Robert Wood identifies U.S. citizenship-based taxation as one of "20 really stupid things in the U.S. tax code" http://t.co/nK9NbTWtuk
— U.S. Citizen Abroad (@USCitizenAbroad) December 16, 2014
Yesterday Stephen Kish wrote a post recognizing that Republican Senators have at least identified that citizenship-based taxation exists. Today Robert Wood identifies citizenship-based taxation as one of “20 really stupid things in the U.S. Tax Code”.
Mr. Wood concludes:
Do you have a bad taste in your mouth yet? Remember, this is only a tasting menu. And although some parts of our tax law make sense, many do not or lead to abuses. And all inject a level of complexity that no one would wish upon anyone. We need a better, simpler, fairer and flatter tax system. A flat tax or simple tax might not be perfectly fair, and might not improve everything. But is there any way to go but up?
He includes as justification for his conclusion:
In 1913, our whole tax law was 27 pages. It’s now over 4 million words, 9,000 bloated pages. From 2001-2012 alone, there were 4,600 changes, more than one a day.
Complying with the tax code costs immensely. Individuals spend 6.1 billion hours a year doing their tax filings, the equivalent of a year’s work for 3 million full-time workers.Many Fortune 500 companies manage to pay zero tax or get refunds in some years, and many claim billions worth of tax breaks.
Many individuals pay nothing. Of 145 million personal tax returns in 2011, 54 million (more than a third) had zero tax liability or got refunds.1,600 people who filed tax returns with incomes of $1 million or more paid no income taxes.
The Earned Income Tax Credit is plagued by fraud, up to 29% of all payments. The IRS paid out $125 billion in fraudulent refunds in the last 10 years, over $12 billion a year. How about allowing American families to keep more of their own money, instead of taking and ineffectively distributing it, losing billions to fraud?Many tax giveaways don’t benefit the intended recipients anyway. The New Markets Tax Credit was meant to create jobs in low income areas, but instead steered nearly $1 billion to wealthy investors and Wall Street banks. Similarly, the Research and Development Tax Credit was meant to encourage mid-sized companies to increase R&D, but 80% went to huge companies like Google, Intel, Boeing and Apple.
Using names like “Find the Children,” “The Veterans Fund,” and “Cancer Fund of America,” the 50 worst charities in America raised $1.3 billion in donations over the last 10 years. Almost none of this money benefited missing children, wounded veterans, or cancer patients.Cancer Fund of America spent less than 1% of donations on charitable activities. Over 10 years, it paid $5 million to its founder’s family and spent $80 million on hired fundraisers, but gave only $890,000 to cancer patients.
Many tax-exempt charities give little to their cause. For example, Lady Gaga’s Born This Way Foundation raised $2.6 million in 2012, but only gave away $5,000 for grants to organizations or individuals.
The alternative minimum tax (AMT) is a complex parallel tax system that has grown like cancer. It’s results are hard to predict and can be perverse. If you win a lawsuit and pay contingent legal fees, you can end up taxed on more money than you received. AMT can ruin your stock options too.
Billions in tax breaks go to wealthy professional sports team owners, who can count their player rosters as depreciable assets. Some experts say the $2 billion Steve Ballmer paid for the LA Clippers will really only cost half that after taxes.
A Tuna Tax Break provides millions to corporations operating in American Samoa.Many business expenses are embarrassing. Prostitution is illegal almost everywhere, but Nevada’s Mustang Ranch writes off free passes as a promotional expense. Workers claim business deductions for breast implants and costumes.
Tax credits for historic structures cost $1 billion annually, subsidizing beach front resorts, Major League Baseball stadiums, and luxury hotels. The New York Yankees built one of the most expensive stadiums in baseball with nearly $1 billion in tax-free financing. Ani DiFranco, a Grammy award winning artist, got $1.5 million in historic preservation tax credits and $3.7 million in New Market Tax Credits to build her Righteous Babe record label headquarters.
Wealthy hedge fund titans get a “carried interest” for their work. Their pay looks like wages but is taxed at capital gain rates. This sacred cow should go. Alternatively, if time, effort, and risk are really capital investments as fund managers contend, maybe the wages all American workers get should be taxed as capital gains?
U.S. corporate tax rates are the highest in the developed world. To avoid paying them, big U.S. companies keep their income abroad. U.S. multinational corporations kept $2.1 trillion abroad in 2013. General Electric stashed $110 billion overseas; Microsoft $76 billion; and Pfizer $69 billion. Americans lose out on all that capital.
Unlike big companies that can avoid U.S. taxes on money stashed overseas, U.S. persons living abroad have to report and pay U.S. tax globally. And FATCA means that foreign banks often turn away American accounts entirely–dealing with American tax law is just too complex. Many expats suffer, and some are so fed up they renounce their U.S. citizenship.
The tax exclusion for parsonages lets clergy members get tax-free housing but the exclusion can be abused. Some clergy double dip, claiming the exclusion and the mortgage interest deduction. Trinity Broadcasting Network even ordained station managers and department heads. That way part of their compensation qualified for the tax break, even though they are not pastors.
As sovereign government entities, Native American tribes don’t pay corporate income tax. Ditto for corporations wholly owned by a tribe. That means most tribe-owned casino operations do not pay the federal corporate income tax. In one year, Shakopee Mdewakanton tribe of Minnesota paid each of its 480 members about $1.08 million each from gaming profits.
Despite millions in profits and revenue, the NFL, NHL, and PGA Tour are classified as non-profits, exempting their earnings from federal income taxes. They avoid paying millions in taxes but they pay out million-dollar salaries.
My only critique of this article is that Wood neglects to mention that much of the US tax code, not to mention the “instructions” on most of the handful of IRS forms I’ve seen lately (not having been a US citizen since 1975 and not having nor needed to file IRS returns since then), is a the IRS seems congenitally incapable of writing anything in remotely coherent English. I have a Ph.D. (but not in tax law) and hell even I can’t comprehend much of it. Canada’s tax forms and instructions are models of coherent English prose in comparison (I’m not competent to judge their clarity in French but I suspect they’re probably at least as clear in French as in English). The incomprehensibility of much of the tax code, its complexity, and its contradictions are a boon for probably hundreds of thousands of economically unproductive lawyers and accountants who otherwise would have to earn their bloated incomes by doing work that actually produces something economically or socially useful.
@ Schubert1975 Thank you for voicing what I have been thinking. Being university educated and trying to wade through all the IRS tax forms I became increasingly frustrated with trying to understand them. Who writes these things? Why does the IRS use their instructions to further punish everyone needing information? Truly the IRS wants to collect penalties not taxes, for expats, they will not even answer questions.
Ok, I am not very good at this (posting links), BUT an article appeared at CNN Money yesterday by Sophia Yan. It’s called Meet the “accidental American” with a big tax bill. (http://money.cnn.com/2014/12/15/pf/accidental-american-expat-tax/index.html?iid=HP_LN&hpt=hp_t3) She says if anyone emails her, she will run their stories. I mailed mine this morning* to ONE CNN CENTER, 190 MARIETTA NW, ATLANTA, GA 30303 because it’s 5 pages long. Mr. Woods had abbreviated “I am Canada, Hear Me Roar Mr. President”. Please, don’t get mad at me over whether or not I am a citizen. It is written to explain how the the US government is trying to label everyone.
Sophia Yan email link is in the article link above — I could not place a link here (or it told anyone clicking on it, that it may be a trick!).
Incomprehensible IRS rules and form instructions remind me of an encounter I had many years ago when I temporarily lost my mind and considered moving back to the US. I’ve now lived in Canada for more than 40 years and this occurred about 20 years ago.
I (and my new Canadian-only spouse) stopped in at US customs to ask a few questions about the rules for returning US citizens and the procedure for properly applying for US residency for my spouse. The US Customs official we talked to was unhelpful in the extreme and acted as if explaining their rules was like revealing military secrets. I finally said “How can you expect us to follow the rules if you won’t even tell us what they are?” His reply was “The only reason you want to know about these rules is so you can follow them and not run into problems. Just go ahead, move down here, and we’ll tell you if you violate any of them.” A pretty unbelievable attitude.
My spouse and I walked out of that office thinking that if that was what the US government had become we would be stupid to try to move there. Thankfully, that experience jolted me back into my right mind and we have lived happily in Canada ever since.
Yes, punishment is their objective.
Thanks, Ann #1. I’ve taken the liberty of adding links to your comment.
@Calgary 411 Thanks a bunch!
@Schubert, Dittos. I have an alphabet soup of degrees after my name and frankly the instructions…..I would not have a clue if they were right or wrong.
One thing I know thats true is any expat that says filing overseas is no problemo….well they are doing it wrong…thats why there is no problem.
Schubert, George and all,
I have not a one degree after my name (except that school of hard knocks) — that is why I had to pay with my Canadian-earned retirement savings for the US citizenship-based taxation compliance industry to get me properly brought up to date and OUT with a Certificate of Loss of Nationality now in hand to show my local Canadian *foreign financial institution* that I am ONLY CANADIAN. Believe me, even I realized I HAD A PROBLEM with that overseas filing!
@calgary411, forgive me for saying this but you were ripped off!! Every Canadian penny that was spent by you was stolen from your family.
It was stolen by the compliance industry who lobby for these laws and it was stolen by the USA.
Forgive me but you have earned the right of Righteous Anger.
Thanks, George. I am and will continue to be righteously angry. We’re on a roll here today with suggestions and opinions in our comments. I’ve also commented here: https://www.taxconnections.com/community/FATCA-Tracker/10008#281. Don’t see much from comment to mine from the lawyers who have joined that group. I’m mainly talking to myself.
@all
This article (just posted on Comment on Current Media & Blog articles) is another chance to educate:
http://www.forbes.com/sites/robertwood/2014/12/16/20-really-stupid-things-in-the-u-s-tax-code/
@maz57, they put out incomprehensible information so individuals won’t know how to defend themselves if the occasion calls for it. Remember Koskinen’s answer posted on this blog? Sheer gibberish. And what sort of answer did the customs agent give you?! More gibberish. These are non-answers designed to cover bureaucrats’ own behinds.
Incidentally, Brockers, this from Mark Nestmann today:
http://www.nestmann.com/why-the-irs-goes-after-the-minnows-and-ignores-the-whales#.VJDISVpN0lI
only twenty, i am sure there are thousands
Mr. Wood, a huge thank you for bringing these issues up and showing them for what they really are. I think most who hear about this feel the top 20 list is just the beginning. Again, thank you!
One simple question I would love to show the world the answer to is How many lives did Bin Laden destroy in the 9/11 attacks? Now, how many lives has Obama destroyed with this illegal extortion?
“Unlike big companies that can avoid U.S. taxes on money stashed overseas, U.S. persons living abroad have to report and pay U.S. tax globally. And FATCA means that foreign banks often turn away American accounts entirely–dealing with American tax law is just too complex. Many expats suffer, and some are so fed up they renounce their U.S. citizenship.”
Not exactly a condemnation of CBT, is it? In fact, sounds more like he wants to hold US companies to the same standard as US persons who aren’t allowed to “stash” their money overseas. In usual fashion, Mr Wood manages to sound for and against CBT at the same time!
I don’t think comparing our situation to 9/11 is helpful. Ditto for comparisons with slavery and the Holocaust.
How else would you compare it then? Similarities must be shown?
@ NativeCanadian & tdott
Maybe the comparison could be to the Roman Empire and we all know how well that worked out.
“And it came to pass in those days, that there went out a decree from Caesar Augustus, that all the world should be taxed.”
Amen, EmBee! Very seasonally appropriate analogy!
@EmBee
Seems apt to me – in more ways than one.
I could say a lot about this (and actually started to), but I’ll leave it at this: IMO comparing our situation to one of the truly tragic events/situations in history runs afoul of “Godwin’s Law”.
See: http://rationalwiki.org/wiki/Godwin%27s_Law
I’ll stick to enforceable laws , however, I’ll leave it at my opinion which many others on this site agree to and have all mentioned in posts before using the same or very similar comparisons. The end outcome is not a measurement of how evil it is, just that evil things that compare to Fatca have been done to people in the past.
Embee, George and all the wonderful Brockers -happy holidays to you all, I have made my )?? 4th?? (*lost track) donation to IBS of my small Xmas bonus. Embee’s reference to the Roman Empire is appropriate and timely-I am reminded of a phrase around Caligula and the beginning of the destruction of the 2nd temple:
“Now Caius Caesar did so grossly abuse the fortune he had arrived at, as to take himself to be a god, and to desire to be so called also, and to cut off those of the greatest nobility out of his country. ”
hm….. this sounds very familiar…..