In case you hadn’t already figured it out, this is the shape of things to come for U.S. Persons abroad: relentless bipartisan attacks on the Foreign Earned Income Exclusion in the name of “simplifying the tax code” and “cutting subsidies to favoured groups”, because the “non-partisan” Joint Committee on Taxation (which is composed entirely of Homelanders) classifies it as a “tax expenditure”. The latest effort in this direction: Dennis Ross (R-FL)’s HR 6474, which purports to implement the recommendations of the Simpson-Bowles Commission regarding territorial taxation. It contains provisions to phase out 20% of the FEIE every year until it is fully eliminated in 2017:
SEC. 271. FIVE-YEAR PHASEOUT OF CERTAIN TAX EXPENDITURES.
(a) In General- Effective for taxable years beginning after December 31, 2012, the amount allowable as a credit, exclusion from gross income, exemption from taxation, or deduction for the taxable year under the tax provisions specified in subsection (c) (determined without regard to this section) shall be reduced by the applicable percentage of the amount so allowable …
(c) Specified Provisions-For purposes of this section, the tax provisions specified in this subsection are as follows:
(1) Section 911 of the Internal Revenue Code of 1986 (relating to citizens or residents of the United States living abroad).
Boom! Right there on top in pole position, the very first “tax expenditure” they propose to cut. That in itself should tell you volumes about Congress’ attitude towards U.S. Persons abroad.
Ross’ bill also proposes lowering the personal income tax rate to 10% for incomes under US$100,000 and 20% for incomes above that level, and the capital gains tax rate to 0% for capital gains under $1,000,000. At first glance, this would seem to be a significant benefit to U.S. Persons abroad as well as Homelanders (if those reduced rates prove to be realistic — which, given the U.S.’ massive budget deficits, they do not appear to be). There’s “only” two problems.
First, Ross’ bill does not eliminate any of the ridiculous red tape that U.S. Persons abroad are expected to file with regards to “foreign” bank accounts, “foreign grantor trusts” (also known as our retirement plans, educational and medical savings plans), and “passive foreign investment corporations” (mutual funds, index funds, corporations owning a rental property to provide for limited liability in case of a tenant lawsuit). This means the continuation of $3,000 tax return preparation costs for middle-class Americans who exercise their human right to leave their country of origin — made even more complicated by the elimination of the FEIE. Instead of the comparatively-simple Form 2555, U.S. Persons abroad will have to wrestle with multiple copies of Form 1116 (one for each category of income, each bringing with it the struggle to figure out which tax paid in which local tax years corresponds to which U.S. tax year).
And of course, the IRS would reserve the ability to levy five and six-digit fines against people with three digit tax deficiencies, or use the threat of those fines to herd Canadian grandmothers into the OVDP where they can “volunteer” to be fined a mere 27.5% of their assets. In otherwords, Homelanders who fall behind on their taxes get a tax rate of some small multiple of 10%; we U.S. Persons abroad get a tax rate of 10,000%. How do you like that tax cut?
Second, in addition to the paperwork, Ross’ bill retains all of the “Internal” Revenue Code’s punitive booby traps on income from CFCs or PFICs, which result in capital gains being treated like ordinary income or even worse. Phil Hodgen outlines the godawful mess that is PFIC taxation. Other, more obscure provisions — like 26 USC § 1248 relating to treatment of income from the sale of stock in a CFC — remain lying in wait like snakes in the underbrush to bite ordinary Americans abroad selling small businesses. Homelander corporations, well advised by expensive international tax lawyers the rest of us cannot afford, will effortlessly find their way around these punitive taxes — meaning in reality they apply only to us little folk.
Now, here comes the “territorial” part of Ross’ bill: it uses the taxes and penalties raised from U.S. Persons abroad to cut taxes on Homeland corporations, allowing them to repatriate their foreign profits with a waiver of 85% of the U.S. tax that would be due,
SEC. 206. RENEWED TEMPORARY DIVIDENDS RECEIVED DEDUCTION.
(a) Election- Subsection (f) of section 965 of the Internal Revenue Code of 1986 (relating to election) is amended to read as follows:
(f) Election- The taxpayer may elect to apply this section to–
(1) the taxpayer’s last taxable year which begins before the date of the enactment of this subsection, or
(2) the taxpayer’s first taxable year which begins during the 1-year period beginning on such date.
Such election may be made for a taxable year only if made on or before the due date (including extensions) for filing the return of tax for such taxable year.
Naturally, if you’re a U.S. Person abroad, you don’t get to treat any of your “foreign” profits this way. Remember kiddies, corporations are people too — except when it’s more convenient not to be — and U.S. Persons abroad are Americans who should be proud of their full membership in the Greatest Country On Earth™ — except when it comes time to distributing the tax goodies, which are reserved solely for Homelanders.
(Technically speaking, there does exist something called a “Section 962 election” allowing an individual to choose that his or her “foreign” dividends be taxed at corporate rates. It’s so obscure and rarely-used that it doesn’t even have its own tax form, but has to be taken by attaching a free-form letter to your tax return and writing “Section 962 Election” in the appropriate parts of your 1040. However, Section 962 as written would not seem to allow individuals to opt into the benefits of Section 965’s “dividends received deduction”, and Ross’ bill doesn’t touch Section 962 at all.)
Jobs for Homelanders, not for you
Even better, in the usual display of social engineering and economic nationalism for which the “Internal” Revenue Code is famous, the benefits of this tax cut will be denied to U.S. corporations which do not maintain their “U.S. employment levels”. How exactly is “U.S. employment level” defined? Why, the number of Homelanders you employ! It doesn’t count if you employ some of those traitors living the high life in Paris and Tokyo to help you balance out America’s ridiculous trade deficit:
(4) REDUCTION IN BENEFITS FOR FAILURE TO MAINTAIN EMPLOYMENT LEVELS-
(A) IN GENERAL- If, during the period consisting of the calendar month in which the taxpayer first receives a distribution described in subsection (a)(1) and the succeeding 23 calendar months, the taxpayer does not maintain an average employment level at least equal to the taxpayer’s prior average employment, an additional amount equal to $25,000 multiplied by the number of employees by which the taxpayer’s average employment level during such period falls below the prior average employment (but not exceeding the aggregate amount allowed as a deduction pursuant to subsection (a)(1)) shall be taken into income by the taxpayer during the taxable year that includes the final day of such period.
(B) AVERAGE EMPLOYMENT LEVEL For purposes of this paragraph, the taxpayer’s average employment level for a period shall be the average number of full-time United States employees of the taxpayer, measured at the end of each month during the period.
(D) FULL-TIME UNITED STATES EMPLOYEE- For purposes of this paragraph–
(i) IN GENERAL- The term ‘full-time United States employee’ means an individual who provides services in the United States as a full-time employee, based on the employer’s standards and practices; except that regardless of the employer’s classification of the employee, an employee whose normal schedule is 40 hours or more per week is considered a full-time employee.
Republicans do not give a fig about you. They are just as bad as the Democrats. They may want to cut taxes and paperwork, but they emphatically do not want to cut your taxes or your paperwork. They do not care that the U.S. is the only country on earth that imposes citizenship-based taxation, because they do not know or care about other countries anyway. Even when they propose a tax cut, they make sure the benefits are available to Homelanders only, just like “despicable” hypocrite John Duncan (R-TN) did with his “Bring Jobs Back Home” bill.
Similarly, don’t be fooled into thinking that recent calls for “territorial taxation” are intended to benefit you. They are intended to benefit U.S. corporations. It is perfectly possible to write the tax code in such a way that there’d be a territorial system for corporations but a worldwide citizenship-based taxation system for individuals. They’d have to eliminate a few strange tax breaks that no one cares about, like the Section 962 election, but it’s easily doable. Have no doubt: the Republicans would happily trade away the interests of expats — un-American traitors who mysteriously refuse to live in the Greatest Country on Earth™ — for something that actually benefits their base, like a “repatriation holiday” for corporations or another couple of points shaved off the estate tax rate.
@Eric, I didn’t know about the law before. Now I see that you had already written about it.
@ Shadowraider, yeah we covered that as early as January. http://isaacbrocksociety.ca/2012/01/31/freedom-of-emmigration-in-east-west-trade-usc-title-19-%C2%A7-2432/
The failure to apply the implications of this law highlights the United States’ utter hypocrisy. Certain people coming from the both parties, such as Bill Clinton, George W. Bush, Barack Obama, who signed punitive measures against expats (Reed Amendment, Heroes, and the Hire Act), should just never ever be allowed to govern or to hold office. The first thing that a person wishing to hold office should do is understand the basic concepts of Universal Human Rights. It should be a test. (And while I’m at it, those running for president should receive at least the same level of scrutiny about their citizenship as people who are trying to renounce their US citizenship).
In the Magna Carta, the king promised to punish magistrates who violated the rights assured in the text of the agreement. But who gets punished today for violating basic human rights? The simple answer: no one.
your link doesn’t work – takes to a Jim Robertson which is Jim Robertson
Stupid me. Try this. I copied the wrong one.
https://twitter.com/NZAmbassadorUS or just search for Mike Moore
@Just Me. not stupid. BTW, can you teach me how to copy/paste (or however you reproduce) tweets when you post them here? I’ve tried printscreen but that doesn’t work nor does copy/paste.
I just went into twitter and put the address and several came as dropdown……so got it, thanks!
You can also just right click on the time stamp in the upper right hand corner of the tweet, and that will give you an option to ‘copy link address’.
I previously posted this on another thread. The journalist really has the story about expats right. She deserves consideration for Isaac Brock Hall of Fame.
The Independent: “Land of the flee: why, despite Obama’s re-election, Americans are renouncing citizenship in droves”
From the article:
“a growing number of citizens have renounced their home country, which they see as having an increasingly anti-expatriate government that’s only interested in collecting cash and giving virtually nothing in return.”
Thanks Just Me!
Brockers as enemy of the state? As I’ve said before, as long as rabid Chris Hedges roams freely, I don’t think any of us have anything to worry about.
Between you and me, I think we have that Independent piece posted on about 5 different threads! LOL. It was a good one, and I tired creating an account to comment, but to no avail for some reason.
Cheers Just Me. I also forwarded it to a couple of other expat bloggers, one from the UK managed to post some really good comments.
Re: John Brown/Land of the Flee
I agree with the article and like what it says. However, there is one big error and this same error runs rampant in so many articles – even in the socalled established media like Forbes, WSJ, NY Times, Christian Science Monitor, etc. This 1800 persons renouncing in 2011 is not very believable. I’ve read somewhere that the US Ambassador to Switzerland admitted that from January to September of 2012, the Bern Embassy had processed over 400 renunciations. Now with FATCA coming closer, maybe 2012 renunciations are double those of 2011 so maybe there were 200 in 2011. But, does anyone seriously believe that tiny Switzerland has 1 out of every 9 worldwide pissed off US expats? Now lets look at the over 400 renunciations that Bern processed between January and September of 2012 – 9 months and 20 working days per month gives around 180 working days so the Embassy is handling a little over 2 per day. Does anyone have an estimate of how much work it takes the Embassy people to process a renunciation?
They take the data off the questionaire and transfer it to the Oath of Renunciation and to the Statement of Understanding and they check the birth certificate/naturalization certificate (yes people used to want US citizenship) and passport. When the refugee arrives for the actual renunciation, a consular officer spends around 5 minutes witnessing the good bye signatures and the cashier has to collect $450. After that, out goes the refugee, now a free person. There is also the rumor out there that Bern had to bring in extra staff to handle all the renuciations – for 2 renouncers a day????
Has anyone responded to any of these 1800 renounements in 2011articles? Someone who has more hard info that I do should.
You may find Ovid’s research on this topic interesting on his blog “Overseas Exile”:
@namakan: I’ve looked into the numbers pretty closely. My back of the envelope estimate for the real number is “low-to-mid five digits”.
First, it’s clear that the Federal Register (whence the “1800” number) is missing names. Wikipedia has a list of people who renounced/relinquished, which you can sort by (among other things) whether or not they ever appeared in the Federal Register. A lot of the people listed as “no” would have to have showed their CLNs to election officials or the media, so it’s doubtful these are hoax cases. However none of us have been successful at convincing anyone in the mainstream media to point that fact out.
Second, the South Korean government says 2,158 of their nationals renounced US citizenship or green cards in 2011 (the Federal Register list is supposed to include long-term green card holders as well). About 10% of the names on each Federal Register quarterly list are Korean.
Third, ever since 1998 the IRS’ Paperwork Reduction Act notices have stated that 11,000 to 12,000 people per year file Form 8854:
Finally, based on comparison to published renunciation rates in other countries which also impose onerous duties on overseas nationals (such as military service), it doesn’t make sense for the US renunciation rate to be so low:
I haven’t done any detailed analysis of appointment schedules at individuals consulates, but again those who have suggest that there may be as many as several hundred renunciations per consulate per year. Multiply by a double-digit total number of consulates in the set of countries where Americans are likely to give up citizenship to take local citizenship, and once again you’re in the five digits for estimated renunciations per year.
Hope that helps.
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