"The biggest threat to America does NOT lie outside its borders. The biggest threat to America…" — John Richardson https://t.co/cVpLNlSZfV
— Citizenship Lawyer (@ExpatriationLaw) June 21, 2017
The biggest threat to America does NOT lie outside its borders. The biggest threat to America is the Internal Revenue Code and its absurd rules governing international taxation (the taxation of U.S. citizens and U.S. corporations on revenue generated outside the United States). The bottom line is that the Internal Revenue Code has (not is) destroyed the ability of U.S. citizens and corporations to compete outside the United States.
by John Richardson
This is because of the peculiarly U.S. practice of:
1. Who the USA taxes: Taxing all U.S. citizens who live in other countries and pay taxes to those other countries (every heard of double taxation?) Why is the USA attempting to impose taxes on the residents of other nations?
2. What income are they taxed on: Using a system of “worldwide taxation” (meaning that the USA imposes taxation on income earned in other nations).
Time out for a second –
(1) this means that the USA taxes U.S. citizens who DO NOT even live in the USA on income NOT ASSOCIATED with the USA!
(2) U.S. corporations who have the gall to attempt to do business outside the USA are subject to taxation on those profits
(when corporations based in other countries are not – Hello!!! Talk about giving a competitive advantage to non-U.S. companies)
3. How (what are the U.S. tax rules that apply to U.S. citizens abroad?) are citizens a taxed on this “foreign income”. Answer according to U.S. tax rules that as though the income was earned in America. Because, Americans abroad live their lives outside the USA (committing “personal finance abroad”) they are subject to the punitive U.S. tax rules that apply to anything “foreign” (including the penalty laden reporting requirements. This results in U.S. citizens abroad being technically being subject to higher U.S. taxation than Homeland Americans! (Things like the foreign tax credits are designed to mitigate the actual U.S. tax owed.)
Bottom line: The Internal Revenue Code has (not is) completely destroyed the ability of U.S. citizens and corporations to exist and profit outside the United States. Perhaps some people think that this is okay. But, most will realize in a global world that this is a bad bad bad thing.
Therefore (coming back to tax reform) the USA needs to do the following:
1. Stop attempting to impose taxation on the residents of other nations (that just happen to be U.S. citizens). Stop the U.S. practice of “citizenship-based taxation” and move to a system of “residence/territorial based taxation”.
2. Stop discriminating against its own corporations by imposing taxation on their economic activity outside the United States. America: STOP punishing your own corporations! They are run by Americans. Their shareholders are Americans. Why does the Internal Revenue Code hate them so much?
The discussion of the “border adjustment tax” in this article is a bit of a red herring. It is irrelevant to the fundamental tax reform that is actually needed.
But, for the record (if it matters):
The border adjustment tax is just a way to punish imports to the USA. It will simply make imports more expensive to every day people. There has been an ongoing debate about this idea for months.
What we KNOW about a border adjustment tax: It will raise the cost of imports to the USA
What we DON’T KNOW about the Border Adjustment Tax: Whether somehow the decrease in demand for imports (because they are now more expensive) will somehow result in adjustments to exchange rates that will somehow result in price adjustments.
Furthermore, the border adjustment tax would (likely ) violate international trade agreements.
Yes, it’s time to get with the “tax reform program”. It’s time for the USA to
(1) STOP attempting to tax economic activity that is unrelated to the USA (move to territorial taxation) and
(2) stop attempting to impose taxation on the residents of other nations (stop citizenship based taxation).
There are reasons why individuals are renouncing U.S. citizenship and U.S. corporations are inverting.
Will these changes to the system of “international taxation” happen? Maybe and maybe not. Was it Winston Churchill who said:
“You can always count on Americans to do the right thing – after they’ve tried everything else.”