The Law That Makes U.S. Expats Toxic
wsj.com
wsj.com
It's annoying as heck, particularly as the burden falls mostly on folks who are coloring squarely within the lines. I pay enough for an accountant that I know with $10k of financial engineering the problem goes away for forever, which makes me think the guys with $30 million in untaxed capital gains that they're really worried about are probably not getting meaningfully inconvenienced by this policy.
As an American this upsets me greatly to hear. I feel it makes living abroad, especially to families of average means in this country, almost an impossible feat.
I also wonder if only leaving the country for short duration vacation/business contributes to the "We're the best country ever!" mentality here and the "Wow, look at those weirdos over in America" mentality abroad. Or maybe that's just me paying too much attention to the news lately.
FWIW: this is clearly not the case. It's just a paperwork burden with occasional inconveniences, some bigger than others. Millions of Americans, most of whom have more modest means than the typical software engineer on HN, make it work.
The real harm for business people overseas is that opportunities may be closed for you to invest in other businesses or to join a board or something because your status as a US Person causes a burden for others. At the 100 million dollar level I imagine this is not a big deal but at the startup and smaller growth company level it seems problematic. This reduces the opportunity for soft diplomacy and representing the brand of America to foreign people of means and substance.
I would be curious to know if you have experienced or anticipate experiencing this. Perhaps where you are is more closed to foreigners but there are countries where foreigners do lots of business. Have you been invited to invest or participate in boards?
Doing my US taxes takes about 3 hours, as it's basically updating the previous year's forms to reflect whatever changes have been made and adjusting for salary and exchange rate. As I live in a country with higher taxes than the US, I don't pay anything. US-ians living abroad will become familiar with form 1116 and 2555...
Yeah, FATCA introduces additional paperwork (or web-work at the moment). But, I have to fill out similar paperwork for my current country to account for my US-resident accounts. So I guess both countries wish the other would just go away?
This sort of thing is the financial engineering that patio11 is talking about. It's not cheating, it's doing what the system is meant to let you do, if only you understood the best paths through the system.
I have a similar situation on a smaller scale. I live in one US state and work in another. I file income tax for both, and there's a form that takes my tax liability to my state of work and backs it out of my liability to my state of residence. I wouldn't have known that form existed and would have just assumed I had to pay full tax to both states, if not for TurboTax directing me to that form.
The law will direct you how to mechanically comply, but it won't direct you against complying in ways hurtful to yourself.
I'm generally in favor of trying to crack down on tax avoidance, and I'm sympathetic to the cause they're trying to advance here. The "spirit" of the tax law is basically "you gotta pay someone their fair share", but everyone knows that $100,000,000 means you don't have to comply with the spirit of this law any more than you did the one before or the one before that.
Compare this to Switzerland that considers its citizens living abroad part of the "fifth Switzerland" (there are 4 official language regions in Switzerland). They can vote online (in some Kantons/States) and participate in government programs to keep in touch with or learn about their roots. All without taxation.
Of course, people here complain about citizens living abroad voting in local elections... Representation without taxation!
The general issue of indirect democracy not representing the will of the voters is a fundamental one and not solvable, also goes to far for a discussion like this. Side remark: JFKs Profiles in Courage is a great book on the topic.
You yourself stated above that they don't?
I got your argumentation as "I never was represented anyway, so not being represented as expat did change nothing". But the difference is that the other americans have representatives that are supposed to act in their interests. Expats have only the afterthought of being american and that one could think about them sometimes, since they vote.
Who are the elected officials who are supposed to represent them? I do not think that there is one, that is not how your system works.
The elected officials who represent a given expat are those from the district where the expat is registered to vote. For example, when I lived in France, I was still registered to vote in Wisconsin, so I voted for Wisconsin Congressmen, and they are who I would contact if I felt like wasting my time by making my opinion known to legislators.
The article is trying to say that because expats don't have any representatives exclusively for them that they do not have representation at all. I find this to be absurd. Yes, small interest groups have trouble getting action in the legislature, but that's hardly unique to expats, and nobody says that e.g. janitors pay taxes without representation just because there's no Janitor Congressman.
We can do this for any issue which is not related to state/district borders. No single member of Congress represents urban Americans, or rural Americans, or WoW players, or hair stylists. Would we say that they pay taxes without representation? Of course not. Why are expats any different?
I lived abroad for several years and I never felt like I was without representation. I voted and had elected officials the same as my fellow Americans. The degree to which I'm represented in Congress (i.e. nobody is really answerable to me, but I can write to them and get a form letter back if I feel like wasting some time, and once every couple of years I get to pretend like my vote matters) was no different at that time than it is now.
Clearly you are unfamiliar with the level of gerrymandering we have implemented, which makes it feel unfair when a distinct property owning group (say, retirees in Costa Rica) don't have their own gerrymandered pet politician just like the yuppies or inner city poor or rednecks have in congress.
Unevenly enforcing a corrupt system feels worse than merely having a corrupt system.
They 'make sure' our interests as expat are being covered.
Sure, we still get to vote, but when you make up less than 3% of your representative's constituency, you're even more screwed then the average person.
I personally never had any trouble voting while I was living abroad. It was slightly inconvenient to track down a fellow American to witness it, as required by the absentee ballot I was issued, but no big deal.
Makes me wonder what would happen if a significant number of expats would agree on some low-population state to remotely take over. How far could bureaucratic friction be increased to fend off that kind of "attack"?
It's incredibly frustrating how even when living overseas you have to have some sort of residential address for many things. I use my father's address for this purpose, which is useful since he lives in a state with no local income tax, reducing some of my paperwork.
1. With my time difference, I'd have to call my reps at a time when I'd normally be getting ready to sleep just to catch them in the morning.
2. In addition to that, not everyone has good internet connection. Especially if you live in a remote area. Prior to a year ago, my internet connection at home was fairly slow.
3. Yes, I'll admit that I forgot about Skype since it wasn't reliable for me in the first few years I was here. However, cost is cost. And having to manage Skype Credits, which I'd never use elsewhere, is just an extra burden compared to what it was like back in the States.
And aside from that, it still does not detract from my original statement:
> the effectiveness of getting your voice heard by your "representatives" (the reps from your last permanent residence in the US) is much more difficult
It's not just the contacting. It's also getting them to even care because you don't live on US soil. None of what I'm saying is an excuse, and I don't know why you seem intent on not acknowledging that it can be legitimately difficult.
As for caring about your opinion, why would they care any less about you compared to any other voter?
I said the caring part out of frustration with the current system. I've always felt that if they couldn't map you to a US address within their jurisdiction, then they'd know that you had less of an ability to influence other voters around you via petitions, grassroots campaigns, etc. So discounting your opinion wouldn't matter as much.
As for petitions and such, I imagine that would be much less of a factor now with the rise of social networks and such. But the views of our elected officials may take some time to catch up to that.
American citizenship has real benefits, especially if you're rich enough to pay expat taxes. The U.S. protects you and your property everywhere in the world. My dad was stuck in Yemen when the civil war there broke out. His hotel was shelled. That blue passport was his ticket out on a C-130.
I certainly wouldn't presume or preach to others with regards to how they view their country, however:
1. We (I'm an expat as well) pay little taxes to the U.S. because of the foreign earned income credit. The paperwork is onerous, yes. But it's not as bad as some make it out to be, unless you're in an exceptional income bracket.
2. A U.S. passport is a powerful thing. And as the OP mentioned, the benefits are real. We look after our own. http://www.passportindex.org/byRank.php
3. Many U.S. expats wouldn't dream of renouncing their citizenship, because it simply means more to them than that.
It's more than residency, it's identity. And it's something we pay into. Many Americans will tell you...they don't like a lot of taxes...but they /will/ pay taxes, and they expect everyone to. It's a "we're all in this together" bit. Even if you're abroad, and you're paying a paltry amount, you're still chipping in.
Just something many of us do.
This is the part that often (note: not always) leads to valuing an American higher than a non-American. I have real problems with that. 911 is virtually celebrated, while larger tragedies the world over are not. What makes an American soldier's life more worthwhile than a baby born with Aids in some African backwater? If you believe all the flag-waving, nationalism. Otherwise media.
And I get that small number of deaths is a tragedy, a large number is a statistic. That doesn't change the reality - a life is valuable no matter who's it is, and where that person lives.
I'm a citizen of the world. I was born in Africa, have lived in the US, and now live in Europe. I rate myself as no better or worse than anyone else on this planet, including Americans. Most of all I'm insanely grateful to not be American.
AFAICT most of the money isn't spent here, it's parked here as a hedge in case something goes south in the home country, usually in real estate holdings. The biggest effect I can see is that housing in the city is too expensive for the locals now so families are being driven out into rural areas.
It's not like federal income is an admission fee. Or a direct tax on something the citizen uses (like a toll road). You benefit just as much from the government building a VA hospital, AIDS research, or a US carrier stationed near Syria.
You don't suddenly stop being an American when you go live somewhere else.
Double taxation only exists in Aethopia and the US.
Read this blog: http://www.overseas-exile.com/
Protection? Yes, maybe that's the reason. To support the US military efforts and budget.
On a side-note: If I would applied to the US greencard, and then decided to move back to Germany, I would have to pay double income taxes. To Germany and to the US. You don't even need to be US citizen.
8.7 million abroad. 3,417 renounced citizenship.
Or, .039%.
I'm going to take a stab at this and guess that's some of the 1% right there who had millions stashed abroad. Maybe the tax law was painful to them, but for the rest, it's hardly a crisis.
The real question is how many people would like to give it up, but can't, because obtaining citizenship where they live is extremely tough and because the US is unusually vindictive towards people who try and renounce. They can even retroactively undo your renunciation if they decide you did it for tax reasons.
Seen from one angle, US citizenship looks a lot like modern slavery. You're born into it, it's difficult to escape, you get no benefit out of the relationship and no matter where in the world you run to your 'owners' will demand a slice of the fruits of your labours.
To address the "why should you keep US citizenship?" question: If you move abroad, you won't be able to get citizenship in the country that you reside in for a number of years (depending on where you go), and in many cases, your US citizenship is what makes it easy to get a work visa or residence permit in that foreign country in the first place. So, even if you actually intend to renounce your citizenship, you still have about 5-10 years of living abroad and dealing with the tax implications before you can become a naturalized citizen in the place that you move to.
I'm not trying to argue whether it's fair or unfair to impose the tax on citizens living abroad, just that the logistics don't make the proposal of renouncing ones citizenship so simple.
We don't get any real benefits abroad, and we get charged for everything. Let's say you need something notarized - many places won't accept a foreign notarization, which means you have to go to the embassy. You know how your bank will usually notarize documents for free? The embassy charges you $50 - per signature.
Want to renounce your citizenship? That'll be $2,350.
You managed to end up in the wrong place and civil war breaks out? The US will make some effort to help you, but it wont' come free. U.S. law 22 U.S.C. 2671(b) (2) (A) requires that any departure assistance be provided "on a reimbursable basis to the maximum extent practicable.” This means that evacuation costs are ultimately your responsibility; you will be asked to sign a form promising to repay the U.S. government. (http://travel.state.gov/content/passports/en/emergencies/cri...)
And if you do renounce your citizenship, you risk not even being allowed back in the country to visit family. --People who have done so have been denied visas by the US supposedly because they aren't well enough established in their new country. And yes, this can even happen in the event of family emergencies. So giving up US citizenship could prevent you from visiting a parent or other family member on their deathbed - not something most people want to think about.
My biggest complaint is the paperwork. Besides FATCA, there is also the FBAR filing requirement. You need to report every foreign bank account that has more than $10,000 in it. This amount hasn't changed since the 70s.
This law may have been well-intentioned but it has some very toxic fallout for innocent people.
I've worn te uniform of the US military and paid my 'dues,' yet to imply that an overseas American is any less American is offensive. When I am outside the US, I do not consume a single taxpayer funded service. All consular services for the most part are self-funded. If the time comes when I need the Marines to come bail me out, send me the bill and I'll pay cash; otherwise the IRS can leave me the hell alone. I am a proud American, but I despise the Democrats who passed FATCA along with the class warfare rhetoric that led to it. To Democrats, overseas Americans are presumed to be money launderers, drug dealers or tax evader. I am neither yet the burden of proof is on me. Did you know when Insend money to the US, I must provide proof of the fund's origins? I have to prove my innocence in order to use my own money! FATCA is worse than the NSA -- it's a license to violate my financial sovereignty.
By the way, you speak of giving up citizenship like it's a small thing. Once you do this, you can never get it back.
'US Persons' in the context of this law is not the same as US citizens. It may include family members or business partners of citizens, or even of family members of former residents. It even affects many people who have no personal connection to the US, in some cases even people who have no right to enter the US without a visa if at all.
Fatca requires financial institutions to find and report any such US persons among their customers, and report their details to the US. This can be problematic, not just because so many US persons aren't even aware they are considered US persons, but also because in some countries banking privacy laws make it illegal for banks to record such information of their customers. These banks are now torn between following their local law and following US law. As a result, just offering certain services to US persons may carry a significant risk.
It's extremely hard for us to find a new bank outside the U.S., and inside the U.S. isn't easy either, since we're not a U.S. company, and do no business there. Thank god we're liquidating this company anyway.
Doing consulting work, I actually did some work for the bank that closed our account. And honestly, while I didn't get close to the departments that deal with FATCA, I can't say I blame them for closing our account. You should see how much of a headache all of the new regulations in the financial industry are for the institutions.
I plan to become a German citizen eventually, because I'm probably going to retire here. But thanks to Germany's disallowance of naturalized dual citizenship and America's tax complexities, that requires weighing a huge number of problems. At least my German bank (DKB) didn't kick me out.
IANAL.
[0] http://www.gesetze-im-internet.de/rustag/__10.html [1] https://en.wikipedia.org/wiki/German_nationality_law#Natural... [2] http://www.gesetze-im-internet.de/rustag/__12.html
There are a few other rare exceptions. But it is completely impossible under the standard naturalization process, which requires you to renounce any previous citizenship.
I'm living abroad and you can definitely see the impact of the US tax system in the background of expats: Americans are severely underrepresented. The same salary, when offered to a British expat and an American, is much less attractive to the American because of the 30+% tax burden imposed.
The folks with a trickier situation are the ones who either a) are getting subpar tax advice (really, really easy, since few accountants are qualified to talk about multinational taxation and those that are generally charge a bundle) or b) folks who live/work in a low-taxes-low-services nation but end up getting a mid-taxes-no-services bill tacked on due to their US citizenship.
Representative examples of the two regimes: I have lived and worked in Japan for the last ten years. Japanese tax rates are generally on par with or slightly above US tax rates. (There exist important qualifiers on this for practical tax planning for small businesses here.) This results in me every year shipping my accountant a lot of numbers after which he comes up with a calculation which says something like: "Taxes owed to US: $20k; taxes accrued in Japan: $22k; take Japan/US tax treaty credit; net tax owed to US $0."
On the other hand, consider a high-salary employee of a bank's Hong Kong office. The HK top tax rate is 15%. The US top tax rate is 39.6%. Uncle Sam will happily advise you that you have to pay the 24.6% difference (on your last marginal dollar, naturally).
All of the above assumes one is doing one's level best to pay the lowest tax bill consistent with the clear intent and established practice of the enforcement divisions of the laws of the United States. This, regretfully, does not describe all taxpayers.
And if you make more than $100,000 but live in a country that isn't a tax-haven, you exclude that income too because you're only taxed on the difference between the taxes you would owe the US government and the taxes you paid in your home country. In Europe at least, you're almost always taxed at a higher rate than the US would have taxed you, so again, you don't owe anything. You're only looking at that 30% burden if you live in a country with no taxes and you make millions of dollars (because again, the first $100k is excluded).
I agree it's a bit crazy that the US taxes worldwide income, but the practical consequences seem pretty minimal. My bank has no problem with me as a customer, or at least if they do, they haven't said anything to me about it.
There also appears to be a factor of risk. I'm not American but have had Americans in my team. A slight procedural error, either by themselves or by the IRS, can be a huge financial and legal problem, and expose the person to litigation. It seems draconian and unfair to me.
Thus the practical consequences are more than minimal.
Perhaps it is sometimes a good advice, but it can also be a spectacularly bad one.
E.g. at some point around 2000 or so, I'd just moved to the UK, and my personal finances were total chaos around the move. I'd sold quite a lot of shares in Norway, and traded quite a bit on NASDAQ via a US brokerage account (in 2000... yes, it got ugly; thankfully not that much money), and had income from both UK and Norway split between employment and contracting in the same tax year. And transfers back and forth between my UK, US and Norwegian accounts... To make it more annoying, UK and Norway have different tax years (Norway follow calendar year, UK does not). And to be honest my record-keeping at the time was shoddy to the extreme.
So I wrote a letter to UK and Norwegian tax authorities where I set out the details of my income, assets and losses as best I could. I told them I had no clue how to accurately figure out exactly what was due (for the US it was easy because it was all losses that year; the US brokerage account was just relevant because it provided deductions for losses on my Norwegian taxes). Gave them a number each that I thought was close to correct. Filled in my tax returns with estimates (and explained in my letters that the numbers were estimates). Both just accepted my estimate with no arguments, and no requests for further documentation. No fines, or angry letters, or conflicting estimated tax calculations or anything, which was what I feared when I sent it all off.
A couple of years later, Arkansas wanted to know why I didn't pay them any tax on my income from that year. I called someone, explained the situation, and he just had me write a letter. Problem solved.
We're conditioned to fear the IRS because audits look horrible on fictionalized TV shows. In reality, I think you're right. The IRS is just a collection of people, and if you make an honest effort, the person on the other end isn't out to ruin you.
Yes, they are people, but if what happens to you depends on people, the end results can be rather unpredictable.
I'm in Abu Dhabi, where there is no income tax, so tax treaties aren't really helpful. As a result, salaries here are actually proportionally lower than they would be in a higher-tax country, which works out well for everyone besides Americans. The exclusion is helpful, but you can still end up with a substantial tax bill as well as having to be careful about how much time you spend in the US.
Assuming for the moment that the US isn't going to stop taxing expats on foreign income, I do think the exclusion limit is too low by about half. Making it more like $200k would allow more highly paid "normal workers" to avoid the penalty, while still hitting the very wealthy purely looking at the tax dodge.
And the limitations on time spent in the US are absurdly low as well. I'm an academic, so if I attend a couple of conferences there, I actually have to count the days left when I book a holiday to spend with my family. I have almost as many paid vacation days in Iceland as I'm allowed to spend in the US without forfeiting my bona fide tax home status, which is ludicrous.
You do pay taxes in (for example) Hong Kong. It's just not as a high as the US rate.
> Making it more like $200k would allow more highly paid "normal workers" to avoid the penalty, while still hitting the very wealthy purely looking at the tax dodge.
That would certainly make sense. Personally, I think a more thorough analysis of income sources is also in order: if you're genuinely working for a foreign company as a foreign employee, I think that should be treated differently than a wealthy person who is just avoiding US residency for tax purposes, despite the majority of their income coming from US sources.
Then you'd pay a proportionately lower rate for your US burden. The overall amount of tax owed should be relatively constant.
> I think a more thorough analysis of income sources is also in order
I suspect the issue here is the manpower required to do it and/or the potential for extra loopholes. Could I start a company in Singapore that just happens to derive all its income from US sources and has me as its sole employee? Taxing by amount makes a certain degree of sense in that regardless of shenanigans, if you get money at the end, we tax that money. (Though of course, we don't actually do this in the US with things like capital gains.)
If the country has no taxes, the foreign income exemption doesn't work. Also, it maybe doesn't work if you are going to get a job in Iran, Cuba, or North Korea...there are certain standards to meet.
There's a ~100k foreign income tax exemption and many countries have tax treaties with the US which bypass even that and give a US tax credit corresponding to the already taxed foreign income.
Big issues are there are constraints on the time you can spend in the US (too much holiday there and you're not considered living abroad) and there's the additional burden of caring for and declaring your income to the US, most expats don't need to be involved with the home country aside from grousing about it and renewing their passport.
Check with your accountant for an authoritative take on the following, but since I happen to be right with a certainty approaching "Gravity exists" I'll write the correction here: There exist two tests by which you can qualify for the Foreign Earned Income Exemption. One is the physical presence test, which is automatically ruled in your favor (i.e. you are ruled to be a foreign resident) if you spend less than 30 days in a tax year physically in the US. The other is the Bona Fide Residence test, which is less of a deterministic question than physical residence. There's no limit to the amount of time you spend in the US every year as long as you meet the IRS examining officer's impression of someone who "clearly lives in a foreign country continuously for an indefinite period."
I've had years with upwards of 100 days in the US, and never had any problem with claiming Bona Fide Residence in Japan. As my accountant phrased it once: "If you've got only one refrigerator, and it's on, and it isn't in the US, then you're certainly BFR abroad."
For more on this scintillating topic: https://www.irs.gov/Individuals/International-Taxpayers/Fore...
That's the point. It means skilled American workers are less likely to work elsewhere, thus increasing the competitiveness of America by restricting the supply of skilled workers for the rest of the world. It might suck for individuals but as national policy it makes a lot of sense. Plus it raises more tax.
It really doesn't make sense how the US is the only
country which insists on taxing their citizens, no
matter where they live.
Taxing on residency rather than citizenship creates a bizarre system where if you're a millionaire you can enjoy all the benefits of being a British citizen, but you can be "domiciled abroad" in Belize, Seychelles, Monaco, or other tax havens.
Then you can be British enough to donate millions to a political party, receive a knighthood - but pay far less tax than a middle class office worker.
If you want to be taxed like a citizen of Seychelles, it makes sense to me that you'd be a citizen of the Seychelles and not any other country.
The British "non dom" system is unique to the UK and is not any particular feature of residency based taxation (which is how every country in the world works save America and Eritrea). And there are constant rumblings about abolishing it or reforming it. I suspect non-dom status will eventually go away, but residency based taxation will stay.
At any rate, no country other than America has any chance of implementing such a policy. To make FATCA work required one of the most draconian laws that's ever come out of a democracy. Most people don't understand it at all. The law says that every financial institution in the world must obey the USA. This is enforced by not only taxing US assets, but because many institutions don't have any US assets, forcing those that do to recursively apply penalties to all their trading partners who aren't in compliance. A big part of the cost of FATCA isn't even reporting Americans to the IRS. It's keeping track of every firm you trade with and whether THEY are reporting their customers to the IRS ...... and then violating your contracts with them by withholding payments until they fall into line.
I see a lot of people saying things like, well, the threshold is high enough that all I have to do is paperwork. Or "it doesn't seem so bad really". I find this to be naive. Here's what can easily happen next:
• The threshold is lowered. As expats have no meaningful representation or organisation as a group, taxing them is effectively free money.
• The FATCA recursive enforcement infrastructure is extended to mandate global compliance with other US laws, by making banks impose penalties on any company or person that Congress doesn't like. People get upset as they suddenly realise that US law now takes precedence over their local laws.
FATCA is literally a totalitarian takeover of the entire global financial system by America. They don't care if people have to violate local laws in order to obey. The view of Congress is that American law supercedes all local law. It's the formal establishment of a global American empire.
you are confusing country of residency with country where you earn your income.
if a millionaire lives in Belize, earns his money by having his money invested in Belize and pay whatever taxes Belize require, that law will give zero tax to the usa. it will just force that millionaire to give up citizenship.
now if he makes his money in the usa, then your point is invalid as you clearly don't understand the issue. also this is exactly what corporations do already and this law won't change a thing.
Really a messed up law and messed up policy.
I do understand why our government did it: not good for the economy to have older people spend their social security money in a relatively inexpensive foreign country. I think the money laundering and anti terrorism arguments may just be a smokescreen. This may also be just our government throwing their weight around, bullying other countries.
I am still a little sad about our decision though. I think that life is more interesting living in different places, doing different kinds of jobs, etc.
BTW, I didn't want to move for financial reasons as much as wanting a low key lifestyle. There is something about Central America that makes me feel great just hanging around. Anyway, my wife and I live in the mountains of Central Arizona, and I also love our lifestyle here, so life is good.
Also US is still the sole global superpower.
[1] http://travel.state.gov/content/passports/en/passports/infor...
- Social Security is collected on what I paid into the system while I was living/working in the US. Not a part of this
- Voting is a right - nothing to do with taxes
- My "consular services"? My passport renewed? I cost me $100 or something like that to get my passport renewed, and most of us never go anywhere near our "consular services" - I'm not even sure what they offer, except to business people over here via the Amer. Chamber of Commerce (which they pay an arm & a leg to join)
Your rights can only be secured if the Government can pay for them.
Wrong.
Your Social Security benefits are proportional to what you put in (usually), but you will receive more money than you put in and more money than you money earned over that time period, assuming a normal life expectancy.
The trope that you only get what you put in with SS and Medicare is false.
Trust me, it is as close to nothing as nothing gets.
It can be split into three families of spending:
- defense, which benefits you globally via Pax Americana, free trade routes etc. and should you require it, "Captain Phillips" style rescue.
- "socialism", in the form of benefits that everybody has to pay for and that you can receive if you trigger certain situations (retirement, unemployment, etc.). Most expatriated Americans probably already benefitted from free education which is included here.
- "generally making the country locally better" (justice, environment, etc.).
Of these, only the latter doesn't directly impact Americans abroad. The first benefits you wherever you are; foreign citizen somewhat benefit from Pax Americana but there is no guarantee it will continue, whilst US citizen are covered globally with much more certainty. The second is a form of compulsory insurance for life developments that will probably coincide with repatriation. But that's about 7% of the budget (rough back of the envelope).
The question is why don't other countries tax their citizen abroad? I think it is mainly because they can't afford to enforce it (good luck, Estonia, forcing JP Morgan to give you access to their New York client data). If they could, with any degree of certainty, they would in a heartbeat. France proposes to do it every 6 months.
Tell that to the lybian, syrian, iraki, Salvadoran, etc... that have "benefited" from the "Pax" Americana
The question is why don't other countries tax their citizen abroad?
I assumed that the general consensus was that it all balances out at the end of the day – countries don't tax their citizens abroad, but do tax noncitizen residents who have income in the country. Either approach isn't all that bad, but it's interesting to think about how it can realistically be handled where individuals can hold multiple citizenships. My partner is dual US/UK, and completing a US tax return when you haven't lived in the country in decades is expensive and time-consuming.
This is, to put it mildly, a controversial claim.
- Most expatriated Americans probably already benefitted from free education which is included here.
When I point out the insanity of the law that denies free choice of public schools, its defenders usually try to justify it by saying schools are funded by local property tax rather than national income tax. Is this not the case?
Whether you consider that global relatively free trade is not beneficial to the rest of the world is up to you, but as a citizen of the rest of the world who did benefit I'm quite glad the US did not go isolationist after WWII.
Regarding schools, whether the taxpayer's money is used appropriately is another discussion, irrelevant here since Americans, through their elected representatives, chose to spent the money in this way.
Funding-wise, last year's budget spent $100bn and this year wants $117bn on the Federal end for "Education, Training, Employment and Social Services" (see link above) of which $69bn in 2015 is for Education (see: http://www.ed.gov/news/press-releases/obama-administration-2...).
I wouldn't personally advocate that stance - I think it's problematic with respect to consent - but I can see that in the case of extremely high emigration rate the viewpoint might be very tempting.
Interestingly, the US relatively high tax compliance rates, compared to other large/industrialized countries [0]. Presuambly the wealth you refer to is what results in the absolute dollar amount of evasion being higher, despite the relatively low rate of evasion.
[0] http://blogs.reuters.com/david-cay-johnston/files/2011/12/GL...
The US is the worlds #19th richest country as far as GDP (per capita) which makes the most sense as a measure of individuals and taxes.
I don't think it makes any sense given that lower GDP nations should be doing the same thing to extract money from the US economy on any of their citizens who make more than ~$20K (if their GDP were $14K) based on the same "logic".
When The US is happily paying fairly for its brain drain, it can complain. But either way as an expat I actively boycott US services and financial relationships for my own protection.
(edit- make it clear I mean per capita, and reference: https://www.cia.gov/library/publications/the-world-factbook/... )
This seems hardly worth 'denouncing' American citizenship. Can you explain?
I feel like threads like these really illustrate the difference between someone on HN and the average person.
You aren't paying twice. That's the point. Assume the US has a 30% tax rate in your bracket. Poland has a 35% rate for that same bracket. Then as an American expat, you would pay 35% in taxes. If Poland had a 25% rate, you'd pay 30% (25 + 5) in taxes. You aren't paying 65% of your income in taxes. You aren't paying twice.
> On the most basic level - Poland has absolutely no "right" to any of that money.
Then Poland has the right to say you are no longer a Polish citizen that can take advantage of Polish embassies or move back to Poland at any time as a full citizen.
It seems perfectly sensible to me.
It's not sensible if none of your other coworkers have to worry about this and they're all foreign citizens as well. It's a stupid tax policy that is basically a shakedown.
And yeah, I'm not totally sure about your example. I'm quite certain that I would pay 30% of my income in Poland, and then US would want a further 30% of the remaining amount, IRS would not care that I have already paid income tax in Poland.
As a business owner, my best strategy from a personal tax perspective is that my company makes no profit - it should all go to me as salary. In the past, that has put me in conflict with a non-US partner, as it didn't match his best strategy. And it means that "profit sharing" for employees doesn't make sense.
So US tax law costs me considerable money in compliance costs and fundamentally distorts the way I run my business, for no additional tax revenues to the US.
Fundamentally, residence based taxation makes more sense. It's more direct and easier to manage. People talk about these benefits of being a US citizen, as if I don't get services from the country where I live.
As far as I understand my rent details as well as bank accounts overseas are reported to the IRS. This extra work can be seen as a burden for both parties.
[0] https://www.irs.gov/Individuals/International-Taxpayers/Fore...
*edit grammar
As a former expat, this would have made my life significantly easier. The current U.S. tax code is appalling in its overreach.
I wrote "the Average Joe cannot think", not "the Average Joe doesn't want to think". Other than that, I agree.
https://en.wikipedia.org/wiki/International_taxation
You can sort by what you want to see: http://i.imgur.com/hSsVmwd.png
This seems pretty ironic to me given the "no taxation without representation" principle.
https://en.wikipedia.org/wiki/File:DC_2013.jpg
edit: spelling / typo (thanks mikeash)
You can vote for president, but you have no voting congressman.
Cultural tidbit: If you're a resident of the D.C. area, and you live in Southern Maryland or Northern Virginia, be careful not to call yourself a Washingtonian. Residents will kinda frown at that. There's a perception that sometimes residents from the neighboring states will make it seem (unintentionally or not) that they're part of the city itself, without paying the cost of being an actual resident: No representation.
Consider that as you will. I always thought it was yet another little quirk of what is a pretty unique city.
(I'm from Northern Virginia. ;)
Wacky question: does the President count as a DC resident and is therefore bereft of Congressional representation, or does he technically remain a resident of wherever he came from and get to vote for those members of Congress?
I really love those DC license plates. What I especially love is how Congress still has the final authority over all government matters in DC, so this is quite a snub by the local officials at their Congressional masters.
Nonetheless, I still agree that it's incorrect, and strangely enough, I thought the author's own mention of the bipartisan support of FACTA reform is evidence enough of this. Spread out among constituent states, our impact is probably insignificant. On a national (federal) level, it certainly can be. We're large enough (as he notes) to be a significant body, and we have an oversized impact compared to the rest of the population with regards to how America is perceived in the rest of the world. It's good to know they're examining the issue. I'm sure it had good intentions in the beginning, and I'm confidant they can make some improvements.