US expats given hope of lower tax bills
Republicans edge towards eliminating need to pay levies overseas and at home
published in the Financial Times
by Demetri Sevastopulo and Barney Jopson in Washington
You can read the article by answering a simple question that appears when the page loads. I cannot post the entire article due to copyright restrictions.
Here are some excerpts:
Millions of US citizens working overseas could see their tax bills lowered by an overhaul of the tax system as Republicans edge towards eliminating a requirement for American expatriates to pay taxes both overseas and in the US.
Kevin Brady, the Republican head of the House ways and means committee, which is drafting a tax reform bill, said lawmakers were considering the measure, which has been the focus of lobbying by Republicans Overseas, a group of party donors around the world.
“It is under consideration. They have made the case,” Mr Brady said in response to a question from the Financial Times at a Christian Science Monitor breakfast. “Lawmakers representing that area of the tax code have made that case.”
The US Chamber of Commerce, a business lobby group, has urged policymakers to consider US-only taxation for individuals, too, arguing that taxing foreign income hurts American managers at the overseas affiliates of US exporters.
Mark Mazur, who was the top tax official in Barack Obama’s Treasury department, said he supported the change, arguing that it was necessary to address the “inequity” of an expat paying tax on the same income to both the US and a foreign government.
“If you take two people, one works in London, one in New York, working for the exact same US multinational — if they make the exact same amount of money you might think they should be taxed exactly the same,” said Mr Mazur, who heads the Tax Policy Center.
Solomon Yue and Michael DeSombre are also mentioned in the article.
There are quite a few comments with JC doing Yeoman’s Duty.
Thanks, JC, for the great job you’re doing in the comments on the FT article!
It’s behind a paywall for me, but thanks for providing the gist. (Nothing has really changed, is,and who knows what will come out of all this, but reforms are apparently being seriously talked about.)
Every unique IP address that clicks on the link will be counted.
Bloomberg mentions the FT article
https://www.bloomberg.com/news/articles/2017-10-26/millions-of-u-s-expats-may-get-tax-relief-financial-times-says
and International Investment has a piece which could be the source of the FT journalist’s six-figure-salary misunderstanding.
http://www.internationalinvestment.net/opinion/donald-trumps-proposed-tax-reforms-affect-us-expats/
But the six-figure-salary thing may attract the interest of those who have some influence, so it may be a help not a hindrance. Strange world we live in.
Also in the Times, citing FT.
https://www.thetimes.co.uk/article/americans-abroad-in-line-for-tax-break-under-law-change-lmnmhgtb0
Although beneficiary- the title enrages me. “hope of lower tax bill” just makes it once again look like a way to avoid taxes for the rich – it should say “hope to end UNFAIR tax bill.” or something along those lines. They always make it about rich tax cheats. Always. There might be a handful of rich, but CBT effects ALL expats and most horrendously those who don`t make millions. I`d like to see a homelander whose mortgage gets cancelled not start screaming at congress.
Surely many US citizens living outside the US do indeed wish for a lower tax bill. Not me, never having paid any US tax since I left, but an unknown number of US expats will be compliant and earning six-figure salaries and looking for ways to pay less tax. Some of them will be FT subscribers.
This part is not good though:
@Polly
The title of the article (presumably) comes from the Financial Times authors and NOT from Rep Brady. It’s very important to stay supportive of the main message and not be distracted by small aspects that one doesn’t like.
@Plaxy
The White House does not write the legislation. Unless the White House actively opposes changes for the taxation of Americans abroad, it’s response is not as important as the response of Congressional tax writing committees.
When you read the complete article you will see it has been reported that a change in tax policy for Americans Abroad appears to be supported (or at least not opposed by)::
1. Mark Mazur of Obama Treasury fame
2. American Chamber of Commerce
3. It appears that Brady is saying that the lawmakers supporting that area of the tax code have also made the change for RBT (which suggests that the 2013 and 2015 submissions have done their work).
4. The White House sees no problem with it (maybe)
5. RO is mentioned as having brought the signatures to the White House
Appears that the collective work of a lot of people/groups, over a period of years, may be paying off. I think that the most significant support (from the perspective of change) may be from Homelanders: the American Chamber of Commerce and perhaps Mark Mazur.
Assuming the truth of this article, the biggest hurdle has been crossed. Congress is acknowledging and considering the issue (I suspect that this may already have been written into the draft legislation).
Considering that the effects of CBT cannot be understood by those who have never lived it, this is a tremendous achievement – which reflects the work of large numbers of people (and organizations) since 2011.
It’s vitally important that those large number of people and organizations, come together in support of change.
What unites all people affected by this issue (the end of “place of birth” taxation) is far more important than the specific aspects of what divides them (RBT vs. Territorial, etc.).
Yes I’ve read the full article. I think it’s great that this subject has appeared on the front page of the FT for whatever reason. Let’s hope the tax bill draft will bring good news.
Now companies like Greenback Tax services etc will try to gather support for killing this bill as you will notice that it’s already stating that this bill might not become a law at all. I know condors will fight with tooth and nails to kill this bill after all it is their bread and butter from tax preparation services for US expats. I know I pay more than 2000 usd every year to my CPA based overseas too like us. I don’t owe any taxes as of yet only needless reporting money that could be spent better on my medical needs. This condor will have to move back to USA if the law is ever passed (I doubt he would like for this law to be ever passed as he will have to wrap his operations here and move back to USA. I am hoping for the law to be passed but scared now condors will try their best to defeat this law ). To all those who have suffered a lot with CBT like I did I salute you all your efforts and your dedication. To those expats who never complied to needless reporting I salute you too for your bravery.
@UScitizenabroad
Oh I definitely see the merits of the article too. It actually creates a bit of hope where there used to be NONE not long ago.
I don’t have a subscription but I do have a password for login. Sometimes they publications will let you do this.
I agree with @USCitizenAbroad, let’s look at the glass half full, even if the fake news journalist at financial times doesn’t get it.
They key is if they amend Internal Code 61 which says “gross income means all income from whatever source derived”. If they’re really going to do something fundamental, they have to amend this to exclude everything outside the US.
Socrates – could they even do that, without an amendment to the constitution? Section 61 defines what income is taxable, but what we want is a re-definition of who is taxable.
My worry is that any advantageous changes made to the tax code now could just as easily be undone when the next tax reform comes along. It is nerve-wracking not knowing where you stand and what to expect in respect to year-to-year filing obligations. What US person can possibly live a normal life abroad with that uncertainty hanging over them? I just reliquished my citizenship in August this year and the feeling of relief is enormous. Even if these tax reforms pass, I’m glad I’ll never have to waste another thought on whether I am compliant with the US/IRS in every conceivable way.
The law to tax expats was made during the Civil War around 1865 to punish draft dodgers. PUNISH. Hard to believe that people have turned “punish” into a “privilege”. Its a mind-f*ck with words.
There doesn’t seem to be a law to tax expats. There just isn’t a law not to.
Policy could be changed to exclude expats from taxation but it would have to be defined in great detail and probably claimed by 1040 every year.
However. If it’s even mentioned in the tax bill, that will be a giant step in the right direction.
US expats hope for lower tax bills as shake-up seeks to end levies at home
Republicans are striving to pass the first major overhaul of the US tax code since Ronald Reagan in 1986
https://www.irishtimes.com/business/economy/us-expats-hope-for-lower-tax-bills-as-shake-up-seeks-to-end-levies-at-home-1.3268954?mode=amp
@Petlover
Those who have lived with the US/Obama/FATCA/FBAR/ Condor enforced assault on Americans abroad since 2009 (this is when the rollout began) would agree with you. Interestingly, this experience has put people to some hard thinking of what U.S. citizenship is really worth. For those who have another “First World Passport”, U.S. citizenship is clearly more of a liability than a benefit.
Yes, I think it makes a lot of sense for tho those who can easily renounce to renounce. Good decision.
From a practical perspective, the people most affected by this are those who have been U.S. tax compliant. What has become clear is that the only Americans who can live outside the United States are those who do NOT file U.S. taxes. Filing U.S. taxes is (whether known at the time or not) always the first step toward renunciation. It’s not the taxes, it’s not even the reporting. It’s that U.S. tax compliance means that one cannot integrate into the retirement and financial planning programs of other countries. And then (as you point out) there is the constant fear and anxiety.
Actually, U.S. citizenship-based taxation is okay, except for the following four points:
1. Totally Unjust: It’s extremely unjust. Why should people be taxed just based on “place of birth”:?
2. Completely incomprehensible: It’s so complicated that Americans abroad can’t understand what is required of them. For example, when it comes to the forms, there is a lack of agreement in the tax compliance community.
3. Compliance is impossible: Even it U.S. tax compliance for Americans abroad could be understood, it is basically impossible to comply with.
4. Escape is impossible: And finally: Even though it’s unjust, incomprehensible and impossible to comply with, there is no way to to escape without paying lots of fees and in the case of many a a Nazi and Soviet style “Exit Tax”. (The U.S. “Exit Taxes” are far more comprehensive than any Exit Tax imposed by any other country.)
But, other than those four things, U.S. “citizenship-based taxation” really isn’t so bad!
In case there are any US passport-holders who are LTRs of EU member states on the fence about renouncing their US citizenship:
http://www.express.co.uk/travel/articles/870876/Passports-most-powerful-in-the-world-US-UK-Germany-Singapore
It says:
US passports could be set to get weaker still, as the European Parliament voted to end visa-free travel for Americans back in March this year.
The reasons for giving up citizenship are manifold and not purely tied up with CBT.
Getting a visa might be easier than clearing ESTA, for former US citizens.
@Socrates @Plaxy
The precise way of making the changes so that the U.S. ceases to impose taxation on the non-U.S. income of those who are NOT resident in the USA can be accomplished in a number of ways. These ways would attack the problem from either or both of the “Territorial” (what income is subject to taxation) or “Tax Residency” (what individuals are subject to taxation) theories of taxation.
Territorial: Income earned outside the USA is not subject to taxation (this is the essence of the RO proposal). A change to S. 61 would be one way of attacking the problem. I would also suggest that Subchapter N (describing taxation of income with sources within and without the USA – which includes the Foreign Corporation Rules) would be a way of achieving this:
https://www.law.cornell.edu/uscode/text/26/subtitle-A/chapter-1/subchapter-N
Tax Residency: A move to taxing only those who individuals who are resident in the USA (ACA and DA approach). – Change could come by simply amending Sections 1 and 2 of the Internal Revenue Code. Instead of taxing “individuals” (which means everybody), the code could be amended to tax only “residents” … In addition, the definition of “U.S. Person” in S. 7701 would have to be amended to NOT include “citizens”.
In any case, I don’t have strong feelings about HOW they do this. I (and surely all of us agree) this just must be done.
Interestingly, neither RO nor ACA actually oppose “citizenship-based taxation”. Their proposals provide relief for “some” Americans abroad in certain circumstances. DA (if you can believe them) have done a good job explaining why Americans abroad suffer under CBT. But, they have trouble arguing for RBT (some wealthy person might escape taxation). It is only individuals who seem to be arguing for pure “residence-based taxation”.
@ Harrison
No, I doubt it. Condors aren’t organized enough to do anything. They have enough trouble even understanding what the rules are …
I will repeat something I have suggested many times:
Those who are making a living off the doing tax returns for Americans abroad will have to find a new niche. No matter what happens with tax reform there will be less work, Why do I think this?
1. If there is tax reform, and Americans abroard are no longer taxed on non-U.S. income …
2. If there is no tax reform there will be outrage.. There will be no new filers and I suspect that many who are in the system will either renounce or stop filing all together.
Remember the lesson from the last 7 years:
The biggest victims of all of this have been those who have “attempted” U.S. tax compliance.
Self-employed condors will be wishing that they were eligible for unemployment insurance!
@USCitizenAbroad
“It’s not the taxes, it’s not even the reporting. It’s that U.S. tax compliance means that one cannot integrate into the retirement and financial planning programs of other countries. And then (as you point out) there is the constant fear and anxiety.”
Ain’t that the truth!
@Plaxy, you say
“Getting a visa might be easier than clearing ESTA, for former US citizens.”
How so?