Part 2 — Americans abroad: a case study of the dumbing down of American policymakers
This is the second part of what will now be a three-part piece describing the dumbing down of the American policymaker concerning Americans living abroad. I expanded this to three because there is a lot to unpack.
A little note: I received an email from a person (journalist) wanting to know what triggered this multi-part attack on policymakers.
My answer is this.
I used to believe the following:
- Governmental policymakers are put in place to develop and pass policies that help people, not hurt them.
- If the Government (and the policymakers that influence the Government) make a mistake, they should correct the error. There should be some accountability for negligence, not covering it up.
- All American citizens should receive equal respect. It is not a policy influencer’s right or job to question a citizen’s loyalty or reason why they remain citizens or have chosen to live somewhere. (We do not need their permission to move).
- Freedom of movement is the most basic, fundamental human right.
- We, as Americans, enjoy at least as much freedom as other nationalities.
- Some people in the US understand the value of having their people living in different places around the globe. There is some common knowledge that US expats are citizen ambassadors and represent our country every day. Having a network of your people abroad is recognized as being vitally important because it is essential.
- We Americans encourage the small businessperson. We believe that no extremely complex obstacles should stop a person wanting to take a risk and start a business, no matter where they live.
- We are a fair country. At least we strive to be fair.
It turns out that none of that is true. I am exceptionally disappointed. That’s why I am writing this.
Two opinions that make me lose faith in America
I have recently read two pieces that contradict all of what I used to believe; one written by an influential tax professor, another article written by a former Governmental economist that spent years working for the Congressional Joint Committee on Taxation (JCT).
The opinions expressed by both gentlemen struck me as delusional from the very basis of their arguments. So delusional that it caused me to realize that the abuse of Americans who live abroad was simply on-purpose. They want to hurt all 4 to 6 million of us. Both seemed to be perplexed about why we have not just given up and renounced our citizenships.
It is past time for the expat community to shoot back
There is one fatal flaw in the arguments from these influencers.
None of these people ever sit down and talk to actual expats. Therefore, their research and ideas, are, saying it tactfully, incomplete. In the worst case, they signify the dumbing down of the American policymaker. It seems that the US is now a country that drives agendas and ignores the truth and uses biases and bigotry to select winners and losers. If you move from the US, you are considered a loser and all punishments are somehow justified.
No wonder the US is so screwed up. The institutions that used to be in place to get to the truth have turned into institutions where certain people can get what they want. So now we have a society that cannot believe anything. Institutions and policy influencers can no longer be believed because they have positions to support an agenda, not facts.
The French and Canadian courts have recently ruled against protecting residents and dual citizen rights and allow the US government to unilateral access to “US persons” (beyond citizen) bank accounts. The US government gets the data when and how it wants because if they don’t, they will exert significant economic damage to that country. The US Government is too good for a search warrant. Is that acceptable in the US? No. But they can do it abroad. We have allowed our policymakers to frame us into an evil group that is like no other, which gives them cover at home.
It should be clear to all that an American abroad or even others around him/her have no rights other than what the US policymakers want him/her to have. The US policymakers no longer believe in the sovereignty of other countries. Worse for us, they hate us.
Therefore, the “policy” discussions in the US need to be taken very seriously.
Let’s start with Mr. Driessen. Patrick Driessen was a governmental economist for the Joint Committee of Taxation (JCT) during the years that Congress passed six of the seven laws that did untold damage to thousands of Americans abroad. Those laws were:
- American Jobs Creation Act
- Tax Increase Prevention and Reconciliation Act (TIPR)
- Heroes Earnings Assistance and Relief Tax Act
- Hiring Incentives to Restore Employment Act (HIRE) (FATCA)
- Fixing America’s Surface Transportation Act or the FAST Act
Mr. Driessen was not in the JCT when Congress passed the TCJA.
All those laws had a significant “revenue” component targeting US persons abroad to pay for spending or tax cuts.
It is unknown how the JCT calculated this revenue (often so overestimated that it is comical).
How can you estimate tax revenues from a part of the population that is not considered in the census, the numbers of which are wildly subjective, and whose income is entirely unknown? Magic.
Despite that complete information black box about using US citizens abroad as an income source for legislation, folks in the JCT and others targeted Americans abroad repeatedly, under the headline “tax-evading, rich expats abroad.”
As I mentioned in part 1, US citizens abroad have been picked out to pay for spending legislation more than any other group.
Since 9/11, no single group of people has been used more for revenue calculations to support the passing of legislation than Americans abroad. Not Wall Streeters, not bankers, not loan sharks, not corporations, not drug dealers, not money launderers, not child abusers, not mass shooters, not terrorists, not white extremists, not animal abusers. That’s right, Americans abroad. Criminals. Hate.
Based on that alone, we understand Mr. Driessen viewpoint on the treatment of Americans abroad.
So, what does Mr. Driessen think now?
We finally have found out. Mr. Driessen published his thoughts in the July 3 addition in Tax Notes, titled “Beware High-Wealth Tilt in Residency-Based Tax Plans.”
He doesn’t quite understand the reality of a “foreign” corporation
Mr. Driessen seems to believe that the American business owners abroad, who must deal with two tax systems, should have known that a transition tax (from the TCJA) could occur before it was implemented.
This tax has or will force a lot of Americans out of their own company or to need to liquidate assets to pay for this unforeseen tax to the US to “transition” money back to the US, even if there was no plan for this private citizen to move back. Imagine going back 35 years to recalculate your taxes. Then having an unforeseeable tax on something that was already taxed.
First, a quick explanation. Any company abroad with a minimum of 10% ownership by a single American or a combination of multiple Americans that result in 50% or more “American” ownership is considered a US Controlled Foreign Corporation (CFC). When you are a CFC, you have a new rule book to deal with that dictates your life. That’s why a lot of startups will refrain from taking on US person co-founders or equity holders. Although you might think that this only means large corporations, the vast majority are a local mom and pop shops.
There is no minimum sized level. All of them share the same US tax filing (on top of their local country federal taxes) like Google or Apple or any multi-national corporation, no matter their size. Even if you merely own a taco stand in Paris.
Mr. Driessen does not seem to realize that the impact of the transition tax hurt thousands of low to middle-income Americans who own small local businesses abroad. He flippantly showed some sympathy for the effects of a retired person who invested “smaller amounts” like $1M or $2M as an investment into a CFC. Does he have any sympathy for the woman who runs her CFC from her apartment in Milan? She needs to spend $20K even to calculate transition tax. How about Pedro, the taco stand owner in Paris?
Let me spell this out for Mr. Driessen.
When you start a small business, you are competing against people in your country where you live. If you are an American citizen small business owner, you need to think about your local country’s system first. Otherwise, you do not have a chance.
A person running a small business does not have the luxury of having a staff of international tax accountants to advise every move that you make. How the hell could these people have foreseen suddenly being taxed on income that has already been taxed? Maybe some did have their pensions in their newly taxable US income to “transition” that back to the US.
Did anyone think or care about this income that was being taken suddenly could also trigger a taxable event or penalties in the local country? Nope. Who cares, we needed to pay for tax cuts in the TCJA. Did anyone make an effort to try to cover this in a double tax treaty? Nope.
The impact of the TCJA was not unintentional. Congress, under the advice of others like Mr. Driessen, did it on purpose. Otherwise, they would have corrected it. They didn’t.
Why doesn’t this get more attention? Because it seems that the feeling is that all CFCs are Google-like. Nobody thinks about Pedro’s taco stand in Paris. And who the hell cares about him?
Mr. Driessen even has him more in his sights than the big guys. The big guys can afford it, Pedro can’t. Pedro deserves punishment; he is not wealthy.
Mr. Driessen only sees the big fish and cares nada about the little guy
As mentioned, an “American” owned local business tends to be small. Because they incorporate locally does not make them a multinational corporation.
A small, local American owned CFC must compete with other local businesses. The tax obligation of Pedro in Paris looks like this compared to EVERY other nationality:
Is that fair? Is this a good policy? Or is being an American abroad solely the least free of all nationalities?
Please, Mr. Driessen. You should not have the right to make policies for stuff that you do not understand or even care about.
If you would like to provide free accounting services for small businesses abroad, it would be appreciated. Maybe your crystal ball is better than anything that we can afford to buy.
So, what is next? More abuse?
Mr. Driessen and many others believe in casting a huge net
Some policymakers like Mr. Driessen enjoy calling out Americans abroad as “rich tax evaders.”
Yes, they should be concerned about that targeted 70,000 Americans that are ultra-rich and could be moving their assets out of the US into shell companies in the Cayman Islands. They should equally be concerned about the US, not interested in bilateral exchanges of information between countries and turning the US into the world’s new big tax haven. But that doesn’t even hit the radar.
But a lack of brainpower has allowed an association that all Americans abroad are all part of that 70,000 super-wealthy.
The association of expats and ultra-rich is not just popular with the more liberal crowd of people. The media has bitten into it as well.
It is important to note that even some wealthy like it because it enables a delusion of the demonization. The actual wealthy tax cheats can blend into the ranks of the 6 million others. Did you ever wonder why the wealthy are not complaining about these policies? Have you wondered why it is only the ordinary people complaining?
The US has a problem with making associations, and expats are no exception. We have black people and dangerous, brown people and illegal alien, white and privileged people. We also have expat and rich, unpatriotic, tax cheating globalists.
Our policymakers, like Mr. Driessen, seem just to love this. They have a group of people that they can beat up, and expats are too far away to defend themselves. And on top of that, nobody cares. Perfect for calculating fake revenue for legislation.
Our policymakers make themselves into heroes by coming up with new ways to punish this group. They will claim that they are trying to stop the rich from moving money to the Bahamas to avoid US taxation.
It is undoubtedly the case that this happens. But would you punish the entire city for a single murder in South Chicago? How about punishing everyone in East St. Louis for a killing in Newark? Use a stop and frisk tactic on an entire neighborhood in another city than where the crime was committed? Instead of letting these folks play with the truth, let’s look at some facts:
- There are 607 billionaires in the US (US News & World Report)
- There are, roughly 70,000 people in the US with over $50 million net worth (various sources)
- 61% of Americans abroad have a household income of less than $100K (2019 Dem Abroad survey)
- 30% of Americans abroad receive some local social welfare (aged, indigent, disability, unemployment, childcare) that is likely double-taxed as US-foreign passive income (2019 Dem Abroad survey).
Nobody knows how many Americans live abroad. Let’s say; there are 6 million.
So, the policymakers have cast 6 million people-sized-global net to try to catch a fraction of the 70,000?
And the net is wide. Instead of focusing on that handful of countries where it is possible to hide wealth successfully, they focus on all 194 countries.
According to several different surveys, 90% to 95% of Americans abroad live in countries with the same or higher tax rates than the US.
If the US citizen intended to avoid taxation, why would they move to a country that has a higher tax rate?
While trying to convince the general public that they are doing a noble thing by casting that massive net around the world to try to find a fraction of 70,000 tax-evading fat cats, in reality, they are punishing 6 million people for being American and living abroad.
The 70,000 can afford to deal with it. Most of the rest can’t. 97% of surveyed have reported extreme issues with the myriad of US, double tax code filing requirements.
What is punishment?
Punishment means that we will put another set of laws on the masses to force them into paying vast amounts of tax compliance money. The regulations will invade the little guy’s privacy, make sure that anyone dealing with them (including their own families) will feel the pain as well. Punishment means that they do not enjoy the same rights of virtually any other nationality.
The US will impose its law on this little guy, no matter where he is, even if it conflicts with the local country’s law.
The US is the only country in the world that has forced its hand at overriding other countries’ sovereignty to get to those “ultra-rich” tax cheating Americans. You know, the group with 30% receiving welfare.
Mr. Driessen believes that Citizen-based taxation is good for the world’s wealth inequality
Mr. Driessen believes that Citizen-based, global, double tax code policies can help wealth distribution problems. He makes the case that wealthy people living in developing countries should be forced to stay home, and the US policy should be expanded to all countries. That concept is incredibly flawed. Here is why:
- Most of the world’s migrant population (much like American expats) are low to mid-income people, not wealthy. That, alone, blows his theory out the door. But it goes further.
- According to the UN, it is estimated that migrants sent home US $413 billion in remittances to their home countries in 2017. Remittance has proven to be a vital income for many countries.
- Global citizen-based taxation would create a global country competition to buy wealthy people with offers of citizenship and tax breaks. This is already happening. This citizenship market would allow them to move away from their country’s citizen-based taxation for good. The difference is that if Mr. Driessen has his way, it will be the rule, not the exception. In other words, migration becomes a rich man’s game (exclusively).
- Citizen-based taxation would either mean that the migrant would be double-taxed or would not contribute to the country where they lived. Double taxation is not sustainable. Dropping resident taxation for citizen-based taxation would likely cause prejudice, discrimination, and even violence toward the migrant because of the hatred created by a local population when the migrant is not paying for the local services that they receive.
- Lastly, the US has had Citizen-Based taxation since the Civil War. It does not seem to have made a positive impact on wealth distribution in the US. Why does Mr. Driessen believe that this would be any different in other countries?
If Mr. Driessen’s theory is to stop the freedom of movement (for the first time in human history), then his recommendation is valid.
I started to write this and had to stop because of my anger towards Mr. Driessen’s offensive comments. I kept thinking that this policymaker sees himself and his children as a higher level of American than myself and my children.
But I am grateful to have this information because it tells us a lot about our Government’s feeling about people who leave the US for whatever reason. What seems to be less desirable is that some people, for whatever reason, that feel enough patriotism to hold on to their citizenship despite living abroad.
It is not a policy person’s role to determine the reason why another American keeps something given to them at birth. What is worrying is the total lack of understanding that having expats around the world is a valuable thing for the US, not a cost. Are our policymakers so stupid?
Since moving abroad is seen as such a bad thing, I wonder why the Government doesn’t publically warn all citizens that leaving the country will trigger punishment. Why doesn’t the US Government just ban living abroad?
Whatever the reason, we should warn every young American that people get punished when they leave the US. People like Mr. Driessen will make sure that you regret it.
In the next part, I will cover domicile vs. citizenship as a basis of taxation and talk a little about Dr. Z.