# Citizenship Based Taxation and now Mandatory Voting



## Bevdeforges

Lately it seems every thread starting out as a query about specifics of filing US taxes gets turned into an argument for and against the US system for taxing overseas residents/citizens. Since we don't have a "lounge" for the tax section, I thought I'd at least try to set up a thread where we can debate the politics and leave the folks asking questions about their filing obligations alone.

And now President Obama is floating the idea of making voting obligatory - which, IMHO, is actually a pretty good idea. Certainly gets around all the fuss and feathers about photo i.d.s and such. However, this also strikes me as one of the "very good ideas" that people will get behind without the slightest thought about those of us resident overseas. And, the practical issues involved are much the same as those for citizen-based taxation.

How to "enforce" the policy overseas when the US government has no real idea who or how many of its citizens are resident overseas, nor where they live. With voting handled by the states (and/or counties), where are overseas residents supposed to register or vote? (Especially those who have never lived in the US! Or those with little or no contact back there.) Though the good side of this might be to provoke a discussion of some of the issues that affect both voting and taxation for those of us overseas.

Anyhow, I will try to hive off thread drifts to this thread in order to keep discussions of specific tax issues a bit closer to topic. 

On your marks, get set.... GO!
Cheers,
Bev


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## cuerna1

< where are overseas residents supposed to register or vote?>

When we sold our house in the States and moved to Mexico we had our US mail forwarded to a friend's address - in a nearby county. The supervisor of elections in that county contacted us (by mail) and asked if we would like to register to vote. I called and the very helpful woman said - no problem - you will be registered with this office, you will use our street address as your address. Apparently we can only participate in national and congressional elections.

So there is a system in place already.


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## BBCWatcher

FVAP.gov. It really couldn't be simpler, and I must say it's quite well run. You can even print out a postage-paid envelope for your registration form and/or ballot. As long as you get your form(s) to any U.S. embassy or consulate, in person or via local delivery, they'll take over from there.

Nobody has made any proposal for mandatory voting in the United States. The President made a brief, favorable remark on the idea, but he has not made any proposal. There is no mandatory voting legislation pending in Congress.


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## cuerna1

BBCWatcher said:


> Nobody has made any proposal for mandatory voting in the United States. The President made a brief, favorable remark on the idea, but he has not made any proposal. There is no mandatory voting legislation pending in Congress.




"Obama retreats from mandatory voting push amid backlash"

[URL="http://www.washingtontimes.com/news/2015/mar/19/obama-retreats-push-mandatory-voting-amid-b/"]http://www.washingtontimes.com/news/2015/mar/19/obama-retreats-push-mandatory-voting-amid-b/


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## BBCWatcher

That headline doesn't even fit the facts, even in the article it leads. Par for the course for the Washington Times, it seems. 

By the way, "mandatory voting" isn't actually mandatory voting. It's only mandatory electoral participation (or attendance). What's mandatory is that citizens clearly demonstrate through attendance (in person or absentee) they had the _opportunity_ to vote, not that they actually voted. Australian electoral law, for example, requires only that ballots must be "marked." Individuals can mark them however they want and thus effectively abstain from voting for any candidate. They can draw pictures of Mickey Mouse on their ballots if they wish, and that's perfectly legal. In the 2013 election about 6% of Australians who participated did not cast votes countable for candidates.


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## theOAP

Since the other thread (_Form 8938 / FBARs_) has been closed, I'll respond to a question raised in the last post on that thread here. (Good idea in establishing this thread.)


*BBCWatcher* made the following comment:
_"The issue really is loss of revenue -- there's no escaping it. *I'm amazed at the grand effort to evade this simple question here*. If the Six Percent Club reduces to the Zero Percent Club, then taxes on U.S. residents must increase by many tens of billions per year (safe magnitude assumption and generalization) to account for the loss of revenue. Government needs funds to operate -- it's that simple.

Do you really think this revenue loss question isn't going to come up in any Congressional debate if one were to occur? The Congressional Budget Office (CBO) will score hypothetical tax changes.

*So, who's going to pay more*?"_



This weak argument is becoming rather boring.

Community responsibility for services is good governance, but only if it remains within the community where the service occurs. Expecting those not within the community to pay for the excess cost of services is bad governance. The services may be of benefit those at a local, state, or national level, but importantly, it will only be of benefit to those in that local, state, or national community. Those unable to avail themselves of the service due to their residence outside the community do not benefit.

Those who utilise a service should pay for the services. If the cost of the service is too high, then good governance would require a reduction of expenses. There should be no sponging off anyone outside the community who does not benefit from the services. There is no loss of revenue if the supporting community receiving the services, and who are therefore are responsible for the cost of services, is established within the monetary means of the said community.


The argument concerning the "6 percent club" is also becoming boring.

_All_ (100%) of taxpayers living permanently abroad will find a liability for US tax a possibility at some time during their life. High versus low tax countries is a red herring. Selling a home, taking a (local) tax free lump sum on a pension, and on and on, will occur for _all_.


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## cuerna1

theOAP : I think we are on the same page but I can't quite fit my thoughts into your words. It's like we never had any children of our own yet every year half of our (rather high) property taxes went towards educating other's kids. Just like any responsible individual should live within their means so should a government. And I think the whole concept of government and its role needs to be re-thought (or perhaps remembered) in the US. Thank God they had the common sense to exempt expats from Obamacare. Yet at the same time don't they require participation in Medicare ? (we are still too young for that  )


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## Bevdeforges

On the issue of voting from overseas, the official stance is that you vote from the last address you had in the US before you moved overseas. Only problem with this is that the US has expanded its reach - and there are lots of US citizens born overseas who have never resided in the US. 

On the citizenship based taxation - yup, we all seem to be singing from the same page of the hymnal. It appears that the State Department is expected to recoup their costs of "serving" US citizens using their Embassies and Consulates - and they charge us for passports, renunciation, notarizing signatures and most other services they offer. (Can't say that I blame them - their budget has been cut to the bone these last several years.)

But our kids don't use their schools, we don't use their roads or transport systems (other than as "tourists" when we are back there on a visit). Their police, medical system and military don't protect us while we live overseas. And many (most?) of us have few if any ties back there - certainly not sufficient to have any interest in voting (or any knowledge of who is running for Senate or Congress in whichever district it is our former residence may have been gerrymandered into over the years we've been gone). Most Congressional Reps have no idea that they have "constituents" living outside the US and they will ignore any mail or e-mails that appear to be coming from outside their district. So we don't even get representation in Congress. 

Compulsory voting for the US is probably a non-starter - but it could have opened a discussion about "so what do we do for those living overseas" that could have been enlightening. 
Cheers,
Bev


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## maz57

*BBCWatcher* made the following comment:
_"The issue really is loss of revenue -- there's no escaping it. *I'm amazed at the grand effort to evade this simple question here*. If the Six Percent Club reduces to the Zero Percent Club, then taxes on U.S. residents must increase by many tens of billions per year (safe magnitude assumption and generalization) to account for the loss of revenue. Government needs funds to operate -- it's that simple.

Do you really think this revenue loss question isn't going to come up in any Congressional debate if one were to occur? The Congressional Budget Office (CBO) will score hypothetical tax changes.

*So, who's going to pay more*?"_

I'll answer that question of who should pay more. US residents (i.e. those who actually use those government services) should pay more. I'm not convinced it would be that much more, but it doesn't matter how much it is, they should pay for the services they consume. I understand (and even agree) with the concept of taxing wealthy people more to lower or eliminate taxes for the less fortunate, but taxing people who don't even live in the society and have no connection with it just doesn't fly with me. Let the US have a national conversation about how and how much to tax their own wealthy residents to help the needy, but don't expect people spread out all over the planet to pay so US residents can pay less for the services ONLY THEY are using.

As far as a switch to RBT causing a massive exodus of wealthy people from the US to lower tax jurisdictions, I think that's bunk. The decision to leave the US to seek a life elsewhere depends on a multitude of factors; the US tax system ranks very low on the list. 

BBC likes to go on how US citizenship is so valuable and therefore justifies CBT. The truth is that CBT devalues the US passport to the point that many are getting rid of it. For those who live in a decent country, have a decent non-US passport, and a life totally outside of the US, the blue passport has zero value and gives them no advantage they don't already enjoy. In fact, the nexus of CBT, IRS witch hunts, and now FATCA has turned US citizenship into a liability. No other civilized country has attached the abomination of CBT to their citizenship and that makes their citizenships more valuable than US in my opinion. In fact with the recent increase in the renunciation fee to $2350 people are now actually paying a substantial sum to get rid of US citizenship; there seems to be no shortage of "customers" judging from the consulate waiting lists. That means the "commodity" (i.e. not being a US citizen) has appreciated about five fold in just a few short years. Get yours now before the price goes up even higher.


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## BBCWatcher

OK, Maz57 finally answers the "Who pays?" question, albeit with a generality. Finally! Obviously it's not a winning argument politically, but that's the point.

So all of you are asserting that U.S. citizenship is valueless for overseas residents -- we don't consume services, etc. OK, then. So you know what the common sense question in reply is? Why don't you terminate that valueless citizenship?

A lot of people in Congress, and a lot of U.S. residents, are going to think you're making contradictory arguments. Don't tax us (even the wealthiest among us) because we don't benefit, but, gosh darn it, we want to hang onto a citizenship that offers us no benefits because....? It doesn't make sense. It can't be both. What it really sounds like is you just want a cheaper citizenship. Don't we all! _Everybody_ wants lower taxes.

And you're wrong, by the way -- as your own actions prove to hang onto that "no benefit" citizenship. You're all conveniently ignoring lifecycle effects, for starters. Children, as a rule, don't pay taxes. They consume lots of government services. Then, during their working lives (as a cohort anyway) adults tend to pay more taxes than the services they consume. Then, as retired older adults, it flips again. Loop, repeat. Most Americans living overseas -- certainly most of the ones paying any U.S. tax on non-U.S. source income -- are in that middle category, in their peak productive years. So you're all arguing that some of the wealthiest Americans -- and many more of them if there's no overseas taxation -- ought to be able to hop off that lifecycle bus, letting more children and more elderly fend for themselves while peak productive adults don't pay, even for their own childhoods. That doesn't make sense either, at least not economic sense. For example, those same adults are entitled to come back to a nursing home in the U.S., paid by Medicaid, without having been taxed (or taxed less) during their working lives. That's what that U.S. passport allows. That's one of the privileges of U.S. citizenship.

I'm not actually making new arguments here. The U.S. government figured this stuff out in 1861, when wealthy people wanted to take both sides of the Civil War bet (head off to England, sit out the war, and not pay for it, but probably come back and make even more money after the war). No deal, the government said. You either keep paying taxes, or you terminate your citizenships.

This is all very _reasonable_. It's not the only way to construct a tax and citizenship regime, but it's a very reasonable one, deeply rooted in reality. And it has been for over 150 years. It also happens to keep taxes lower on U.S. residents, and it has largely prevented the emergence of an American Monaco or Andorra, an acute and growing problem in Europe that is coming under increasing fire. (So much so that Andorra is introducing an income tax, bowing to European pressure.)

By the way, I disagree that every American living overseas is a member of the Six Percent Club at some point in their lives. If that were true then I wouldn't be the only member so far to disclose membership. But OK, has anybody else _ever_ been a member of the Six Percent Club in the past, that is, owed and paid U.S. tax on non-U.S. source income while living overseas (and not working for the U.S. government)? Keep in mind also that occasionally U.S. citizens living overseas get free money (refundable tax credits) from the IRS, and we have had several reports from those individuals in this forum.


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## BBCWatcher

theOAP said:


> This weak argument is becoming rather boring.


I'm quite dumbfounded by this reaction. It's exactly backwards.

What _else_ is a tax system for except to raise revenue to support government? If you're going to propose a tax cut (for the current members of the Six Percent Club like me, and for our many future inductees encouraged to join the new successor Zero Percent Club) that reduces revenue, probably significantly, _somebody_ in Congress is certainly going to ask how that revenue will be made up elsewhere -- or, alternatively (or in combination), what government functions you propose to reduce or eliminate.

So what's the plan? You guys/gals want to propose a European-style regressive VAT, for example? Or a financial transaction tax? Maybe cut Medicare or student loans?

Beyond that, does anyone want to argue that the Six Percent Club is the _most_ deserving cohort for tax relief versus, say, increasing the Earned Income Tax Credit (as the President has proposed)? Because somebody in Congress is going to ask that question, too.

In fact, after asking that question, what's the answer to other follow-on questions like these: Why shouldn't the Six Percent Club be enlarged to the Eight Percent Club? Why shouldn't we increase the Expatriation Tax's incidence and/or rate?

"Be careful what you wish for."



> Those who utilise a service should pay for the services.


At Burger King or McDonalds, sure. But this is government we're talking about, and government (a decent one) provides for the needs of orphans with Down Syndrome, for example, who will _never_ pay for the services they need.

OK, then. You don't utilize any U.S. services, right? So leave the club! You've got a very strange argument that U.S. citizenship is so worthless that...you desperately (or at least energetically) want to hang onto it, but you just want it to be, potentially, cheaper? Well, no, that's not the deal on offer, sorry. There are about 200 other sovereign deals on offer, at least potentially, so shop around and find a better deal. The U.S. doesn't have a monopoly on citizenships -- far from it. Given that there is no monopoly, if the U.S. wants to be "stupid," let it! Freedom is good, for governments and individuals.


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## Bevdeforges

BBC, you keep inviting overseas citizens to "just leave the club." But for many of us, $450 was a significant amount to have to pay for the privilege of so doing, and $2350 is a genuine budget buster. Plus, the US has imposed penalties (in the form of that 30% tax for SS and withdrawals from most forms of standard accounts for NRs) that make the renunciation question more one of avoiding ongoing penalties than soaking up "services" from the Mother Ship. 

From the IRS website, it seems that total collections of income from "international" sources came to about $7.5 billion in 2013. Now, that sounds like a huge number to those of us not in the 6% club, but when compared to the total collections for income and misc payroll taxes ($2.462 trillion), we're talking 0.304%. And a certain amount of that is taxes withheld (possibly at the 30% rate for non-citizens) which people either couldn't get back, didn't bother to claim, or didn't realize they might be able to reclaim. SOI Tax Stats - Gross Collections, by Type of Tax and State, Fiscal Year - IRS Data Book Table 5 Another part of that is "income" declared that may not actually be subject to taxation (such as "public assistance benefits" that turn out to be exempt and non-reportable, but you have to dig around to find that little tidbit in the publication on Income). 

There are also some legitimate claims on foreign residents for tax - for example, a foreigner who owns rental property in the US should be paying tax on the income derived from the property to the country in which the property is located. That's the "norm" in international tax circles. Also, I fully admit that I should pay US income taxes on withdrawals from my IRA when the time comes. That was the deal when I set up the account - deferred tax on the contributions and all income earned over time. But I pay that to the US, and my country of residence recognizes the transfer of funds as a withdrawal from capital.

But if my country of residence has a similar retirement savings plan, I don't see why the US should be able to jump in and claim taxes on income that has nothing at all to do with the US (or to "discourage" US citizens who are living and working in the country from taking part in local retirement or savings plans that are tax advantaged). We are benefiting primarily from the tax-funded services of our countries of residence and owe those countries our primary fiscal support. (Not to say we won't grumble about it, like taxpayers around the world seem to do! But that's our right, as taxpayers.)

The US system of taxation has to be revamped. It has become too complex, too unwieldy and frankly, simply unenforceable. Given the current situation in Congress, there's little or no point in holding one's breath. It will be a LONG time before anything happens. But both sides of the aisle do seem to agree that the US tax system is FUBAR'd (not just regarding the international stuff) and needs to be fixed.
Cheers,
Bev


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## theOAP

BBCWatcher said:


> I'm quite dumbfounded by this reaction. It's exactly backwards.


Yes, I thought that might grab your attention.



BBCWatcher said:


> ....... _somebody_ in Congress is certainly going to ask how that revenue will be made up elsewhere -- or, alternatively (or in combination), what government functions you propose to reduce or eliminate.


We all agree that once feeding on the milk and honey of taxing those abroad, giving up that source of revenue will cause consternation. That doesn't make the revenue grab correct. It's unlikely to garner much support, but if the act of taxation of those abroad is illogical, the US government should admit it's purely a tax grab. They may not change it, but be honest about it and don't hide behind a false premise of "paying a fair share" for services not available to those taxed.

If that means living with less revenue, then it's the governments responsibility to cut their cloth according to what is available. Tough. It's a task the majority of all other national governments seem to be able to manage without directly taxing its citizens resident abroad. We're always told the US is the richest country in the world; why the problem with letting go of a questionably small amount of revenue to achieve "true fairness"? 



BBCWatcher said:


> At Burger King or McDonalds, sure. But this is government we're talking about, and government (a decent one) provides for the needs of orphans with Down Syndrome, for example, who will _never_ pay for the services they need.


Why is this so hard to understand? We, resident abroad, do provide for orphans and disabled children. We quite willingly provide in our own communities without objection primarily because it benefits those communities we live in. Aren't you able to manage without our help?



BBCWatcher said:


> OK, then. You don't utilize any U.S. services, right? So leave the club!


Now this really is getting boring!

Why this churlish, adolescent response?

What is wrong with being a good citizen wishing to point out deficiencies in current government legislation? These kind of responses seem indicative of the dysfunction found in the current US government. You either play by my self-imposed set of (abnormal) rules, or I'll take your ball and you can play somewhere else.


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## BBCWatcher

Bevdeforges said:


> But for many of us, $450 was a significant amount to have to pay for the privilege of so doing, and $2350 is a genuine budget buster.


True. It costs $2350 for a Certificate of Loss of Nationality (CLN), plus travel costs to a U.S. consulate. Factor those costs into your calculus. However, "leaving the club" is not _necessarily_ the same thing as obtaining a CLN -- Nonymous might have an idea or two -- though that'd be the most straightforward way to do so.



> Plus, the US has imposed penalties (in the form of that 30% tax for SS and withdrawals from most forms of standard accounts for NRs) that make the renunciation question more one of avoiding ongoing penalties than soaking up "services" from the Mother Ship.


Except those aren't penalties. Those are the standard tax rates and standard tax collection mechanisms for all non-U.S. citizens receiving U.S. source income. I don't think even strict RBT advocates would argue that the U.S. government doesn't have the right to choose (and to re-choose) how it taxes U.S. source income.

U.S. citizens enjoy certain rights and privileges, yes, including tax-related privileges. They don't have to pay visa or ESTA fees, to pick another example. Do you value those rights and privileges? Well, OK, but there are a few obligations, for example (if you're age 22, in the first wave) reporting for compulsory military duty in the event of a U.S. national emergency and reinstatement of the draft. This lunch isn't always free.



> From the IRS website, it seems that total collections of income from "international" sources came to about $7.5 billion in 2013.


Ah, OK. Higher than my $5 billion rough estimate. Good to know I got the order of magnitude about right.



> Now, that sounds like a huge number to those of us not in the 6% club, but when compared to the total collections for income and misc payroll taxes ($2.462 trillion), we're talking 0.304%.


In direct revenue, yes. That's about $24 per year (current dollars) per U.S. resident, from newborns to nursing home residents. Too bad the direct revenue wouldn't be the only revenue loss if a strict RBT regime were adopted. Not even close, as a major share of America's (the world's largest) private jet fleet fires up its engines and takes off for St. Kitts (as one example), "America's New Monaco"....  At least they'll get to chat with Roger Ver from time to time.  

I'd also point out that figure is presumably net of refundable tax credits received by U.S. citizens overseas, tax credits that skew toward working poor and middle class Americans overseas, particularly those with U.S. citizen children.



> We are benefiting primarily from the tax-funded services of our countries of residence....


Primarily is not exclusively, at the current time/in the current place of residence is not forever, and 6% tax incidence is not 100%. See how that all fits nicely together? 

But, as I've said many times, I'm not opposed to anyone deciding the package deal the U.S. offers isn't for them. I am opposed to the argument that sovereigns don't get to decide (and re-decide), democratically, what their particular package deals are. I believe in agency: for individuals, and for democratically elected governments.

Also, if you're paying income tax to your country of residence, no problem. The United States gives you full credit for that, dollar for dollar. Persistent credit, in fact, because you get to "bank" excess credits to spend up to 10 years in the future.



> The US system of taxation has to be revamped. It has become too complex, too unwieldy and frankly, simply unenforceable.


Yes, agreed! That's a very separate issue from the tax _principles_ we're discussing. Also, the IRS needs more funding -- and Six Percent Club dollars are helpful in that regard, too.



theOAP said:


> ...the US government should admit it's purely a tax grab.


Would that make you feel better? 

Taxes are "grabs"!

Let's pick another couple examples. What are tourist taxes? "Grabs" from temporary visitors who don't consume many government services. They don't attend public schools, for example. Yet tourist taxes of various kinds are found practically everywhere. Hotel taxes, rental car taxes, international air ticket taxes, visa fees, etc. The world is chock full of such taxes.

How about estate taxes? Dead people consume very few government services, especially after their corpses decompose or after their ashes are scattered. Yet most developed countries have estate (or inheritance) taxes, many much higher than those in the United States. (Japan, I'm looking at you!) Quite properly so. Why should dead people, particularly rich dead people, get to party tax free, "Weekend at Bernie's" style?

Call them "grabs" if you like, but what else is new? I understand Julius Caesar was grabby, too. But I'm afraid I don't want to live in a world with no "grabs," and I'm reasonably sure you don't either.



> It's a task the majority of all other national governments seem to be able to manage without directly taxing its citizens resident abroad.


It depends how you define "manage." The majority of European governments, for example, have higher taxes on their residents, greater tax losses (in terms of tax avoidance and tax evasion) and thus less "fairness," larger national debts, higher rates of unemployment, less median household wealth, lower median household standards of living, and lower rates of economic growth. I can understand why a skeptic might be, well, skeptical that strict RBT is a raging success in terms of macroeconomic outcomes. If mild CBT is "bad" policy, it certainly isn't bad enough to show up in major economic indicators. Moreover, 154 years ought to be long enough to find macroeconomic evidence for the hypothesis that mild CBT is "bad." (The United States has had a CBT income tax, usually with greater than 6% incidence, since 1861, though with a suspension of the whole income tax system approximately in the period between the Civil War and World War I.)



> What is wrong with being a good citizen wishing to point out deficiencies in current government legislation?


Nothing at all! I'm a big proponent of more citizens becoming more actively engaged in their governments' democratic processes, including citizens residing overseas. Make your best political arguments to Congress, and good luck to you. Go ahead and try to make the winning argument why America's next best, most important tax cut is to cut my taxes (and those of my fellow Six Percent Club members, with many thousands more wealthy members quickly inducted after your tax policy success) to raise taxes on some U.S. resident cohort(s) and/or to reduce or eliminate particular U.S. government services. Much as I'm flattered and sincerely (truly) appreciate your support to fight to make tax free the citizenship I _choose_ to maintain (and to pay to maintain in good standing), I haven't seen a winning argument yet for replacing a mild (~6%) CBT regime with strict RBT. Certainly not in this discussion, not so far. I'm skeptical that there's _any_ winning political argument to do that, and I think Bev and I may agree on this political forecast.

I don't think I'm being _cynical_. I'm just being a realist. I'm just asking the simple, logical, reasonable, "devil's advocate" questions anybody opposed to strict RBT would ask. We really don't have even passably decent answers to these (and other) questions, sorry to say, much as I'd like not to admit it. Heck, at least half of America would be up in arms if they became aware of the current Foreign Earned Income Exclusion and Foreign Housing Exclusion, probably. (That's the tax provision that fully shields about 91% of Americans overseas from U.S. tax.)


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## BBCWatcher

I do have a modest proposal to make, one that might just win Congressional approval: "suspended animation" for U.S. citizenship.

Today there's a renunciation path available, with loss of U.S. citizenship permanent, irrevocable. What if it weren't? What if former U.S. citizens had the option to declare "Just kidding!" and rejoin the tribe? Under my modest proposal, former U.S. citizens could restore their citizenships upon filing truthful, U.S. tax resident tax returns for every year (or partial year) they were not citizens. No Streamlined Program, no statute of limitations -- only "business as usual." If they were subject to the Expatriation Tax then the cost bases for most of their assets (except the $680K exemption) would have been reset, and capital gains (if any) would be calculated based on the new cost bases. Otherwise everything would be per normal, like every other U.S. filer: Foreign Earned Income Exclusion, Foreign Housing Exclusion, Foreign Tax Credit, etc., etc.

Whatever the tax due when all those back years are filed, that'd be the tax due, plus interest but no penalties such as late filing penalties. Plus the same fee ($2350) for a Certificate of Restoration of Nationality (CRN). Citizenship is not legally restored until the IRS clears the back filings. Any subsequently determined tax untruthfulness, subject to standard tax statute of limitations, cancels the citizenship restoration, this time permanently and irrevocably.

Said another way, make renunciation less permanent. For those of you who don't see value (or enough value) in your U.S. citizenships, no problem. With my modest proposal, you can put your citizenship in deep suspended animation, and you can switch to RBT, albeit for a fee ($2350) and, if applicable, an Expatriation Tax. If you're "wrong," and if the future is different than you expect, you can get back in. Just settle up your mild CBT income tax bill as if nothing happened, plus interest, plus $2350, and you're back in business with a U.S. passport.

Oh, one other thing: you're barred entry to the United States while your (former) citizenship is in deep suspended animation.

Think this idea will fly in Congress? Anybody like this idea? If you want strict RBT, but you can't quite bring yourself to give up your U.S. citizenship permanently, there you go -- this might be the way to get it.


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## cuerna1

BBCWatcher said:


> Heck, at least half of America would be up in arms if they became aware of the current Foreign Earned Income Exclusion and Foreign Housing Exclusion, probably. (That's the tax provision that fully shields about 91% of Americans overseas from U.S. tax.)


Can we talk about that for a second ? I am not as tax savvy as the rest of you. I've been retired for quite some time now. My wife continues to work in the same situation for the last 16 years. She is a self-employed consultant with a single German company as a client. Once a month they wire money to my wife's US based bank. We live in Mexico and have only been out of the country perhaps five days in the last two years. 

Except for the Foreign Tax Credit I take on the bank accounts we have here which have Mexican income tax withheld, and the 8938s we have to file - our tax return is very similar to those we filed for years when we lived in the States. I report ALL of my wife's income to the US and we don't even have a Tax ID here in Mexico. 

I am aware of the Foreign Earned Income Exclusion but have always figured it really isn't that great a deal - assuming that the IRS assumes that the money we would be excluding would be reported to Mexico for taxation. Am I wrong ? Is that exclusion only a good deal if you live in a place with no tax, or less tax than the US ? 

Last question (for now) - we own a very middle class house (by US standards) here. I take the business use of home credit for my wife's office. Should we/ can we benefit from a Foreign Housing Exclusion - given the scenario I've laid out above.

Thanks.


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## maz57

OK, here's a question for you BBC: 

How is it that every other country in the world manages to fund their government without taxing their expat citizens while (according to your arguments, anyway) the US government (and, by extension, US resident taxpayers) would suffer catastrophic financial hardship if it were to start doing the same? 

Personally, I don't think it would be that big a deal. Yes, taxes for homelanders would probably have to rise a bit in order to maintain the same level of revenue and the same level of services. But no one has yet mentioned the savings that would accrue from giving up CBT; the US spends a lot of money chasing people to the far corners of the earth. How about the unrecognized (and probably impossible to calculate) cost of all the ill will that the US has managed to generate for itself due to FATCA and CBT? 

By your own admission, 94% of expats don't write a check to the US treasury every spring anyway, so there would be no cost to the US treasury if those people were left alone. That leaves 420,000 wealthy people who might owe the US some money (6%x7 million expats). The US is arguably the richest country in the world. Why is it that the US is so desperately clinging to CBT when everyone else seems to do just fine without it?


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## cuerna1

Maz57 : I'm not trying to give you a hard time but I believe a Mexican professional living/working in the US is required to pay income tax in Mexico. Within the last couple years I think agreements were struck between the two countries.

On the topic of expat taxes funding the US budgets - if that funding source were severed then I would prefer to see the budgets trimmed.


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## BBCWatcher

Maz57, hyperbole really isn't serving you well. 



maz57 said:


> How is it that every other country in the world....


No, that would be _most_ other countries in the world. The U.S. is not alone in having a mild CBT regime. Let's hew to the facts, shall we? Imagine you're testifying before a Congressional committee, presenting your best arguments. I wouldn't recommend getting caught misrepresenting facts.



> ....manages to fund their government without taxing their expat citizens while (according to your arguments, anyway) the US government (and, by extension, US resident taxpayers) would suffer catastrophic financial hardship if it were to start doing the same?


Did I use the word "catastrophic"?

I did say there would be a tax revenue loss (duh!), both the direct revenue loss zeroing out U.S. taxes for me (and for others like me) and (most likely) much bigger revenue losses associated with wealthy Americans (and their financial assets) promptly exiting the United States to create "New Monacos," taking most of their economic activity with them. (The U.S. has a _lot_ of wealthy people. Maybe not a coincidence! Mild CBT really, really hasn't cramped their style.) Given that the United States has enormous untapped taxing power it could probably recover all those tax revenue losses by raising taxes on (usually) less well-to-do U.S. residents. The tax math _could_ work.

But so what? There are millions of tax policy changes that are mathematically viable. (Sure, the U.S. could in theory adopt a more highly regressive tax regime that _mathematically_ funds government, that beats the s**t out of poor and middle class residents exclusively.) There are only a very few that are politically viable.

Nobody has any reaction to my modest proposal?


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## BBCWatcher

cuerna1 said:


> On the topic of expat taxes funding the US budgets - if that funding source were severed then I would prefer to see the budgets trimmed.


OK, which budgets -- bearing in mind they would have to bear the total revenue losses, direct and indirect, from adopting pure RBT? Do you think your proposed U.S. government service cuts politically viable, that Congress and the President would support your recommended set of cuts _for this objective_?

There are multiple political hurdles to clear here:

1. The spending cuts need to be politically viable on their own;

2. The most politically urgent, next best use of the funds saved must be adoption of a pure RBT regime;

3. The cuts must fully pay for the direct and indirect revenue losses -- the full costs -- of adoption of pure RBT.

Wow, that's some heavy political lifting. Good luck!


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## maz57

BBCWatcher said:


> I do have a modest proposal to make, one that might just win Congressional approval: "suspended animation" for U.S. citizenship.
> 
> Today there's a renunciation path available, with loss of U.S. citizenship permanent, irrevocable. What if it weren't? What if former U.S. citizens had the option to declare "Just kidding!" and rejoin the tribe? Under my modest proposal, former U.S. citizens could restore their citizenships upon filing truthful, U.S. tax resident tax returns for every year (or partial year) they were not citizens. No Streamlined Program, no statute of limitations -- only "business as usual." If they were subject to the Expatriation Tax then the cost bases for most of their assets (except the $680K exemption) would have been reset, and capital gains (if any) would be calculated based on the new cost bases. Otherwise everything would be per normal, like every other U.S. filer: Foreign Earned Income Exclusion, Foreign Housing Exclusion, Foreign Tax Credit, etc., etc.
> 
> Whatever the tax due when all those back years are filed, that'd be the tax due, plus interest but no penalties such as late filing penalties. Plus the same fee ($2350) for a Certificate of Restoration of Nationality (CRN). Citizenship is not legally restored until the IRS clears the back filings. Any subsequently determined tax untruthfulness, subject to standard tax statute of limitations, cancels the citizenship restoration, this time permanently and irrevocably.
> 
> Said another way, make renunciation less permanent. For those of you who don't see value (or enough value) in your U.S. citizenships, no problem. With my modest proposal, you can put your citizenship in deep suspended animation, and you can switch to RBT, albeit for a fee ($2350) and, if applicable, an Expatriation Tax. If you're "wrong," and if the future is different than you expect, you can get back in. Just settle up your mild CBT income tax bill as if nothing happened, plus interest, plus $2350, and you're back in business with a U.S. passport.
> 
> Oh, one other thing: you're barred entry to the United States while your (former) citizenship is in deep suspended animation.
> 
> Think this idea will fly in Congress? Anybody like this idea? If you want strict RBT, but you can't quite bring yourself to give up your U.S. citizenship permanently, there you go -- this might be the way to get it.


Finally, BBC you are talking some sense. But I would modify your idea a bit. Instead of requiring people to renounce their citizenship to sever US tax residency, how about instituting a process for formally exiting the US tax system? This could be done as an "expatriation year tax return" (8854C for citizen?) due June 15 the following year the same as a normal expat 1040. Pay the tax on accrued gains for any assets that are taken out of the US. Assets which are left in the US (if any) could be "pledged" with the IRS, i.e. they can be left untouched for the time being. Those could be taxed according to the exit rules if the decision is subsequently taken to remove them from the US. The tax treatment of those assets left in the US would not be changed, i.e. tax-deferred accounts would sit untaxed, taxable assets would have tax withheld at source and a 1040NR could be filed by the expat to (possibly) claw some of that withholding back.

Expats who are only gone for a year or two could opt to not undergo this exit procedure and file from overseas every spring as usual. Those gone for longer (or permanently) could opt for the exit procedure and settle up with the IRS. Note that for younger people with little in the way of assets this would allow them to travel the world to their heart's content without running afoul of the IRS. For those with substantial assets the IRS would collect tax immediately even on otherwise deferred accounts if they are taken out of the US.

The basic concept here is to establish a process for severing tax residency from citizenship; presently the only way to do that is to renounce. (Obviously these are incomplete thoughts, but we've got to start somewhere.) The US really has to decide whether it loves its expats or hates them. Right now the message coming from the US government is that it hates them. I find it hard to believe that the US government really intends that to be the message.

Which gets me to your last point re: barred from entering the US. That would clearly be a vindictive, hateful condition and the US government can do better than that. I think the better approach would be to allow temporary entry with length of stay rules similar to those already in force for visitors from other countries. This means short visits are fine; stay too long and you become a US tax resident once again. After all, that expat visitor might just spend some money while in the US.


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## theOAP

Now that you ask, I do have a response to your modest proposal.

Why is the typical US-centric response to an existing complicated situation always to fix it by creating an even more complicated solution? Why not simply adopt a proven solution that removes the current outstanding complication? Is it because somewhere, somehow, someone representing a small fraction of the population affected by the complication might profit? Someone will always find a way to profit under any situation, including the current one in existence now.



BBCWatcher said:


> Oh, one other thing: you're barred entry to the United States while your (former) citizenship is in deep suspended animation.


Why do those with a US-centric viewpoint always insist some form of _retribution_ relating to the rights of citizenship be associated with any solution to simplification? The need to associate citizenship with taxation defines why the complicated situation exists in the first place.


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## BBCWatcher

I think your idea is more complicated, at least to implement. It's a whole new system, much more broadly applicable. (Students? Really?) My modest proposal is a straightforward extension of what already exists, a path only a couple thousand U.S. citizens each year currently pursue.

I don't see any practical _political_ way for even my modest proposal to go anywhere without "giving something up." A bar to entry is a _reasonable_ price to pay in exchange for getting the option to rejoin the tribe. The reason is that there really are "insurance" option value aspects that hinge on physical presence in the U.S., and if you're not going to pay for them (in theory but not in fact for 94%/in practice for 6%) you shouldn't enjoy them. (Tourists really are different in this respect.) I mentioned one: Medicaid saving destitute (or near-destitute) individuals who need nursing home care. There are several others.

Another approach that might fly politically is to give renunciants a choice: they can either choose the current irrevocable and permanent arrangement (with the possibility but not the guarantee of being granted entry into the U.S. -- Roger Ver hasn't been able to get into the U.S. anyway since his renunciation, and Eduardo Saverin hasn't attempted to as far as anybody knows), or they can choose my modest proposal including the full, official bar to U.S. entry during the non-citizenship interval. It's a one-time choice.

Another problem in not having the entry bar is there wouldn't be sufficient motivation for those who do decide to rejoin to file their tax returns. They'd just hop on a plane, enter, and go underground....and eventually, if caught, file their tax returns to rejoin. There's got to be a clear ticket to punch here for this to work, and U.S. entry is the obvious one.


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## theOAP

maz57 said:


> But I would modify your idea a bit.


Maz, is this modification similar to the existing Canadian exit tax for those leaving Canada to reside abroad? I've not heard many complaints regards that system, although the "assets" taken into consideration appear to fewer than those of the current US exit tax regime. Is this correct?


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## cuerna1

BBCWatcher said:


> OK, which budgets -- bearing in mind they would have to bear the total revenue losses, direct and indirect, from adopting pure RBT? Do you think your proposed U.S. government service cuts politically viable, that Congress and the President would support your recommended set of cuts _for this objective_?
> 
> There are multiple political hurdles to clear here:
> 
> 1. The spending cuts need to be politically viable on their own;
> 
> 2. The most politically urgent, next best use of the funds saved must be adoption of a pure RBT regime;
> 
> 3. The cuts must fully pay for the direct and indirect revenue losses -- the full costs -- of adoption of pure RBT.
> 
> Wow, that's some heavy political lifting. Good luck!


Ok - different reasons perhaps (and your RBT/CBT is much smaller scale) but, for example, in a way reminiscent of the 2005/2006 housing crises in the US. Thereafter the value of our house (and the related property taxes) fell something like 75%. As I recall all levels had to make serious cuts in government services, employment etc. Taxes did not go up. Spending went down. We sold the house in 2013 for a 100% profit. The new owners are still paying lower property taxes than we did in 2005.


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## Bevdeforges

Just to shift the discussion a bit, a friend put me on to this: https://americansabroad.org/

Evidently there are a couple of committees looking into both overall tax reform and international aspects of the tax system in the US. They are entertaining comments from the Peanut Gallery until April 15th. 

I'm not sure how willing they are to actually listen (this isn't the first time I've seen a call out for comments on the tax system), but hey, it can't hurt if you have the time to drop them a little "love note."
Cheers,
Bev


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## maz57

theOAP said:


> Maz, is this modification similar to the existing Canadian exit tax for those leaving Canada to reside abroad? I've not heard many complaints regards that system, although the "assets" taken into consideration appear to fewer than those of the current US exit tax regime. Is this correct?


Yes, it is similar. Its a fair way to handle the situation when a person wants to exit the tax system, either temporarily or perhaps forever. The advantage to government is that the deferred tax has to be "caught up" at the time before any assets leave the country. This is the last chance the government will have to tax such assets so it is fair for all concerned.


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## maz57

BBCWatcher said:


> I think your idea is more complicated, at least to implement. It's a whole new system, much more broadly applicable. (Students? Really?) My modest proposal is a straightforward extension of what already exists, a path only a couple thousand U.S. citizens each year currently pursue.
> 
> I don't see any practical _political_ way for even my modest proposal to go anywhere without "giving something up." A bar to entry is a _reasonable_ price to pay in exchange for getting the option to rejoin the tribe. The reason is that there really are "insurance" option value aspects that hinge on physical presence in the U.S., and if you're not going to pay for them (in theory but not in fact for 94%/in practice for 6%) you shouldn't enjoy them. (Tourists really are different in this respect.) I mentioned one: Medicaid saving destitute (or near-destitute) individuals who need nursing home care. There are several others.
> 
> Another approach that might fly politically is to give renunciants a choice: they can either choose the current irrevocable and permanent arrangement (with the possibility but not the guarantee of being granted entry into the U.S. -- Roger Ver hasn't been able to get into the U.S. anyway since his renunciation, and Eduardo Saverin hasn't attempted to as far as anybody knows), or they can choose my modest proposal including the full, official bar to U.S. entry during the non-citizenship interval. It's a one-time choice.
> 
> Another problem in not having the entry bar is there wouldn't be sufficient motivation for those who do decide to rejoin to file their tax returns. They'd just hop on a plane, enter, and go underground....and eventually, if caught, file their tax returns to rejoin. There's got to be a clear ticket to punch here for this to work, and U.S. entry is the obvious one.


I just don't understand this obsession with punishing people who choose to live their lives somewhere else. It only makes the US look vindictive and accomplishes nothing useful. It is revenge for leaving, pure and simple. 

Deciding to move and try things somewhere else has been a human trait since the beginning of time (and that is how a great many got to the US in the first place). So has the concept of banishment as punishment for certain crimes. Banishment was regarded as severe punishment and reserved for only the most serious offenders. If the US really wants to use banishment they would do better to save it for serial murderers or terrorists and leave expats alone.


The Reed amendment has been on the books for decades and has never been applied to the best of my knowledge. The possibility (however unlikely) of never being allowed to re-enter the US was not a factor when I ditched my US citizenship. It smacks of punishing the US relatives and friends for the sins of the expat. Apparently that is what Eritrea does.


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## cuerna1

<I just don't understand this obsession with punishing people who choose to live their lives somewhere else. It only makes the US look vindictive and accomplishes nothing useful. It is revenge for leaving, pure and simple. >

I've thought of this often long before today. It has less to do with punishing people as it does with curtailing new people. The US would much prefer our spending our 30+ years of savings in the US than in Mexico. We were not dead-beat Americans - merely savers who got screwed when the interest rate dropped to 0% - just when we were thinking of retiring. I've got a theory about that also - the fewer people who have the resources to stop working (paying taxes) the more money coming into the til.


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## maz57

cuerna1 said:


> I've thought of this often long before today. It has less to do with punishing people as it does with curtailing new people. The US would much prefer our spending our 30+ years of savings in the US than in Mexico. We were not dead-beat Americans - merely savers who got screwed when the interest rate dropped to 0% - just when we were thinking of retiring. I've got a theory about that also - the fewer people who have the resources to stop working (paying taxes) the more money coming into the til.


The US doesn't seem to be overly concerned about the millions of Mexicans in the US (legal and Illegal) who send a monthly wire transfer to their relatives back in Mexico. I have no numbers but I bet it is a significant amount. When the US starts controlling the flow of capital out of the country you'll know they are getting desperate. 

I have no knowledge of your situation, but there is a fair chance that when you die your heirs will be in the US and the money (or what's left of it) will be returned to the US. Curiously, if you renounced your US heirs would face a discouraging 40% tax hit; the message is: "we don't want your money coming back". Makes absolutely no sense but they are so intent on punishment they are willing to screw themselves in the process.

And yes, the bottom of the barrel interest rates have screwed many retirees (and not just in the US). Tell me about it!


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## cuerna1

maz57 said:


> The US doesn't seem to be overly concerned about the millions of Mexicans in the US (legal and Illegal) who send a monthly wire transfer to their relatives back in Mexico. I have no numbers but I bet it is a significant amount. When the US starts controlling the flow of capital out of the country you'll know they are getting desperate.
> 
> I have no knowledge of your situation, but there is a fair chance that when you die your heirs will be in the US and the money (or what's left of it) will be returned to the US. Curiously, if you renounced your US heirs would face a discouraging 40% tax hit; the message is: "we don't want your money coming back". Makes absolutely no sense but they are so intent on punishment they are willing to screw themselves in the process.
> 
> And yes, the bottom of the barrel interest rates have screwed many retirees (and not just in the US). Tell me about it!


For starters - we have no heirs - our only legal will is Mexican and everything that is left on our passing goes to a hospital in Mexico. Those retirement accounts left in the US at that time go to the 'sister' organization in the US.

It is my view that the only reason the US has made the borders more porous is to increase its revenue base.


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## cuerna1

... and as for capital controls - trust me they are already in place - however masked the may be (first hand experiences).


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