Appreciate these interviews from Democrats Abroad. But, they need to STOP making the question about residence-based taxation conditional on revenue neutrality!
See starting at the 9 minute mark … Separate questions about FATCA and citizenship-based taxation …
This is the @Demsabroad interview with Senator Sanders that includes two distinct questions: 1. About FATCA and 2. About residence-based taxation.
Many people have reported (based on this interview) that Senator Sanders supports residence-based taxation on a “revenue neutral” basis. This is NOT what he said. His answer did NOT include the “revenue neutral” condition. The question asked by the DA representative phrased the question in terms of revenue neutrality. (Arguably, the Senator’s answer was based on an assumption of revenue neutrality – but, I don’t think so.
My impression is that Senator Sanders did NOT condition his support on revenue neutrality. Democrats should stop building the “revenue neutrality” condition into the question. It is obscuring the meaning of the answers.
Finally, Mayor Pete when asked the question ABSOLUTELY made it clear that his support for residence-based taxation WAS based on revenue neutrality. Again, it is possible that he was NOT answering the question more generally.
I applaud Democrats Abroad for this interview series and for asking these questions of all candidates. That said, I do NOT think the question should be based on a move to residence-based taxation being revenue neutral.
U.S. Citizens and Green Card Holders Residing in Canada and Abroad
Renounce U.S. Citizenship – Green Card Abandonment – FATCA and CRS Tax Residency – Retirement Planning For Americans Abroad – Second Citizenship
Hi John.
Thanks very much for raising this issue.
Could I please make some additions?
If it’s wrong to tax non-residents than why does it matter if ending it is revenue neutral or not?
Further, it seems to me that if the tax revenue from overseas citizens was so significant, the IRS would be doing much much more than it is now to support overseas taxpayers, such as by re-opening the IRS offices in consulates, making it easier and cheaper to interact with the IRS from overseas both by phone and online, making more written materials available in a larger variety of foreign languages, find a way to send out notifications overseas in a timely manner, training IRS employees who answer the phone to be able to address the special issues raised by overseas taxpayers, etc. etc. To date the IRS has made deliberate decisions to not do any of these things – this indicates that they don’t think the corresponding revenue is worth the resources it would take.
Further,those who argue in favor of requiring revenue neutrality are missing a very important element (among others): the unstated assumption of this argument is that if it cannot be shown that abolishing non-resident taxation would be revenue neutral then non-resident taxation should be maintained. In that case, those who argue in favor of revenue neutrality must also acknowledge the serious deficiencies in how the IRS supports taxpayers overseas and they must insist that these deficiencies be addressed. (See above list of examples such as re-opening IRS offices in consulates, better communication options by phone and email, greater variety foreign languages, IRS agents trained on the issues of overseas taxpayers, more timely notices, etc.). It is hypocritical on the one hand to require revenue neutrality but on the other hand to not require that the IRS provide overseas taxpayers with the same level of support as resident taxpayers. Further, these deficiencies in the support provided to overseas taxpayers violate several of the Taxpayer Bill of Rights: (1) the right to be informed, (2) the right to quality service, (3) the right to a fair and just tax system.
I repeat, you cannot on the one hand argue in favor of revenue neutrality but not, on the other hand, also insist upon ending the discrimination in service levels that the IRS provides to overseas taxpayers and insist upon the fulfillment of the Taxpayer Bill of Rights with respect to overseas taxpayers. You cannot on the one hand argue in favor of revenue neutrality but on the other hand argue that the IRS resources required to fully support overseas taxpayers are too high to be warranted. These two arguments are mutually exclusive.
https://www.irs.gov/taxpayer-bill-of-rights
Thanks for this post, John. You raise a very important point. And thanks, Laura, for your excellent explanation of the inconsistencies inherent in the insistence on revenue neutrality. If something is the right thing to do, then the cost shouldn’t really be an issue.
Another reason that revenue neutrality cannot be a condition of moving to residence based taxation is that no one knows how much revenue the US actually collects from nonresident citizens! Public IRS data lists returns filed from addresses outside of the US, but these include diplomatic and military personnel and temporary expats who would most likely be considered US tax residents even under residence based taxation. So, there’s really no way for Congress to estimate the revenue impact in the first place, and any claim of revenue neutrality (or lack thereof) is pure speculation.
Great comments. I might add one more to Karen’s comment. Any actual revenue collected from Americans abroad need to only be for taxes owed. It cannot be for fines, penalties, one-time charges, etc. It seems that the IRS and Treasury get very quiet when they are asked about revenue split out between actual taxes and penalties.
The loss of nationality should be seen as a cost to the US government. Therefore, renunciations should be considered in the revenue neutrality calculation.
To summarize the above points:
1) In order to support revenue neutrality as a requirement to change from Citizen-based-taxation to Resident-based taxation, the IRS must reverse its closing of offices and support to the taxpayer to equal services experienced with taxpayers living in the US.
2) The IRS must stop violating the Taxpayer Bill of Rights for Americans living abroad. Furthermore, the lack of due process in the IRS’s implementation of Fast Act provisions is in clear conflict with the Taxpayer Bill of Rights.
3) Any calculation for revenue neutrality should be backed up by solid data, not wild estimates. Potential revenues are not supported by Census data like they are with all other taxpayers. Therefore, potential or projected revenue estimates are not valid.
4) Any reporting on current tax payments by American citizens abroad should have fines, penalties, and one-time payments (i.e. Transition tax) separated out of the revenue neutrality calculation.
In regards to revenue neutrality of a shift from CBDT to RBT, this argument is missing: The U.S. is tax cheating U.S. persons overseas by claiming tax jurisdiction over them and in exchange providing zero in the way of resident services to them or protection of local property and local rights.
My statement stems from “the justification of taxation” and of when taxation is justified. Generally, taxation is viewed as justified when resident services are provided in exchange.
Figuring out what the USG owes U.S. persons overseas in the way of services:
2018 U.S. Federal budget request: $4.094 Trillion
2017 population of the U.S.: 325.7 million
Expenditure per person: $12,570
Overseas U.S. person population: 9 million
Total equivalent spend for USP resident overseas: $113 billion per year.
The USG should spend $113 billion per year on resident services for U.S. persons overseas. NOT zero!
That is quite a hefty number to figure in any revenue neutrality and, IMO, helps to justify a shift to Residence Based Taxation: any loss of taxation revenue is more than offset by the end of obligation to provide U.S. Persons overseas resident services.
Just think of the present value if one goes back and calculates all the years of resident services not provided. ok, instead of repatriations, we accept a simple change to RBT. Now, can there be an administrative change to the definition of U.S. resident in the tax code? Or maybe a better angle is to start by asking for repatriations, and to make it a big figure for payback for all the years the USG did not provide resident services for USP overseas.
There are other benefits not usually figured into a shift to RBT.
Soft power influence, encouragement of companies to send Americans overseas and for individual Americans to do business overseas; this has been an accepted part of expanding U.S. exports and influence overseas.
From an economic position – taxes don’t fund anything. Sanders and Warren know this and they know how the budgetary process works but they are pushing full up demagoguery. The government funds itself from demands from the Treasury (after legislation) to the Fed and they in turn credit the accounts. This all happens w/out revenue. The government always spends first before a penny in taxes come in.
Take a look at how they easily fund the Defense Department as an example. They lard it up with goodies & never, ever seek revenue neutral or pay for language to pay for the $1T budget. Every year. The Fed funds the accounts w/out question. Without tax revenue.
The pro-revenue & pay for crowd believe the government is the important entity. In other words, in the deep recesses of their mind, we must submit ourselves to unelected bureaucrats as a society because they know best – unchallenged. At the end of the day, they cannot seek tax reform & believe in medieval bloodletting at the same time.
Indeed, revenue neutral / pay for language has to be challenged and put out of its misery. It makes no sense and is harmful to the sovereign citizen who lives abroad – which is more important than the government.