American Exceptionalism = Extreme Corruption
In other countries this sort of bribery takes place underneath bridges and with cash in brown envelopes. In America it is institutionalized and legal but it is the same thing: Cash to politicians in return for favorable treatment from the government.
The U.S. tax system is not simply corrupt, it is corrupt in a deceptive manner that has degraded the entire system of American government. Congress is able to funnel vast sums of money in perpetuity to its favored funders through the tax code without anyone realizing it.
How corruption in the political process is affecting the Presidential Election
Reuters reported that Obama is running the following ad to force Romney to disclose his tax returns? Should Romney disclose his returns?
“Tax havens, offshore accounts, carried interest — Mitt Romney has used every trick in the book,” the ad’s narrator said. “Romney admits that over the last two years he’s paid less than 15 percent in taxes on $43 million in income. Makes you wonder if some years he paid any taxes at all,” the ad said, concluding: “What is Mitt Romney hiding?”
Sounds like Obama is talking about tax! At a minimum the content of the ad tells us that the following words have negative connotations:
“tax havens”, “offshore” and “carried interest”. What do these words mean? Are they indicative of “homelander legislative corruption” or of Mitt Romney’s character?
The American people need to explore this issue. Let’s discuss these words individually.
Are “tax havens” a bad thing or are “tax havens” a good thing?
“tax haven” = a jurisdiction with taxes lower than U.S. taxes. As Dan Mitchell points out: low tax jurisdictions are important because they encourage tax competition. The U.S. is a country that fears competition of any kind and tax competition in particular. The U.S. believes that “American Exceptionalism” includes the necessity of paying exceptionally high taxes.
Is there some reason that U.S. citizens should be required to pay taxes that are higher in the U.S. than in other countries? Carl Levin seems to think so (at least for the common homelander).
Offshore – What is so bad about something outside the United States?
“offshore” = in “Obamaspeak” “offshore” means “foreign”. Why would somebody have a “foreign/offshore” bank account? Why would somebody want to invest outside the United States? The answer is obvious. Because it’s outside the U.S.
Sir John Templeton, one of the greatest investors of all time pioneered global investing – global includes “offshore”.
He made the point that it it ridiculous to restrict your investment horizon to one country. Risk management dictates, that one should spread investments all around the world. Therefore, all U.S. “Homelanders” should consider having some of their investments and wealth outside the United States. Only an uninformed person would not. Of course this is what it means for an individual. It is a threat to U.S. business and the U.S. mutual fund industry in particular. As a result, in 1986 the industry was able to convince Congress to create “PFICs” – making investing in “Foreign” mutual funds extremely punative. By the way the “F” in “PFIC” stands for “foreign.
PFICs – An example of legislative corruption at its finest
PFICs are one more example of a powerful U.S. lobby managing to get Congress to inflict pain on one group of Americans – U.S. citizens abroad who invest in products where they live. PFICs are bad enough when applied to “Homelanders”, but the “PFIC” taint of Canadian mutual funds will destroy the life savings of many innocent U.S. citizens abroad. As Fareed Zakaria points out: the Tax Code is way that U.S. persons are rewarded or punished by Congress. It is no longer (if it ever was) a statute for the purpose of neutral revenue generation. The “PFICization” of Canadian mutual funds is nothing more than a way to reward the domestic mutual fund industry at the expense of (primarily) U.S. citizens abroad. Imagine being bankrupted because you invested in a mutual fund in your country of residence! That is exactly what the U.S. tax laws do. Why? Because Congress was bought off!
The unfairness of the PFIC rules was noted in a recent blog post by McGill law professor Alison Christians where she notes that:
The fairness argument is that “Americans abroad would not only be freed from the unjust burden of double tax reporting and double taxation but would also enjoy expanded job opportunities overseas and the possibility to invest in local investment vehicles … now out of reach due to the burdensome U.S. filing for PFICs (passive foreign investment corporations). They would also be relieved of foreign currency risks when purchasing a home.” I don’t know that a double reporting burden is unjust. It’s certainly a pain and it’s really unfortunate that it is also likely a jobs act for accountants. But unjust seems like a strong word to use in the grand scheme of things. Double taxation is relieved by credit and in some cases exemption on the US side though there are undoubtedly limitations and it’s complex, no doubt about it, see previous point. The PFIC and currency risks are more compelling, because now we are talking about investment traps for the uninformed.
(Note to Professor Christians: Although the PFIC provisions have been in the tax code since 1986, it was not until 2010 that they were understood to apply to Canadian mutual funds. The word “PFIC” does not appear on the sites of at least two (and these are the only ones I checked) Canadian mutual fund sites. This problem was also commented on in a recent article written by Professor Vern Krishna in the National Post. To put it another way, what you call the “uninformed” is basically everybody outside of the world of “some” tax professionals! (They were not even well understood by the IRS during the 2009 OVDP program.)
“Carried interests” – Is it the law that is corrupt or complying with the law that is corrupt?
“carried interest” – wow, this sounds sinister. An interest that is “carried”. “Carried” by who? Is it heavy? What is it anyway?
To put it simply:
A “carried interest” is one more example of Congress being bought off to give a tax benefit to a certain group of favored people. The practical effect is that allows for a certain type of income to be taxed as a capital gain, even though it is really business income. One more example of corruption in Congress. In this Congress was persuaded that one group should be hurt (the average American taxpayer) in order to assist those who were able to lobby for corrupt (sorry I meant to say “preferential” tax treatment).
What is the rationale for “carried interests”? In the words of one commentator:
This tax treatment is one of the most outrageous and unfair elements in the entire tax code. There is no logical basis for it, and it benefits only the richest people in the country.
So, back to the Obama ad:
This ridiculous and offensive ad from the dynamic duo of Barack Obama and David Axelrod is really saying:
Mitt Romney: you are organizing your affairs under the laws of the United States of America. You have been particularly astute at identifying the laws that are the result “American Exceptionalism” at it’s finest and most corrupt. It’s okay for American tax laws to be based on corruption, but it’s not okay for you to organize your affairs around them!
Then, the ad ends with the question of whether Mr. Romney paid any taxes at all. The simple fact is that many “Homelanders” don’t pay taxes. So, in the unlikely event that Mr. Romney does not pay taxes, it would make him just an ordinary American.
Conclusion:
Barack Obama has been pretending to be president for the last four years? Where is the tax reform? Why do “carried interests” still exist? Why do PFICs still exist? Why are U.S. citizens abroad being subjected to the attack by the IRS? If offshore is so bad, then then why are you going to Geneva this August to solicit funds from offshore accounts?
The time has come for Barack Obama to focus on Barack Obama (to the extent that there is anything to focus on!).
In 2008 the Barack Obama campaign took the “High Road” – “Change we can believe in”
In 2010 the Barack Obamaa campaign took the “Low Road” – Defining the 2012 campaign in terms of “Class Warfare”
In 2012 the Barack Obamaa campaign is taking the “Ditch” – It’s all about Bain capital and Romney’s tax returns!
U.S. Persons Abroad - Members of a Unique Tax, Form and Penalty Club 