A recent poll conducted jointly by the Associated Press and GfK Custom Research finds that 53% of Homelanders are in favour of raising taxes and raising the retirement age in an attempt to save Social Security, against 35% who would prefer cutting benefits. There was a big split along partisan lines, with 65% of Democrats and 53% of independents agreeing with higher taxes, against 38% of Republicans.
GfK conducted the poll in English and Spanish in an effort to be inclusive, but of course there’s one demographic group they didn’t bother to survey: U.S. Persons abroad — this despite the fact that many are subject to FICA taxes.
Social Security is a divisive issue among U.S. Persons abroad, likely far more so than among Homelanders. Americans who worked all their lives in the U.S. and then retired abroad are both more likely to depend on Social Security (and U.S.-source dividends) for their day-to-day expenses, and also less likely to have local bank or investment accounts that might be affected by FATCA. Often, they are living in developing countries in Latin America or Southeast Asia and do not trust or understand the local banking systems. Their main concern is the ability to maintain bank accounts in the U.S. into which they can have their Social Security checks deposited, and to have U.S. brokerage accounts so they can hold and trade the U.S. stocks with which they’re most familiar.
The gap between the attitudes of the average Isaac Brock Society reader and members of this group can be quite large, as is best illustrated by this comment responding to this Slate article from last month in which Andrew Leonard accused FATCA opponents of being “Tea Partiers” and expressed disbelief that anyone outside the U.S. would have more than US$50,000 in a bank account:
Beauzeau, Saturday, Jul 28, 2012 02:13 PM GMT: I became an expat when I retired eight years ago and have never once needed a bank or financial account of any kind where I live. All my accounts remain in the USA and I use local ATMs for my cash needs and easily negotiated wire transfers for large sums.
The only American expats I know who MUST have local accounts are looking for one of two things: a. they have a criminal past in the US and are trying to hide their whereabouts and protect their funds, or b. they’re trying to cheat on their US taxes.
Big crooks, little crooks … no difference except the big ones rarely ever get caught and prosecuted.
U.S. Persons who were born abroad or emigrated at a young age for study, career, or family reasons are typically expecting to rely on their own savings and local pensions for their retirement, and many have little knowledge or attachment to Social Security. Contrary to how Homeland journalists like Andrew Leonard try to paint it, this attitude has little to do with one’s overall philosophy on taxation: naturally those who prefer lower taxes and small government will not welcome higher taxes either from the U.S. or their local government, but even those who support a higher level of taxes and a larger government are concerned first and foremost with their friends and relatives in the communities where they live and work, rather than people across the sea in a foreign country they have not known for many years.
U.S. Persons permanently resident abroad stand to suffer from, for example, the extension of U.S. FICA taxes to what the IRS calls “passive income” — including appreciation inside non-U.S. tax-free retirement savings plans (which already face onerous and expensive IRS reporting requirements) and direct social assistance payments by non-U.S. governments. Even if FICA taxes were to remain restricted to “earned income”, raising them will still have a negative effect on those who take jobs with U.S. companies, as well as the self-employed — both groups are also likely obligated to pay into local retirement systems, and could find themselves double-taxed if their country of residence does not have a “totalisation agreement” with the United States.
Worse yet, after a lifetime of making full FICA payments as well as full payments into a non-U.S. system, many U.S. Persons abroad who qualify for Social Security will receive their benefits only at a reduced rate due to the “windfall elimination” provision because they are receiving non-U.S. retirement payments as well. And of course, the Medicare portion of the FICA tax is a complete loss to them, unless they plan to hop on a plane to the United States every time they get an infection. From a public health perspective that would not be the optimal outcome, to say the least — maybe the Centers for Disease Control and Prevention should be paying me every time I decide not to make a trip back to the Homeland. (Of course, American tax professors like Hale Sheppard have argued that one of the benefits of citizenship-based taxation is that it discourages Americans from going abroad in the first place and thus prevents them from becoming vectors for spreading SARS and other exotic foreign diseases to the back to the Homeland.)
Americans who are working abroad for a few years and plan to return to the U.S. share some of the concerns of both groups. They rely on local bank accounts in order to be able to cash paychecks and pay the rent. However, they are also expecting to depend on Social Security in their old age. As a result, they see paying into local retirement systems of the countries in which they are expatriated for a few years as a hassle, rather than as a right which is worth fighting to defend. Also, this group is often shielded from the added complexity of filings abroad by their corporate expat packages, which usually include tax equalisation payments as well as paperwork assistance from KPMG, Deloitte, or some other Tax-Industrial Complex member. Finally, this group has been filing 1040s all their lives and often sees the added complexity of filings from abroad as something temporary and even understandable that they will leave behind when they return home.