This post is cross posted from Renounceuscitizenship.
See also: Roger Conklin writes about why he left Brazil in 1977 ; The US trade deficit: Was it caused by greedy companies or greedy government?
We are living in interesting times. During all the years of my tax consciousness I have lived with the assumption of U.S. citizenship-based taxation. When the IRS began its “reign of terror” on U.S. citizens living outside the United States and many people learned about their tax filing obligations, the discussion about citizenship-based taxation began. The U.S. is the only Western democracy and of one two countries (Eritrea being the other) which taxes on the basis of citizenship. The rest of the world taxes on the basis of residence or what is commonly referred to as “territorial taxation”. In a global world where:
See also:
Stop Citizenship-Based Taxation – Repeal FATCA
Citizenship-based taxation, the U.S. trade deficit and the destruction of U.S. capital
– professional mobility is the norm;
– citizenship be nothing more than an “accident of birth”
– there is a consciousness of human rights and the right to remain or renounce citizenship is protected
– standards of common sense and decency are desirable objectives
Citizenship-based taxation is not a good idea! It costs the U.S. economy lots of money!
Leaving aside arguments that are based on a constitutional right to expatriate and the argument surrounding “dominant citizenship” (these are very important arguments) let’s analyze this from the perspective of the character in Jerry McGuire. In other words:
“Show me the money!”
For those who don’t like sports, but do like Bill Clinton then let’s work with the principle:
“It’s the economy stupid!”
It is not in the economic interests of the United States to impose “citizenship-based taxation”. I presume that you are reading this because you are a U.S. citizen living outside the United States. Even if you don’t owe any U.S. tax (the earned income exclusion, foreign tax credits and your general poverty have worked their magic), after 2011, you understand that you still have both U.S. tax and reporting obligations that are complicated and expensive. It will be increasingly difficult to find a “professional” to assist you. On the most basic level the time, cost and anxiety associated with this are a “tax on U.S. citizenship” itself. This is a tax that no other kind of citizen has. (I am not even considering the social and business restrictions that are the result of FATCA. These include minor things like: no job and no life – but, I digress.) U.S. taxation and reporting requirements make U.S. citizens too expensive and undesirable for foreign employers. So, a U.S. citizen can physically come to another country, but he or she comes with a level of toxicity that makes him undesirable. These things are really just a problem for the U.S. citizen living outside the United States. And who cares about them anyway. They (from the perspective of the U.S.) are just FATCAt(s) drinking expensive wine on the beach and certainly evading taxes. So, they are just getting what they deserve!
Actually Citizenship-based Taxation Harms The U.S. Economy and Harms It A Lot
Let me introduce you to the best friend of those who oppose citizenship-based taxation. Some of you may already know him – he is out on the front lines commenting on the blogs. His basic thesis is that citizenship-based taxation is destroying the U.S. economy. For example: The IRS brings in five billion dollars in taxes from U.S. citizens living outside the United States. But, to bring in that five billion in taxes, actually costs the good ole USA one-hundred sixteen billion dollars (yes for those who think that is a mistake $116,000,000,000) dollars a year. Furthermore, citizenship-based taxation is the direct cause of the U.S. trade deficit. Intrigued? Read what I call “The Conklin Report” which is really his testimony before the Ways and Means Committee.
Who is Roger Conklin? In his own words Mr. Conklin is a retired telecommunications consultant. He is an 80 year old retired person who has actually lived the destructive effects of U.S. citizenship-based taxation. And he is willing to share his views with the government.
Here is an example of a superb comment he recently posted on the article “Obama promotes insourcing jobs”
“President Obama has a very short memory. Back at the beginning of his administration he announced an Export Initiative to create jobs by doubling US exports in 5 years. And his appinted commission presented a plan to add commercial attache staff at our Embassies abroad, encourage US companies to participate in foreign trade fairs and to invite foreign purchasrs to the US. Missing from this plan was increasing the number of Americans who go abroad to sell American products. The plan has gone very badly. Products don’t sell themselves. This takes feet on the ground which all of our trade competitor have but the US does not. Yes, there has been a modest increase in exports, but impports have grown far more rapidly than exports, so far more American jobs have been destroyed as our trade deficit has increased than jobs created by increased exports. Our 12-month goods trade deficit through October is $720 billion. This represents some 7 million destroyed American jobs manufacturing for export. Our trade deficit continues to grow by $1.9 billion per day. These destoyed jobs represent $130 billion in Federal tax revenue that fails to be generated.
The US attaches a ball-and-chain to every citizen who goes overseas. He pays taxes on his worldwide income to the foreign host country and then is double taxed on this same income by the IRS. No other country taxes is overseas citizens, so they go aborad and create jobs at home whereas this punishing double taxation of our own ctizens if they do that punishes them if they relocate abroad. Germany,for example, exports 7.9 times more per-capita than the US to China and has a $12.5 billion China trade surplus whereas we have a $270 billion China trade deficit.
In order to compete with citizens of other countries for overseas postings and and end up with the same after-tax income, US citizens must be compensated between 3 to 5 times more than non US citizens in order to cover the additional tax cost that citizens of no other nation have to bear.
Instead of repealing this destructive double taxation, President Obama in 2010 signed the FATCA legislation which makes it impossible for a US citizen to open a bank account in a foreign country. It imposes such massive reporting requiremnts on the accounts held by US citizens by foreign banks that they are dumping all their US citizen account holders. This law requires foreign banks to violate the privacy laws of their countries in providing data to the IRS, a foreign tax authority, which they are prohibited from releasing to any third party.
So please, President Obama, get your priorities straightened out.”
and how about another comment by Roger Conklin with respect to the reason for the trade deficit with China:
http://waysandmeans.house.gov/UploadedFiles/Retired_International_Sales_and_Marketing_Executive.pdf
Results of a survey of ‘tax and finance executives” re possible changes in the US international taxation system (corporate).
http://www.accountingtoday.com/debits_credits/Presidential-Candidates-Tax-Issues-62539-1.html
‘Presidential Candidates Aren’t Spending Enough Time on Tax Issues’ By Michael Cohn
May 2, 2012
……..”When respondents were asked how the U.S. international tax regime would look in five years based on what they are hearing from the candidates and current administration, 34 percent anticipate a lower corporate tax rate and a move to a territorial system, up from 17 percent last year, while 36 percent foresee a lower corporate tax rate within a worldwide system. Still, 26 percent of the survey respondents felt the status quo would remain, with the same tax rates and the same worldwide system.”
RogerC, thanks for commenting on the following story;
http://www.accountingtoday.com/debits_credits/max-baucus-tax-code-overhaul-62920-1.html?ET=webcpa:e2598:243968a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=WebCPA_Daily_061212
‘Baucus Plans Tax Code Overhaul’
By
Michael Cohn
June 12, 2012
….” “We need to take a hard look at each and every expiring provision to
decide which to make permanent and which to eliminate,” said Baucus.”
“He
noted that while other countries have lowered their tax rates to
attract businesses and shifted to a territorial tax system to keep
companies from moving overseas, the U.S. has not yet done so. Other
countries also have tougher rules about shifting profits to tax havens.”…..
Unfortunately, in the Baucus led discussion of the unnecessary complexity and outdated nature of the US tax code, our issues as ordinary individuals born and living outside the US probably will not be addressed in any constructive way – except for more unjust, unethical, unconstructive and punitive provisions (“more floggings until morale improves”) – courtesy of being lumped in wholesale with the ‘tax haven’ obsession (except of course for the approved homegrown domestic US ones like Delaware, Nevada, Florida, Texas, etc.). I doubt that the ‘territorial’ option will ever be offered to us – apparently it is fine for corporations with vast assets to have their legal departments engineer deliberate tax evading or tax avoidance moves outside the US for specific tax reasons, but it is not okay for common folk to just happen to be born and live outside the US, or to have moved away for reasons like study, work, or marriage, that have absolutely nothing to do with US tax.
Accounting Today describes the Republican tax reform proposals as including:
“Provisions would include Republican priorities that the House passed in
the previous two budgets: consolidation of the current tax brackets into
only two tax brackets, with a top rate of 25 percent for individuals;
reduction of the corporate tax rate to a maximum of 25 percent; repeal
of the alternative minimum tax, broadening of the tax base to maintain
revenue between 18 and 19 percent of gross domestic product; and a
territorial system of taxation as opposed to a worldwide system.”
http://www.accountingtoday.com/news/house-republicans-tax-reform-63425-1.html?ET=webcpa:e2749:243968a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=WebCPA_Daily_072712
But, is that an accurate interpretation of what the Republicans are proposing, or does that just refer to already existing proposals to tax US corporations that way, while continuing to subject individuals to worldwide taxation no matter where they live – leaving the current injustices of US extraterritorial citizenship-based system firmly in place?
http://online.wsj.com/article/SB10000872396390444226904577559414267708728.html?mod=opinion_newsreel
……”Today’s origin-based sales tax system, which allows states to tax
purchases made at any business within their borders, is fair. I believe
that states should focus on cutting spending, lowering taxes and
creating the best business environment to attract new companies and new
jobs. If states want to raise taxes they have the power to do so—yet
only on citizens and businesses within their political jurisdiction.
The nexus among Americans, their taxes, and their votes must remain as tight as possible. It is the essence of our democracy.”…….
“Mr. DeMint, a Republican, is a U.S. senator from South Carolina.”
Apparently though, that ‘nexus’ of democracy is of no interest, significance or concern to US senators and representatives when the US decides to apply aggressive and oppressive extra-territorial tax and reporting policies to milk subject ‘Americans’ who live and earn outside the US, owe no US taxes, and often can’t vote because of disenfranchisement by individual states – and have no dedicated or effective representation.
I’m presuming that last paragraph/sentence is yours, badger. So true! It’s all goosey-gander isn’t it. Individual states are admonished for reaching beyond their boundaries to raise tax revenue but the United States of Arrogance (is that Blaze’s term?– I like it!) goes way beyond its borders to inflict tax compliance pain all over the world — initially on its outlanders and now on the financial institutions within what are supposed to be sovereign nations. The smell of hypocrisy is overwhelming. Keep those nexus tax tentacles in your own country, America!
@Em, just got back to this thread today. Yes, the last paragraph was mine (sometimes lose control of the formatting!). I note that DeMint – who made the comment; “The nexus among Americans, their taxes, and their votes must remain as tight as possible. It is the essence of our democracy.”…….” is one of the Senators objecting to FATCA, see http://americansabroad.org/issues/fatca/senators-object-to-fatca/ . Their objections are on different grounds than ours, but I note that Rand Paul’s answer to ShadowRaider’s letter https://isaacbrocksociety.ca/2012/09/27/rand-paul-responds-on-fatca/ notes that he is committed to “defending the rights of all American citizens”.
US corporations are allowed to hold their assets outside the US, why not individuals who are actually born, working and living abroad as duals, or naturalized, or permanently residing outside the US?
http://www.bloomberg.com/news/2012-09-20/microsoft-avoided-billions-in-u-s-tax-senate-memo-says.html
“Senator Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee
on Investigations, didn’t accuse the companies of acting illegally,
though he said he was “highly dubious” that HP was in compliance with
the tax law.
Such financial maneuvers “may be in your temporary
interest as a corporation,” Levin told Bill Sample, Microsoft’s
corporate vice president for worldwide tax, at the hearing. “It
increases your profits and reduces your taxes, but there’s a heavy cost
to the United States,” Levin said.
Levin and the panel’s top Republican, Tom Coburn of Oklahoma, sent the memo to committee members.
Coburn described the moves as “properly legal tax avoidance” by companies taking advantage of a tax code that needs an overhaul.”
http://www.eda.admin.ch/eda/en/home/reps/nameri/vusa/wasemb/waecon/wasuss.html
US – Swiss Economic Relations
Foreign Direct Investments and Jobs
“With foreign direct investment in the U.S. amounting to
over USD 189 billion in 2009, Switzerland ranks among the top six
foreign direct investors in the United States. A large number of Swiss companies have considerable operations in the United States. U.S. subsidiaries and branches of Swiss companies provide jobs for over 500,000 people throughout the United States.
With direct investment from the United States to Switzerland exceeding USD 148 billion, Switzerland is the seventh most important destination for U.S. foreign direct investment. Over 620 U.S. companies have an establishment in Switzerland.
Trade in Goods and Services
Switzerland is an important customer for U.S. products. Exports of goods from the United States to Switzerland were valued at USD 7.4 billion in 2009 (cif). In the same period, Switzerland’s exports of goods to the U.S. amounted to USD 16.27 billion (fob).
With
respect to the exchange of services, the exports from the United States
to Switzerland in 2008 exceeded USD 18 billion, whereas the imports
reached USD 17.54 billion. “
Sources: U.S. Department of Commerce, Bureau of Economic Analysis and Swiss-American Chamber of Commerce
http://reason.com/blog/2012/07/16/no-one-in-youngstown-ohio-has-a-swiss-ba
“No one in Youngstown, Ohio has a Swiss bank account”…Except for Maybe That Big New Swiss Employer in Town?
Matt Welch Jul. 16, 2012 9:36 am
Noted this on the ACA site:
ACA congratulates Reps. Maloney, Honda and McDermott on their request for a GAO assessment study of FEIE (Section 911). http://goo.gl/MeZFJ
Worth reading the letter re US citizens abroad, the FEIE, Foreign Tax credits, and upcoming examinations of the US tax code.
see related Tweet there, by Eric (author at IBS).
“Call for review of foreign income exclusion rules”
Representatives Maloney, Honda and McDermott have called on the GAO
to assess the Foreign Earned Income Exclusion FEIE (Section 911 of the
tax code).
The FEIE is an essential part of the US tax code that helps keep
Americans overseas competitive economically, particularly against
emerging economies such as China that actively promote their citizens
living and working overseas. By providing a timely and accurate report
on the FEIE’s impact on Americans living overseas and its importance to
the US economy, the GAO report will go a long way towards ensuring that
other members of Congress recognize the need to protect and expand the
FEIE.
ACA applauds the efforts of these three Representatives for
requesting an assesment of the FEIE. They continue to demonstrate their
support for the overseas American community through the request for this
report and ACA encourages all our members and friends to support these
legislators and their efforts.”
The US Chamber of Commerce supports territorial taxation for corporations and also calls for an end to the “damaging practice” of taxing US citizens who reside abroad.
http://www.uschamber.com/sites/default/files/111117commentstoWMsonCampint%27lPlan.pdf (see the bottom of page 6)
The US Chamber of Commerce is by far the largest lobbying organization in the US.
http://www.opensecrets.org/lobby/top.php?showYear=a&indexType=s
I contacted them and asked if they would be interested in supporting my proposal.
@shadow Thanks for that!!! This is excellent that they are calling for ending “this damaging practice”.
More research to find the US Chamber of Commerce and contacting them — good work from you, Shadow Raider.
@Shadow Raider,
A great initiative on your part!
Page six of the the US Chamber of Commerce Statement on Tax Reform reads:
“As with corporations, the United States has long taxed the foreign-earned income of its citizens residing abroad, resulting in double taxation and disincentivizing the hiring of U.S. citizens. Studies have shown that U.S. expatriates employed as managers in foreign affiliates of American worldwide companies are a powerful driver of U.S. exports. No other country taxes its citizens working abroad, and the any transition to a territorial tax system should take this into consideration and end this damaging practice.”
It is well known that AmCham branches worldwide have a very difficult time getting US citizens to head them in their countries of residence (particularly in developing countries), which is clearly not the case for chamber of commerce branches from other countries.
AmCham is already in ex-pats’ corner, just need to figure out how to capitalize on it.
Once again, a great initiative on your part!
@Renounce…
I was just re-reading this post. One thing that would help readability, is to break up Roger’s comments at the end into some more manageable paragraphs. It runs together too much, for easy reading. Thanks again. Great resource. I just sent it to https://twitter.com/SenatorEnzi
http://www.cbc.ca/news/canada/windsor/story/2013/05/10/wdr-border-fees-banned-by-senate.html
………”The U.S. won’t be introducing border crossing fees at land ports of entry.
The Department of Homeland Security had wanted U.S. Congress to authorize the study of a fee that could be collected from everyone entering the U.S. at land crossings bordering Canada and Mexico.
But the Senate’s judiciary committee on Thursday voted to amend the Immigration Reform Bill to ban the fee altogether.
Vermont Senator Patrick Leahy, who chairs the committee, said a fee would stop Canadians from visiting the U.S. and could threaten trade and the economy………
….”…The judiciary committee also voted Thursday against a fence proposed to be constructed on the Canada-U.S. border.”
And the impact of disaffected duals and US persons in Canada who will refrain from US travel and cross border shopping if FATCA passes and if we’re forced to use US passports? Which some are already doing? If even one family member is a US person and cannot travel into the US, that means the whole Canadian family will not be going to NY, Florida, and Disneyworldland.
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