Monthly Archives: January 2012

Citizenship-based taxation, the U.S. trade deficit and the destruction of U.S. capital

Trade deficits destroy capital!

Trade, Deficits and Trade Deficits

Let’s begin with the basics.

Q. What is a “trade deficit”?

A. A “trade deficit” occurs when a country buys more of a country’s products than it sells to that country. What would be an example? The United States trades with China. The U.S. buys goods from China (check out Walmart). The U.S. also sells goods to China. It’s just that the U.S. spends more buying goods  from China than it receives for goods sold to China. Is this a problem? I don’t know, let’s figure it out.

Let’s consider a simple household budget. What happens if you spend more than you receive (income)? What happens if your expenditures exceed your income. It’s not good. You first use your savings to finance your life style and then you go bankrupt. (Ask your neighbor who is maxed out on credit cards.) So, it is a good idea for your expenditures to not exceed your income. (Governments generally have trouble understanding this  basic principle.)

Here is an everyday example for everyday folks.

Imagine two neighbors. One is an electrician. The other is a plumber. The plumber says to the electrician. “I will trade you a plumbing job for an electrical job”. The electrician agrees. Both are happy. Their trade is in balance. Each sells to the other but receives enough from that other to pay that other. The trade is in balance.

What happens when the trade is out of balance?

Imagine that the plumber now thinks that his work is worth $100 more than the electrical job. The electrician must now go out and find  another $100 to pay the plumber. Perhaps he can get that out current revenues. In many cases he will just get the additional $100 from revenues from another job or from another revenue source. But, if he can’t get that additional $100 from another revenue source, he must get it from his savings. He has to erode his capital. This is a bad thing.

Trade deficits and the erosion of capital

What is bad for a small business is bad for a government. Governments cannot run  deficits forever. In fact, it would be preferable to run surpluses. (Sell more than you buy) China is a trading nation. It trades with Germany, the U.S. and many other countries. What is the status of U.S. trade with China?

To quote from Roger Conklin:

“There was a 11.6% increase in the 2011 US trade deficit with China over 2010 while China’s world trade surplus decreased by 14.5%. Rather than the Obama Administration appointing a commission to “monitor Chinese trade practices” it would be much more productive to appoint a commission to determine why the US does so poorly selling our competitively priced agricultural and high tech products in China. If it were not for the US trade deficit with China, that country would have ended the year with a $47 billion world trade deficit. While the rest of the high-wage industrialized nations are going gangbusters in racking up trade surpluses with China, the second-largest import market in the world, the US trade deficit continues to skyrocket. If such a commission were appointed its report delineating the reasons for our massive trade deficit would take about 5 minutes to prepare. It is a direct result of our unique world-wide and citizenship-based tax policies. They punish companies that export and our citizens who live and work abroad. This is what has destroyed the export mentality of US industry and made it impossible for Americans to compete for overseas jobs. The real loser is the US economy. Our $700 billion world trade deficit represents 7 million destroyed American jobs and $130 billion in tax revenue that these destroyed jobs fail to generate. Every other nation practices Territorial taxation.”

By causing trade deficits, citizenship-based taxation destroys U.S. capital

Therefore, we can see that (unless there is another source of income to make up the difference) citizenship-based taxation is directly responsible for the destruction of U.S. capital.

Here is a question you should ask yourself? Would you adopt an economic policy that forced you to “eat your house” to pay your bills?

That is exactly what U.S. tax policies are doing.

This is another way that:

U.S. citizenship-based taxation is causing economic harm to the United States.

It’s the 11th hour! Do you know what your Congressman is thinking?

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U.S. citizenship-based taxation harms U.S. economy

The result of citizenship-based taxation

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! Continue reading

Canadian RRSPs and the OVDI Penalty Base

Part of the OVDI penalty base?

Those who entered OVDI understood (hopefully) that they were paying a fine based on a percentage of a base of assets. Obviously the lower the base, the lower the amount of the penalties. An interesting thread on this appeared on the Jack Townsend blog.

For Canadians who entered OVDI (for whatever reason) there has much been much concern over whether RRSPs would be part of the base for which the OVDI penalty was calculated. People have been asking: will RRSPs be included or not? Why won’t the IRS take a position? Now, what follows is just my thinking and interpretation. It is not legal advice (or any other kind of advice). But, here is how I think you should view this and the arguments you should make. Continue reading

Staple a “Green Card” to every PhD – Don’t fall for this! Don’t immigrate to the U.S.

The U.S. chief technology officer notes that American needs skilled immigrants. He suggests:

“Why not staple a green card to every PhD in certain fields?”

“Welcome To America” and obligations of U.S. GreenCardShip! Continue reading

IRS reopens the Offshore Voluntary Disclosure Program and promises new procedures for U.S. citizens living outside the United States

So said the Big Bad Wolf

I can’t believe it. On January 5, 2012 I wrote a post about OVDI called: The Taxpayer, the IRS and the Cross Border professionals – where to go from here. Six hours ago I finished a lengthy post about OVDI called: Taxpayer Advocate vs. The IRS – It’s a question of trust.  I thought I would enter: “OVDI Blog Post Retirement”. My point was that the IRS has a real trust issue. |The “cross-border professionals are not much help either. And then, almost on cue (while I was writing the post) the IRS is at again! To emulate a famous Ronald Reagan quote:

“There he goes again!”

Can you believe it? The IRS has extended OVDI. I think it was Einstein who said that the height of insanity is to continue to repeat the same thing that doesn’t work. Many people don’t understand how they are perceived by others. I would say that Commissioner Shulman qualifies. He doesn’t  get it.  OVDI has irreparably damaged the trust that the practitioners and the taxpayers have in the IRS. No matter what Mr. Shulman chooses to believe, the IRS cannot function without trust. He is seriously out of touch with reality. OVDI has made people more reluctant to come forward to clean up their problems. Why? Because there is no clear direction from the IRS. All Mr. Shulman seems to be able to say is: come on in to the see the IRS and we will take your life savings. He must be kidding. The rules for OVDI 2011 were long and comprehensive. Very few people understood them completely. But in a nutshell here was the OVDI 2011 offer:

“If you file 8 years of returns, spending a large part of your life doing this and thousands (in many cases tens of thousands of dollars to do this) you will agree to give us 25% of your net worth. Why you ask? Because if you have a foreign bank and/or you live outside the United States you are a criminal – nothing but a common criminal.” Continue reading

The American in Canada – Transition Financial

The American In Canada

Last week, I came across the 2008 edition of the following book:

The American in Canada by Canada by T. Ritchie of  Transition Financial. As you can see it is available from Amazon.com and from the author’s site. Since the summer 0f 2011 I have been learning more and more about the problems of being a U.S. citizen and living outside the United States. This book focuses on the experience of being an American in Canada. As a result not all the information will be applicable to those of you living in the rest of the world.

But, what I liked about the book was that it identified a number of issues that you must be concerned with (regardless of where you live). In addition, it provides good insight into how to plan certain aspects of your life. Furthermore, you will learn about aspects of the U.S. tax and reporting system that would apply even if you lived in the U.S.

The description from Amazon.com includes:

“For Americans either contemplating a move or already living in Canada, this reference answers all the questions necessary to successfully plan the transition, including immigration planning, customs planning, cash management, income tax planning, retirement, wills and estates, risk management, and investments. According to the Association for Canadian Studies, more than 10,000 Americans moved to Canada in 2006, a new 30-year record. The similarity in language, currency, culture, services, and products of these two countries can lead Americans in Canada to mistakenly think its laws and customs are also the same. With proper planning before moving, it is possible to get a five-year tax holiday from Canadian taxes!”

Disclaimer: I don’t know the author(s). This is just offered as a helpful resource that discusses a number of issues under one cover. Check to see what the latest edition is before you but it. It is very reasonably priced.