! Dynamic scoring indeed. Previously we had the Laffer
curve. Demonstrably BS.
As stated in the current New Yorker, he will solve his budget dilemma by pretending he has.
In other words, there is zero chance of a territorial tax system. As a wise man said “Sauve qui peut”
DoD, My comment was really meant only to ask for confirmation from the readers that what I read in the Hill about 51 vote majority and scoring is correct (because I do not know the answer) — not whether the tax reform package is likely to pass with scoring etc.
Tim, The scenario that I provided was one in which some territorial tax proposal for individuals (that some of us may want) is a part of the single major tax reform package. Are you saying that if this is the case no budget scoring is necessary?
@Stephen, yes Tim is correct. The IGAs can be abolished by POTUS and that is a non-revenue decision. FBAR rules can be amended by Sec Treasury and that is non-revenue. And…as Tim rightly pointed…the savings clause could be removed from the model treaty and presto we have CBT by the back door.
@DoD, the President of the USA for the next four years is Donald Trump. Are you saying that Hillary would have helped expats? To be blunt this is a last ditch effort for expats we thrive or die on this hill. We have no other chances, none.
George,
Tim just clarified (on another thread, see below) his comment above that, in the specific scenario I mentioned in which territorial tax legislation for individuals is part of the proposed new U.S. tax reform package (“new tax legislation”), the entire package will, as I suspected, be scored.
I am guessing, but obviously do not know for sure, that the tax reform legislation for individuals will not be treated separately. If this is the case, then, according to Speaker Ryan above, there will be scoring on the entire tax reform package. The practical consequence of this is that help for us (those who care) is tied to the ability of “someone” to come up with budget impact numbers predicting that the entire Trump/Congress tax legislation will not increase the deficit —- a challenge…
— Completely agree with you that with Donald Trump as President we have a chance and with a Dem as President we would have had none.
“Tim says
February 17, 2017 at 3:07 pm
I wanted to clarify some earlier comments of mine. Any new tax legislation will have a budget impact score in it’s entirety however, tax treaties passed by the Senate do not go through this process.”
There is one answer to all of these difficulties. Just as the Senate employed the ‘nuclear option’ to eliminate the 60 vote requirement for confirmation of Judge Gorsuch, the Senate may, with a simple majority, vote to eliminate this requirement for the passage of certain legislation, like tax reform.
When one proposes this, all of those committed to the foibles and twistedness of the current system come out of the woodwork says, “Oh, no, we must never do that. Getting a law passed through the Senate is supposed to be hard, because the Senate stands as the last bastion of protection of the minority party against the vicissitudes of ‘wild and crazy’ legislation coming from the House.
I find that to be a complete load of crap that has enabled the Senate to be singularly unproductive in past years. The president stands as a last bastion of protection of the people against nutcase laws coming from the Congress. If the US would enact the facultative popular referendum, then the voters would act as the last bastion of protection against the vicissitudes of Washington. Other countries have this, and it works well.
As things stand now, the only way that something gets passed through Congress is if it is of a ‘motherhood and apple pie’ nature, like the HIRE act. But, Congress have this hypocritical habit of tacking on trojan horses to such motherhood-and-apple-pie measures in the hope they’ll slip by without much of a partisan wrangle, even though these trojans can have long-term, devastating effects on US economic outlook. FATCA was one of these trojans.
Getting tax reform through as a trojan hung on the back of some bill to, oh, I don’t know, tax Internet porn, is simply not realistic. Therefore a rule change seems to be the only way to get things done.
The US (and the world) continually get victimized by their top-heavy, special-interest-ridden, overly complicated form of government. It’s really time for that to change.
@CEB
The Swiss a confederation of States have a direct democracy that for most part works by frequent referendums initiated by a petition of at least 50,000 citizens.
100,000 citizens may demand a change to the Constitution by petition and the Federal parliament must discuss it. They can accept or reject or propose an alternative but all citizens will finally decide by vote.
Simples ..
It works a whole lot better that the US government.!
Tax reform ,like health care reform , is D.O. A.
The con Don cares only about his and his families wealth. He doesn’t care about anything else. Since he will never release his returns, congress won’t believe that any proposal isn’t designed to enrich the Don.
There is a small chance of corporate reductions and some return of overseas profits. Other than that, the condors have too much to lose.
@DOD
One wonders why he applied for this job when he had all the wealth and power he needed. Clueless, yes but did he really have honorable intentions to make a difference, or was it the ultimate power grab?
I’m only learning about how things run or don’t run down there, but the committee that Keith Redmond and others are testifying before on the 26th apparently has a lot of clout.
“The Committee’s government-wide oversight jurisdiction and expanded legislative authority make it one of the most influential and powerful committees in the House. The Committee serves as Congress’ chief investigative and oversight committee, and is granted broad jurisdiction.”
https://en.m.wikipedia.org/wiki/United_States_House_Committee_on_Oversight_and_Government_Reform
@heidi.
Guys like Trump never have enough wealth and power, at least in their own mind. Trump is a bit unusual compared to most of that ilk because he also relishes being the center of attention. (Most of them would rather be hidden in the shadows while they accumulate their power and wealth.)
I don’t think he ever really expected to win but he did see an opportunity to continuously be in the limelight as evidenced by his non-stop utterances which appealed to his base but were so appallingly stupid that the media got worked up into a frenzy. It worked; he was, and still is, all about the ratings.
After his accidental win, I think he is now discovering that the President has far less power and the politics are far more complicated than he believed back when he was a candidate. That’s why I’m not very optimistic about the prospects for fixing FATCA and CBT. Its far more likely that we’ll see 4 years of total paralysis (if he even lasts that long). That’s the other thing about the man; he has such a short attention span that I expect that he will soon lose interest, tire of all the politics, and prefer to go back to his private life where people actually jump and do his bidding instead of constant wrangling. I hope, for our sake, I’m wrong.
@Maz57
I think that sounds a pretty sound assessment.
‘”Getting a law passed through the Senate is supposed to be hard, because the Senate stands as the last bastion of protection of the minority party against the vicissitudes of ‘wild and crazy’ legislation coming from the House. “‘
The authors of the US constitution intended it that way.
‘The president stands as a last bastion of protection of the people against nutcase laws coming from the Congress.’
OK sure, the authors of the US constitution intended that too.
‘If the US would enact the facultative popular referendum, then the voters would act as the last bastion of protection against the vicissitudes of Washington.’
I wonder why the authors of the US constitution didn’t intend that. Nonetheless, Congress could have done it by legislation, if Congress had felt that voters in US elections should have the kind of power that voters in individual state elections have. I wonder what Congress is afraid of. A decrease in campaign contributions from lobbyists maybe?
But you’re forgetting what’s really the last bastion. Courts can overturn decisions from the House, from the Senate, from the President, from the Voters in state referenda, and even from the Courts.
And they’re not the last bastion either. Congress can overturn the Courts, the President can ignore the Courts, sometimes the Voters can ignore the Courts, and the Courts can ignore the Courts …
and …
The IRS can ignore all of them.
==
P.S.
‘Getting tax reform through as a trojan hung on the back of some bill to, oh, I don’t know, tax Internet porn’
Hey. I’ll have you know, I paid 8% Japanese GST on every yen my internet provider charged for downloading photos of Melania Trump.
P.P.S.
They’re not called Trojans here.