Tax Break

Essential reading: Americans overseas balk at taxes, trickle-down taxation, more

April 17, 2012

U.S. Park Police Officer Calvin Covington with his horse Harper mails his family's income tax returns at a mobile post office near the Internal Revenue Service building in downtown Washington. REUTERS/Jonathan

Welcome to the top tax and accounting headlines from Reuters and other sources. 

* Romney’s remarks on limiting tax deductions draw fire. By Sam Youngman and Donna Smith – Reuters. After Mitt Romney was overheard telling supporters at a private fundraiser in Florida over the weekend that he might seek to limit tax deductions for mortgages and eliminate the Department of Housing and Urban Development (HUD), aides said on Monday that Romney was simply throwing out ideas, not outlining policy to help offset his proposal to slash all U.S. tax rates by 20 percent. Link  

* ‘Buffett Rule’ tax plan fails in a Senate test vote. Naftali Bendavid – The Wall Street Journal. The Senate on Monday blocked the so-called Buffett Rule, a measure designed to ensure that high earners pay at least 30 percent in federal income tax, on a near-party-line vote highlighting the split over a key element of President Barack Obama’s election-year message. Link

* NYC’s well-off households would lose under tax-cut repeal. Frank Bass – Bloomberg. Wealthy New York-area households that benefited from a decade-long break on federal individual income taxes stand to lose the most if the Bush-era tax cuts are repealed next year. Link  

* Celebrities are often in debt to the tax man. Dennis Cauchon – USA Today. It’s not just champion skier Lindsey Vonn. Public records show more than 50 people prominent in the entertainment industry who owe at least $50,000 in back taxes to the federal government, according to IRS tax liens. Many also are behind on state income taxes, according to legal filings. Musicians appear especially prone to tax problems. Link  

* Trickle-down taxation. Grover G. Norquist – The Wall Street Journal Opinion. Americans know that politicians are getting elected by promising to tax only the rich and then going after the middle class. Link  

* Obama beats Romney for tax-return political savvy. Columnist Allan Sloan – The Washington Post. Obama’s tax return is politically astute. Despite Obama having significant net worth, his return shows not a penny of tax-advantaged capital gains or dividend income, a striking contrast to Mitt Romney’s 2010 return and projected 2011 return, which show income consisting primarily of low-taxed capital gains — some from investments, some from Romney’s share of the fees that his former employer, Bain Capital, collected as its share of its buyout investors’ gains. Link  

* The Buffett Rule: right goal, wrong tool. Leonard E. Burman – The New York Times Opinion. The Buffett tax is good politics: most Americans believe the rich do not pay enough tax, but it is not the right tool for this job. If it became law, it would needlessly complicate taxes and create new inequities. We should fix the regular income tax to eliminate or curtail the tax loopholes that let rich people avoid tax, especially the lower tax rates on capital gains and dividends. Link

 * Tax time pushes some Americans to take a hike. Atossa Araxia Abrahamian – Reuters. Last year, almost 1,800 people renounced their U.S. citizenship or handed in their Green Cards, a record since the Internal Revenue Service began publishing a list of those who renounced in 1998. Many say they parted ways with America for tax reasons. An estimated 6.3 million U.S. citizens living abroad say they face an even tougher process of reporting their income and foreign accounts to the IRS, than those living in the U.S. Link

One comment so far | RSS Comments RSS

Once again, another article in the US press that focuses on millionaires. The reality is, US policies especially crush middle class USPs (US Persons = Green Card or US Citizenship) Abroad whether they are tax compliant to the US or not. The reporting requirements of FATCA and FBAR (FATCA having apparently been passed as a rider to the HIRE act without much real open Congressional debate on the issue) are causing US Persons abroad, many of whom are dual nationals of their country of residence or a third country, to lose their jobs, be refused even basic bank accounts, and be shunned by prospective non-USP business partners who don’t want to deal with dual-reporting and taxation requirements to the IRS.

Most working and middle-class “minnows” abroad pay local, regional, and national taxes in the countries where they live, as well as VAT, excise and other taxes and fees. Whether these taxes are lower or higher that what they would pay as “homelanders” (USPs resident in the US) is immaterial. They all pay their fair share where they live according to the local system negotiated through whatever political means extant. They have to deal with the advantages and the drawbacks of their local countries’ system and do not need and often cannot survive with the additional variables imposed by the IRS.

US extraterritorial taxation policy does not take into account the disparities caused by the shift in exchange rates (thanks perhaps largely to US “quantitative easing”) that pushes people into higher US tax brackets despite no increased local purchasing power, the cost of living in each foreign country, as well as the tax structure in the foreign countries (for example, some countries have a much higher VAT than the US sales tax, but VAT paid outside the US is not eligible for a Foreign Tax Credit in the US).

US Double Taxation also takes money rightfully earned in a foreign country out of the local economy, where USPs should be free to spend or invest their money. Non-USP family members of USPs are also adversely affected, despite having no allegiance to the US.

Working and middle-class USPs have recently reached retirement age to discover that they have outstanding US tax liability, or while having no US tax liability due to the (limited) Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC), might owe confiscatory penalties on foreign tax-deferred or tax-exempt retirement plans that were not reported to the US (see FBAR). Many USPs abroad renounce nationality because their pensions would not count as “Earned Income” and they could not survive if they paid US double taxes. Nonetheless, the renouncement process is time consuming and costly.

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