Unfortunately, this only pertains to corporations and doesn’t help us one iota. However, Camp seems to understand the necessity and the logic of why the shift from international to territorial-based taxation is what the US needs in terms of business. Why not citizens as well?
My question is, what could we propose in order to be considered for the same system? What do we have to offer that they would consider seriously enough to switch? Are we of any value to the country or are we just something to tax and label as rich, lazy cheats?
Wednesday, October 26, 2011
Washington, DC – Today, Ways and Means Committee Chairman Dave Camp (R-MI) unveiled an international tax reform discussion draft as part of the Committee’s broader effort on comprehensive tax reform that would lower top tax rates for both individuals and employers to 25 percent. In addition to rate cuts, the plan would transition the United States from a worldwide system of taxation to a territorial system – a move virtually every one of America’s global competitors has already made
In advocating the need for international tax reform, Camp cited several reasons why current U.S. tax policies are putting American employers and workers at a competitive disadvantage:
- Our “worldwide” system of taxation is a remnant from the Cold War: While it has been 25 years since Congress reformed the tax code, it has been almost 50 years since it undertook a bottom-up review of our international tax laws. In other words, our international tax rules were written when the United States accounted for 50 percent of the global economy and had no serious competition from others.
- American employers face double taxation compared to their foreign competitors: As a result of our “worldwide” system of taxation, when U.S.-based companies try to bring profits back home, they must pay U.S. taxes on top of the tax they already pay in the foreign market U.S. tax laws encourage investing in a foreign country instead of bringing profits back home: Because U.S.-based employers face additional taxes if they bring their overseas earnings back to invest in the United States, it is cheaper for these companies to reinvest profits overseas instead of creating jobs here.
- Our foreign competitors are actively reforming their tax laws: Other countries are actively reforming their international tax codes – giving employers lower rates and moving towards a territorial tax system. Countries like the United Kingdom, Canada, and Germany, have recently lowered their tax rates to spur job creation and economic growth. Yet, America is sitting on the sidelines doing nothing. The United States cannot sit back and watch jobs go overseas because the tax code provides such perverse incentives.
I think that the post title should probably read “Ways & Means considers territorial-based taxation for corporations after considerable, behind closed doors lobbying from corporate lobbyists and those funding our re-election bids” 😛
Still, positive news but these bills have a tendency to go nowhere…
You know what, this is probably the most logical US government that I have ever read. It explains in plain English what the problems are, how the US is failing to compete and how to fix it.
A legal question for those who know: Let’s assume that this were to pass, would that merely remove taxation burden from us? I assume that FBARs would still be required and FATCA is of course separate. I notice that this is already three months old, anyone have any info on what has happened since then?
A step in the right direction, but only for corporations, which have more rights in the US than natural people.
They should rewrite the preamble of the US constitution to read, “We the Corporations….”
That would better reflect the present reality.
If American corporations enjoy the same rights and protections as people, then does the corollary hold true? So many valid Supreme Court cases, so little time.
If when they switch to the territorial tax system for corporations they also did the same for individuals they could significantly reduce the US unemployment rate. How? Because the US corporations could now more easily deploy American employees overseas because they would not be subject to double taxation.
This would not only reduce the US unemployment rate it would increase US exports because more Americans would be out there selling US made products. The increased sales of their products would create more jobs in the US further reducing the unemployment rate.
@ Deckard IRS tax code says defines U.S. persons of two types: natural and, I guess, not-natural (i.e., corporate).
Thus, if natural persons have to pay more tax than corporations, does that not violate their right to equal protection?
Territorial taxation was what the Simpson-Bowels Commssion, in its December 2010 report to President Obama. On page 25 paragraph 3: “A territorial tax system should be adopted to help put the US system in line with the other countries, leveling the playing field.” This report did not specifically limit this recommendation to corporate taxes, although reading between the line that is probably all that it had in mind. The Joint Tax Commission (Congress and the Senate) later announced that it was also evaluating the advisabilty of the US adopting residence-based taxation for individuals because it also might have a significant impact on US competitiveness.
So when I read about this I submitted to the JTC a copy of my written testimony submitted to the House Ways and Means Committe on this very subject. So far I have not heard any further peeps on this subject from JCT or anybody else, so have no idea how serious this is really being addressed. Perhaps there is hope, but I would not recommend anybody either hold their breath or hang their hopes on anything positive happening.
No news is not good news.
Dear Admin, this is urgent. Please get in touch with me as soon as you can.
As far as I can find, this is just at the proposal stage. “key tax policy leaders in the House and Senate this year are expected to continue laying a foundation for tax reform to be prepared for any opportunity that may arise to overhaul US tax laws this year or in following years.
Building the case for corporate tax reform
The need to strengthen the competitiveness of US firms in the global marketplace—together with slow economic growth, a continuation of high unemployment rates, and projections of significant future budget deficits under current policies—have increased bipartisan interest in tax reform as a way of promoting US economic growth, controlling federal deficits, and spurring job creation. While it is unlikely that Congress is prepared to complete action on tax reform in advance of the 2012 elections, key tax policy leaders in the House and Senate this year are expected to continue laying a foundation for tax reform to be prepared for any opportunity that may arise to overhaul US tax laws this year or in following years.
The House Ways and Means Committee and the Senate Finance Committee last year held more than twenty hearings altogether on tax reform issues (see Appendix E). Many of these hearings focused on the fact that the United States has one of the highest corporate tax rates in the world and that most of our major trading partners have adopted territorial tax systems, which generally exempt from tax the active business earnings of foreign subsidiaries.
The reason I posted this was to elicit replies that could be used to create a case for why territorial-based taxation should also apply to individuals. Beyond the idea that it is just unfair to us. Maybe it could grow into something more……….just a thought.
I think that that is the exact strategy that we need to follow. Personal tales of hardship do not seem to have made much, if any, impression unfortunately and can be easily manipulated in the mainstream press. Framing this issue in terms of the economic costs to the US in terms of exports and competitiveness, as Roger Conklin experty summarises in his posts, is likely to be the most persuasive way to encourage tax reform. People might not care if they think that a bunch of “rich expats in the Bahamas” have left, but if they see first hand the economic damage that is being caused by being so far out of alignment with the rest of the world, then maybe we can start to build upon this early momentum!
@nobledreamer & @don, based on the video of people “renouncing due to complexities in the tax code”, I wouldn’t be surprised for 1 minute if they are going to try to use *our cause* as a reason for tax reform, which may or may not even help expats.
Who knows.. hopefully the USSRI problems (ok, I changed a letter’s place for emphasis) will be a distant memory for me in a few months! Nonetheless, I may be free very soon, but it would be nice to know that young Americans are competing on a level playing field with the rest of the world!
I think the corporations that are pushing for this will also want the same for individuals. Their high paid executives must have nightmare tax returns to file.
yes, agreed! So how to go about finding this information, will have to start searching…..any phrases or titles to suggest, I know very little about how any of this works…….esp, economics!
one can only hope it would be noticed it was done by Fox News.
I am more optimist. All we have to do is to try to organize ourselves better. ACA and AARO could work more together and register the Americans Abroad by the States where they vote. We can vote and eventually the candidates in each State will know that we are going to vote. Since 2007 there is an “American Abroad Caucus” that has 16 Congressmen. If you all want I could spell their names. I sent a fax to the one from my State with a paper I wrote about my plight. I could not e-mail him because he his site only accepted e-mails from zip codes of his area. I was surprised that his secretary called me in Brazil saying that they were going to send my paper to the IRS -without identifying me except for the Country where I am. I agreed. They them sent back the IRS respose, very business like just talking about “the law”. I responded to this response with an e-mail that I got from them and they sent my response to the IRS. It seems the IRS did not respond yet.Maybe will not respond. But here is an example of me being in contact with a member of the Caucus for Americans Abroad and getting some attention from him. I think since there are so many issues we should focus one or two. Perhaps FBARS. Perhaps we should focus on two things to start with: 1. There is a difference between Americans living in the USA and earning US dollars who invest in foreign countries and hide if from the IRS, and the Americans living and working abroad who earn foreign money from their work and have investments in the countries where they live. 2. That Americans Living Abroad are not against filing FBARS every year where they will specify where they earned the money that have invested in their Country of residence. 3. That since a great majority of Americans Living Abroad never heard of FBARS that they could start reporting without being faced with any penalties. Three things. I am going to copy this to ACA and AARO. What do you think?
@markpinetree, I am aware that ACA is working on a letter to the chairman of the HW&M Committee urging that the US abandon citizenship based taxation and adopt residence-based taxation like the rest of the world. It has not yet been finalized but it is being worked on. But don’t get your hopes up because this is a very hard nut to crack. There are plenty of elected officials in the US congress who belive that this taxation should be increased by abolishing the current limited Foreign Earned Income Exclusion – FEIE. There is at least one bill in commitee to this effect that has not been acted upon or brought to the floor for a vote.
For some purposes it actually is possible for a person to choose to be taxed as a corporation for some “taxation of foreign income” purposes: the “Section 962 election” for large shareholders of foreign corporations. Right now pretty much the only point of this election is for an individual to be able to get the Section 960 “deemed paid credit” for foreign dividends. Basically, if a US corporation owns a foreign subsidiary, the US corporation gets a US tax credit for not just the dividend taxes but also the corporate profits taxes paid by the foreign subsidiary, as though it were a branch; however if a US individual owns a foreign corporation, he does not normally get a US tax credit for the foreign corporate taxes, only for the foreign dividend taxes. But he can make a 962 election to get a credit for the foreign corporate taxes.
962 elections are not very common, because if you make it then you are taxed for a second time on amounts that may have previously been included in your income as Subpart F income (basically, foreign “unearned”/”passive” income earned by a foreign corporation controlled by US owners is treated as a “deemed dividend” to those US owners even if the income was not distributed). But if you’re running an active business overseas it can be very useful. In-depth legal article covering the topic is here: