Double Taxation
June 28th, 2006 by Peter DeeryDaniel Mitchell of the Heritage Foundation exposes the US practice of ‘world wide taxation’ where expatriates living overseas are forced to pay US taxes along with the taxes they pay in their adopted country. He explains the harm this does to business because many of the companies agree to pay for their employees taxes so that they are not paying more than they would if they lived in the US. Senator Jim DeMint seeks to relief expatriates and their companies of this burden through the “Working American Competitiveness Act” which would eliminate this tax burden. By lowering the cost of business, this bill has the chance to increase American competitiveness overseas by increasing exports and job opportunities. Much like the president’s tax cuts, the idea of lowering tax rates does lead to growth
July 4th, 2006 at 12:07 pm
On June 13, 2006, U.S. Senator Jim DeMint introduced tax legislation
called: “Working American Competitiveness Actâ€Â. This somewhat
obscure piece of tax legislation only concerns US expatriates earning
income abroad. This Act will replace Section 911 exclusions (which
include an $82,400 Foreign Earned Income Exclusion and limited
Housing Exclusion) with a total exclusion of federal income taxes for
US expatriates on foreign earned income. This has been hailed by
Prosperitas as “good tax policy†and the Heritage Foundation as a
means to “boost America’s position in the global economy.†These
conclusions are based on surveys of firms that have large numbers of
expatriates working abroad; as these firms often must reimburse
expatriates for US taxes paid there is a definite self-interest in
promoting the passage of this Act. In reality, it’s bad tax policy,
and will provide no boost to America, global or otherwise.
There is an increasing trend to define office not as a desk in a
particular place but as a lap-top plugged into an internet
connection. This allows people to run business, and salaried
employees to work, wherever internet is available. What this Act
will do is allow any US taxpayer (US Citizen and Resident Alien) to
plug the lap-top into any socket located abroad and declare residency
in that country. Once the taxpayer establishes Bona Fide Residency
abroad, defined by principle place of work, than he or she can make
as many visits or stay as long as wanted in the United States and not
pay a penny of taxes, providing that the taxpayer declares that no
‘business’ was conducted in the US. The taxpayer could be paid from
American sources, into an American bank, even have the family
continue to live in America, and still not pay any tax on the earned
income. A dream opportunity to avoid US taxes.
This is an example based on 2005 tax figures using standard deduction
and exemption: A single taxpayer earning $500,000 of wages or
business income, with a private income of $100,000, living in the US
would pay federal income taxes of $188,720. The same taxpayer
residing officially abroad, after the passage of this Act, would pay
federal income tax of $20,218 – a saving of $168,502. There might be
additional savings, and considerable additional savings, by not
having to pay state and local income taxes.
The passage of this tax act would be a powerful incentive for high
wage earners and businessmen and women to establish Bona Fide
Residence abroad, and would certainly cause a considerable dip in tax
revenue. The only economies that would receive a ‘boost’ are tax
havens abroad that would readily welcome these ‘tax’ expatriates.
Far from achieving ‘a level playing field’ the passage of the Working
American Competitiveness Act could very well have the distinction of
being the largest legal tax avoidance scheme ever approved by
Congress.
Yours Sincerely,
John Norton
Innsbruck, Austria