We are living in interesting times. During all the years of my tax consciousness I have lived with the assumption of U.S. citizenship-based taxation. When the IRS began its “reign of terror” on U.S. citizens living outside the United States and many people learned about their tax filing obligations, the discussion about citizenship-based taxation began. The U.S. is the only Western democracy and of one two countries (Eritrea being the other) which taxes on the basis of citizenship. The rest of the world taxes on the basis of residence or what is commonly referred to as “territorial taxation”. In a global world where:
– professional mobility is the norm;
– citizenship be nothing more than an “accident of birth”
– there is a consciousness of human rights and the right to remain or renounce citizenship is protected
– standards of common sense and decency are desirable objectives
Citizenship-based taxation is not a good idea! It costs the U.S. economy lots of money!
Leaving aside arguments that are based on a constitutional right to expatriate and the argument surrounding “dominant citizenship” (these are very important arguments) let’s analyze this from the perspective of the character in Jerry McGuire. In other words:
“Show me the money!”
For those who don’t like sports, but do like Bill Clinton then let’s work with the principle:
“It’s the economy stupid!”
It is not in the economic interests of the United States to impose “citizenship-based taxation”. I presume that you are reading this because you are a U.S. citizen living outside the United States. Even if you don’t owe any U.S. tax (the earned income exclusion, foreign tax credits and your general poverty have worked their magic), after 2011, you understand that you still have both U.S. tax and reporting obligations that are complicated and expensive. It will be increasingly difficult to find a “professional” to assist you. On the most basic level the time, cost and anxiety associated with this are a “tax on U.S. citizenship” itself. This is a tax that no other kind of citizen has. (I am not even considering the social and business restrictions that are the result of FATCA. These include minor things like: no job and no life – but, I digress.) U.S. taxation and reporting requirements make U.S. citizens too expensive and undesirable for foreign employers. So, a U.S. citizen can physically come to another country, but he or she comes with a level of toxicity that makes him undesirable. These things are really just a problem for the U.S. citizen living outside the United States. And who cares about them anyway. They (from the perspective of the U.S.) are just FATCAt(s) drinking expensive wine on the beach and certainly evading taxes. So, they are just getting what they deserve!
Actually Citizenship-based Taxation Harms The U.S. Economy and Harms It A Lot
Let me introduce you to the best friend of those who oppose citizenship-based taxation. Some of you may already know him – he is out on the front lines commenting on the blogs. His basic thesis is that citizenship-based taxation is destroying the U.S. economy. For example: The IRS brings in five billion dollars in taxes from U.S. citizens living outside the United States. But, to bring in that five billion in taxes, actually costs the good ole USA one-hundred sixteen billion dollars (yes for those who think that is a mistake $116,000,000,000) dollars a year. Furthermore, citizenship-based taxation is the direct cause of the U.S. trade deficit. Intrigued? Read what I call “The Conklin Report” which is really his testimony before the Ways and Means Committee.
Who is Roger Conklin? In his own words Mr. Conklin is a retired telecommunications consultant. He is an 80 year old retired person who has actually lived the destructive effects of U.S. citizenship-based taxation. And he is willing to share his views with the government.
Here is an example of a superb comment he recently posted on the article “Obama promotes insourcing jobs“
“President Obama has a very short memory. Back at the beginning of his administration he announced an Export Initiative to create jobs by doubling US exports in 5 years. And his appinted commission presented a plan to add commercial attache staff at our Embassies abroad, encourage US companies to participate in foreign trade fairs and to invite foreign purchasrs to the US. Missing from this plan was increasing the number of Americans who go abroad to sell American products. The plan has gone very badly. Products don’t sell themselves. This takes feet on the ground which all of our trade competitor have but the US does not. Yes, there has been a modest increase in exports, but impports have grown far more rapidly than exports, so far more American jobs have been destroyed as our trade deficit has increased than jobs created by increased exports. Our 12-month goods trade deficit through October is $720 billion. This represents some 7 million destroyed American jobs manufacturing for export. Our trade deficit continues to grow by $1.9 billion per day. These destoyed jobs represent $130 billion in Federal tax revenue that fails to be generated.
The US attaches a ball-and-chain to every citizen who goes overseas. He pays taxes on his worldwide income to the foreign host country and then is double taxed on this same income by the IRS. No other country taxes is overseas citizens, so they go aborad and create jobs at home whereas this punishing double taxation of our own ctizens if they do that punishes them if they relocate abroad. Germany,for example, exports 7.9 times more per-capita than the US to China and has a $12.5 billion China trade surplus whereas we have a $270 billion China trade deficit.
In order to compete with citizens of other countries for overseas postings and and end up with the same after-tax income, US citizens must be compensated between 3 to 5 times more than non US citizens in order to cover the additional tax cost that citizens of no other nation have to bear.
Instead of repealing this destructive double taxation, President Obama in 2010 signed the FATCA legislation which makes it impossible for a US citizen to open a bank account in a foreign country. It imposes such massive reporting requiremnts on the accounts held by US citizens by foreign banks that they are dumping all their US citizen account holders. This law requires foreign banks to violate the privacy laws of their countries in providing data to the IRS, a foreign tax authority, which they are prohibited from releasing to any third party.
So please, President Obama, get your priorities straightened out.”
and how about another comment by Roger Conklin with respect to the reason for the trade deficit with China: