American Expats Pay More Taxes Than JEFF BEZOS & AMAZON
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In 2017, Amazon paid no federal tax on $5.6 billion in U.S. profits . . . and Jeff Bezos whose net worth fluctuates around $150 million paid no state tax and paid no federal tax besides $8,000 in social security payments.
I moved to the UK to be with my wife, why she didn’t move to the US is a whole nother story. I was under the impression that because I didn’t live or work in America I wouldn’t have to pay taxes. It makes sense, right?
After all, my wife lives abroad, and the Philippine government doesn’t expect her to pay taxes. For what? But as I researched taxes for Americans living abroad, I found out that America is the only country to practice this draconian form of taxation. To be fair though, Eritrea taxes its diaspora, but only at a flat rate of 2%.
What makes the American-style of taxation problematic is that North Korea, Iran, Cuba, China, Russia, or any other non-democratic country don’t tax their citizens who live and work abroad. See where I’m headed with this?
To be fair, there were other countries that practiced citizen-based taxation, but they gave up that practice long ago. Mexico, Romania, Bulgaria, Vietnam, the Philippines, and Myanmar used to practice citizen-based taxation but found it was too hard to collect and eventually moved to a resident-based system.
Myanmar had a citizen’s-based taxation system much like Eritrea but at a flat rate of 10% before they abandoned the practice.
Taxes in the New World did exist, but not on the federal level. States and localities collected poll taxes on voters and property taxes on land and commercial buildings.
The practice of citizenship-based taxation is no new idea. The US brand of citizen-based taxation dates as far back as 1861 when the United States was trying to raise revenue for its Civil War.
Congress argued that American citizens living outside the country were avoiding their duties when in fact they were trying to escape the war. The US determined that in a time of need, expats could make up for their lack of civic engagement by paying a higher rate of tax on their US-source income.
Income tax to be paid on income earned inside the US by Americans who lived abroad was five percent. If just being taxed for living overseas wasn’t unfair enough, most other Americans were only taxed at three percent.
The Revenue Act of 1861 taxed 3% of all incomes over US $800 and then Congress enacted the Revenue Act of 1862, which raised the amount to be taxed above $600 and rising to 5% for incomes above $10,000.
Rates were again raised in 1864; however, they citizens were now required to pay taxes on their worldwide income, not just their US-sourced earnings.
This income tax was repealed in 1872.
The fundamental problem with the citizen-based system was double taxation. So the government throughout the years tried to resolve the problem, they did everything except cease citizen-based taxation. Some of the ways they tried to end double taxation was in 1918, the US government implemented a foreign tax credit to eliminate the issue of double taxation.
In 1926, Congress created the foreign earned income exclusion, which allowed taxpayers to shield an unlimited amount of foreign income from U.S. taxes ($101,300, adjusted annually for inflation.)
But, during the intervening years, in 1924 the U.S. Supreme Court upheld as Constitutional the concept of citizenship-based taxation.
In Cook v. Tait, an American citizen resided permanently in Mexico City for over 20 years with no ties to the US. Mr. Cook felt it was unconstitutional for the US to tax him on income that was not sourced in the US.
The court decided against Mr. Cook and ruled that citizenship-based taxation was constitutional and continued to resolve the issue of double taxation.
Taxation without representation occurs when a taxing authority, such as the government, imposes taxes its citizens and other entities, but fails to provide them with a political voice through elected representatives.
Today, Americans are required to file an annual tax return with the IRS when they’re living and working abroad — even if they don’t owe any money. They’re also required to file a form called an FBAR to declare their foreign bank accounts. An undeclared account incurs a $10,000 fine.
The IRS is currently implementing a new law called the Foreign Account Tax Compliance Act (FATCA) which requires every bank in the entire world to report the account information of its American clients. FATCA is the vehicle to enforce “citizenship taxation”.
The FATCA was meant to stop businesses and fat cats from hiding their revenue in offshore accounts. One example is Jeff Bezos and his company Amazon.
In 2017, Amazon paid no federal tax on $5.6 billion in U.S. profits, according to an analysis by Matthew Gardner at the Institute on Taxation and Economic Policy.
And Jeff Bezos whose net worth fluctuates around $150 million paid no state tax and paid no federal tax besides $8,000 in social security payments.
These are the people and businesses FATCA was designed to stop. In reality, the little guy was the only one who was hurt.
How FATCA can be implemented is not clear because FATCA violates national privacy laws of some countries. Regardless of other countries laws, FATCA stipulates that any foreign bank that fails to comply will be subject to a 30 percent withholding tax on its US income.
I don’t see any hope in the near future to resolve the issue of citizen-based taxation. As long as the US is the dominating economic and military force in the world it will continue.
With China being on America’s coat tails continuing to challenge America’s number one position as an economic powerhouse and their growing military build up and presence at least in the Pacific and creeping into north Africa, there may be hope.
What is ‘Taxation Without Representation’
Congress has power to tax the income received by a native citizen of the United States domiciled abroad from property situated abroad. P. 265 U. S. 54.
Taxation without representation occurs when a taxing authority, such as the government, imposes taxes its citizens and other entities, but fails to provide them with a political voice through elected representatives.
What a difference a couple of centuries make. The oppressed becomes the oppressor. This was one of the main causes of the American Revolution.
