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Let’s redesign world taxes.

People leave their own country and live in other countries, purely for economic gain. Lifestyles, safety, health care, opportunity, or whatever else does not count. These reasons are un-American. Who in their right mind would emigrate to some frigid Scandinavian country simply to eat cold-water fish and enjoy free healthcare and an excess of well-endowed, blonde women? And given today’s sexual leanings, I don’t think I am being sexually biased.

Money drives the American Government’s treatment of its expatriates, people like me who have lived abroad for decades. It only cares about my money, not me. But I am not going to rant about that, not today. I simply going to propose a re-designation of world taxation policies, an alignment of all countries’ tax policies with America’s policies. If it is good for one, then it must be good for all, right-winged religious fundamentalism excepted. I will not be overly specific but will make assumptions as follows

Assumptions: All country tax rates, policies, and deductions are the same unless otherwise noted, but countries do not recognize other countries deductions (And IRA is not recognized in Canada nor is an equivalent RRSP recognized in America). All countries allow a foreign tax credit (can deduct taxes paid as a deduction in another country) and a foreign income exclusion.

I want to illustrate a couple of things. First, I want to show how silly policies can be (and of course already are for me), and second, I want to then consider what might happen if rates and policies differ, which they do in the real world, how such policies could affect America’s pocket books. Remember, this is all about the almighty greenback.

The real world. I feel like I live in a bad dream. I hope you end up feeling the same as I do. This is the reality of expatriates.

Case A: Doug the Canuck moves to Texas. He and the company that imported him have filed all his paperwork and is legally entitled to work in America, despite all the nasty gun-toting looks he gets when he wears his Team Canada t-shirts. He earns a nice salary, and he pays his taxes. Three months later, he has to file another tax return with Canada. He cannot use any of his American deductions, so he is in danger of paying extra tax to Canada. But there is a salvation: his first $100,000 earned abroad in salary is considered tax free. He is saved.

Case B: Bob the Canuck has lived in California his whole life. He became a citizen in 1969, but he is still a Canadian citizen. He has done well with his business, and his portfolio currently sits at $10,000,000 American dollars held in a variety of investments, largely dividend generating shares. Canada does not recognize his charitable and political donations or a certain state investment tax credits he jumped all over (without obtaining Canadian tax advice – good luck finding south of the 49th). He ends up paying Canada several thousand dollars of extra tax.

The issues:

  1. Both people have to file two tax returns. That’s two complex sets of laws, and advice for their Canadian return is virtually unavailable in Texas or California. If they make mistakes, there are penalties they may have to pay. And if they can find a professional Canadian tax preparer, it will likely cost them many times what they normally pay for their American tax preparation.
  2. While not a lot of taxes leave the country, some money does. If say it’s $1,000 a head, that’s $800,000,000 leaving the country — 800k Canadian citizens live in America and pay American taxes. That’s capital that cannot be put to work in America. If we add up all of the foreign nationals, there are over 40 million, times a $1,000 outflow equals $40,000,000,000, or forty billion dollars, of exiting capital.
  3. But wait, it’s not so bad. America has seven million expatriates. That’s an estimated $1,000 inflow per head or 7,000,000,000, a seven billion dollar inflow. America will only lose $33,000,000,000, 33 billion dollars, in capital to foreign countries. That’s annually, by the way.
  4. In reality, rates differ. I do not have the numbers – they usually depend on many variables. It is generally considered that foreign tax rates are higher than America’s which is one of the things political pundits brag about as a reason for America being the greatest country in the world. Higher foreign tax rates increase the money going out and decrease the money coming in. Instead of $1,000 each way, maybe it’s closer to $1,500 out and $500 in per head. That thirty three billion dollar deficit suddenly grows to fifty six and a half billion dollars leaving the country, that’s $37,500,000,000.
  5. Retiring residents will be hit extra hard. America’s tax rates on investments is the best in the world. Canada would clean up on a person living off their investments, especially. Social security income does not trigger a foreign income exclusion. Many retired people live on marginal incomes. Take extra tax from them, and you have more people on food stamps and other social assistance programs.
  6. Forty million Americans’ lives will be invaded by foreign countries. Some of those countries may even finance human rights abuse or other forms of global instability – read terrorism, Bubba! Your lost American capital is going to finance Jihading your ass into the back of your pickup.
  7. Forty million Americans will be burdened by extra tax preparation, a need for extra tax knowledge, and face a losing game. They will live under constant stress and health care expenses will rise, drug dependency will rise. They can never minimize their tax burdens like a “normal” citizen can. How can you be a true American if you cannot minimize your taxes?
  8. All countries will have to hire extra government tax workers. Goodbye low unemployment.
  9. The cost of extra tax processing (for the $1,000 a head income) will likely exceed any revenues collected — a pointless exercise for all.
  10. Tax preparation businesses will explode: “Your One Hundred And Fifty Country Tax Expert!”

I am just getting started with this nonsense. What country, besides Canada, would ever trust its citizens to report their foreign taxes correctly? There is no means to check on Wing Wang’s American bank transactions from Beijing, not overtly anyway. So what will foreign countries do? They will force all American financial institutions to report their citizens’ bank accounts to them, that’s any account they have signing authority on. It will include all personal, joint, volunteer, and corporate accounts with the person’s name on it. If Doug is promoted to Treasurer of his large corporation, then that corporation’s bank information becomes available to Canada. And if any expatriate from any country anywhere in the world not only lies (fraud) but makes a mistake, they will be severely fined and penalized. Their names will be plastered all over police station or border crossing walls, and will be blacklisted from flying, crossing borders, and may face prison time.

I love telling stories. This would be unbelievable fiction, yet it’s half true. It’s only half true because only America is stupid enough to do this. It will become true once the rest of the world catches on to America’s lead. Come on China, you can take even more of America’s resources. Mexico? You have eleven million legals here. Soon you may double or triple that. Start taxing them. You’ll pay off your debts in no time. And Canada? Canada bows to its knees and once again abstains from pissing off Big Brother. Come on, America says it is okay, so get on the band wagon. Start stealing what’s left of America’s capital.

Let’s make the obvious conclusions. This is a stupid system. Nobody in their right mind would even consider such a system. We don’t know the cost of implementing it, but the benefits have to be marginal at best. Yet this is how America treats its expatriates. This is why, when my Canadian friends gather at a bar, and the discussion turns to stupid Americans, I buy everybody a beer – after all, I am a billionaire tax cheat – and the conversation goes straight down hill as John spews his diatribe against stupid America.

2863360461_55a4aedc7d_zOne of John the billionaire’s cars.

Perhaps the United Nations should step in — like America would listen to them — and create a new human right, the right to file only one tax return. It’s a sad state of affairs that I would even have to suggest such a thing. America, the greatest nation on earth? The next time I hear that, I’m going to punch that person in the face. To over seven million expats, America is the stupidest nation on earth.

Is anybody listening? $$$$$

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