Wednesday, July 05, 2006

U.S. Expatriates...Meet Your Enemy!

Let me introduce you to U.S. Senator Chuck Grassley, Republican of Iowa. Why should you care about Chuck? Well, I'll tell you why - he's the person who is responsible for the fact that you will more than likely be paying THOUSANDS (maybe even TENS OF THOUSANDS) of dollars more in U.S. income taxes beginning this year. Do I have your attention now? Thought so...
If you're a U.S. citizen or Green Card holder working overseas, then you need to read this article from the May 26, 2006 issue of the International Herald Tribune titled U.S. Tax Law Sends Expatriates Reeling. Then, read this one called Americans Abroad See Tough Fight Over Taxes from the June 22, 2006 I.H.T. According to The Economist (June 22, 2006): "Under the new tax law, a married American expatriate with children who pays income tax at a marginal rate of 33% and has company-subsidised housing could see his gross tax burden increase by $40,000, estimates Michael Abdalian, a partner at Ernst & Young. The situation will be especially painful for Americans working in low-tax countries where housing is pricey, such as Hong Kong and Singapore."
I find it ironic that Grassley, the "...powerful chairman of the Senate Finance Committee" who has "...long advocated raising the tax obligations of Americans abroad" ended up adding these new tax rules " the last minute to a $69 billion tax-cut package signed into law in May". According, once again, to the June 22, 2006 issue of The Economist: "...the tax code was buried in the broader tax-cut legislation at the last moment, and thus circumvented debate in Congress. It is only now becoming widely known." The worst part about this tax code, in my opinion, is that the changes have been backdated to the start of this year. Thanks Chuck....FOR NOTHING!!! It's good to see that you're responsible for "...the Republican Congress's first renunciation of its widely trumpeted vow to block any increase in personal income taxes. Workers on foreign assignments [it is estimated that the higher taxes will affect a minimum of 300,000 people] are apparently not thought to be a particularly threatening lot.
According to another Chuck...Senator Chuck Hagel, Republican of Nebraska:

"[American expatriates] are an easy target quite frankly. You don't have lobbyists here, you don't have any law firms to protect your interests. It's not your fault, but that's the way it is."

The good Chuck (Hagel, that is) has lent his support to a proposal by Senator Jim DeMint, Republican of South Carolina, that would "...eliminate taxes earned by Americans working overseas".
I say, it's about time!!! Also in the June 22, 2006 issue of The Economist, in an article titled "The Tithes That Bind", a strong case is made that "...America should scrap its distorted system of taxing those who work abroad...Unlike every other big country in the world (and plenty of small ones), America runs an 'extraterritorial' tax system. In other words, Americans pay American tax on their global income, wherever they live or work, as well as local tax. By contrast, British citizens pay British tax when they are resident in Britain, but need pay only local tax when working abroad. Treaties and numerous complicated credits are meant to ease Americans' pain [and I say, make accounting firms rich!], but the extra cost of sending Americans abroad means that fewer of them will accept, or be offered, a chance to go...America should recognize that encouraging individuals to gain international experience is a boon to the whole economy."
So, here's what you can do...
Go to the American Citizens Abroad website, and click on "Call to repeal new tax law..." Here, you can download a pdf file with the names, phone numbers, and fax numbers of all the senators who voted to raise your taxes. Did your senator vote to raise your taxes? If so, how about sending/faxing him/her a letter (a model letter is provided) which expresses your disappointment.
Or, you can just sit there, do nothing, hope somebody else goes to the trouble of doing something, and then just send off a big, fat check (bigger than last year) to the U.S. Treasury next year.


Unknown said...

Sounds like they are really trying to get more people to hand over their passports.

Yeah this is horrible news. Lots to read. Thanks for eye opening news!

Anonymous said...


Interesting issue. Frankly, I don't understand why the US taxes it's citizens working abroad. If the new tax law will only impact at a minimum 300,000, that hardly seems to be worth the trouble! I would be interested to see figures on how much Federal tax revenue is raised each year from US citizens working abroad versus the adminstration costs incurred to process that group of citizens by the IRS.

In theory, taxes are needed to defray the cost of government services. But how much government services does an expat use? Hard to say. Some services to be sure, but I would think that logically expats are using less government services than their fellow citizens that are still in the motherland. Hence, if expats are to be taxed at all, they should be taxed at a significantly lower rate than the average US citizen.

I hope you don't start charging those of us that visit you to offset your increasing US tax liabilty!


The DP said...

I don't pay my US taxes. Why, you ask? Because I left immediately after college and have no assets or anything of note and never earned enough in the US to make it worth anything, no pension no real estate no nothing. As far as Uncle Sam is concerned I don't exist. All my money is in CH. Some people say it it worth it to pay your US taxes because of contributing to Social Security, but I really don't think Social Security is going to be around in 2037 when I get to "retire", assuming that they don't up the retirement age to 95 by then. I also heard that as long as you're abroad and have nothing in the US, Uncle Sam doesn't care until you go BACK. Because I was worried about going back (even in thirty years) part of me thought of filing this year to be a good citizen, but you just talked me out of it. Not that I don't get screwed enough on taxes as a married woman here anyway.

The DP said...

I don't get to retire until 2043, actually. *sigh*

CanadianSwiss said...

Man, am I glad I'm Canadian... uhh and Swiss. I agree with Perry.

Sal DeTraglia said...

Done deal.

I've faxed my four letters of protest, as recommended by the ACA website. Perhaps I'll also send an invoice to Chuck ASSley for the four international calls required.


Bobby The C said...

Pay your taxes as is the law or renounce your American citizenship!!!!! That is what you get when you (collective USA, not me or you reading this) elect some asshole to run the most powerful country in the free world. He's more concerned with continuing his war in Iraq and making sure that homosexuals don't marry.

Sal DeTraglia said...

Call me naive, but I think there might...just a few alternatives lying between "pay your taxes" and "renounce your American citizenship."

Apparently, TBF agrees...since he has articulated a pretty logical one in his post.

The Big Finn said...

I don't think TMS is saying that I (TBF) need to pay my taxes or renounce my American citizenship since he knows I'm a Canadian citizen with a U.S. Green Card. I think he's saying that this is GB2's way of thinking.
What I found interesting in all the reading I did about this tax bill is that it' s going to affect about 300,000 people, yet there's an estimated 4 million+ American citizens and Green Card holders living outside of the U.S. That means that a lot of expat Americans are currently not filing U.S. tax returns/paying U.S. taxes - which I, personally, think is a HUGE mistake unless you plan on never working/living in America again. Check out (for you DP) to see an explanation as to why. Ahhhh...those accounting firms keep getting richer. I have a pretty strong feeling that the accounting firms employ lobbyists that continually whisper sweet nothings into politicians ears so that the current insanely, complicated tax system remains in effect for expats. It's often the case that an accounting firm charges a couple thousand dollars to do your U.S. taxes here in Switzerland...only to tell you that you owe $0 in taxes. Wouldn't it just be easier not to tax us in the first place?

By the do I add a link in the comments section? I have no idea!

Sal DeTraglia said...

My apologies to TMS for a response that, in hindsight, reads a bit more venomously than I intended.

As for those 3.7million expats who don't file taxes, I have to wonder how many of them even understand that they're required to do so. It really does seem contrary to common sense. If you're earning all your money outside the US and paying taxes in that country, then why would you assume that that you need to also file with the IRS?

You wouldn't.

The only way you'd know is if you actually made the effort to look into the question. I was certainly shocked by this requirement during my first year overseas.

And BTW...I can't make heads or tails of the tax code, either (and I'm an attorney, God dammit!). I don't even try anymore. I just bite the bullet and hire a CPA.

Transactional attorneys have a saying: "If something in a contract doesn't make sense, then there's probably a tax reason behind it."

Anyway...I've faxed my congressmen. I don't want to think about this anymore until June 2007.


The Big Finn said...

Sal -
I'm with you. I'm also not going to think about it until next year. I have other nuts to crack - like our Swiss city and cantonal taxes which are due this September, AND the Swiss federal taxes which are due next March.
We owe, we owe, so off to work Mrs. TBF goes...
Why don't visit The Medium Swede's blog and make kissy-kissy? He needs the traffic.

Mrs. TBF said...

I'm with Perry - we should pay less not more since we get nothing while living abroad from the US government!!! So, instead of being able to save more for the retirement and medical benefits from the US gov that will have run out by the time we retire...we have to pay more in taxes for nothing!!!! This sucks.

Anonymous said...

So, let me understand this, you keep reminding everyone that you are a Canadian, so why are you bitching about US taxes, you do not work so no income taxes apply to you. Mrs. TBF should know better then to complain about income taxes given her profession.

What you get for your taxes is a country to return home to.

The Big Finn said...

Anon - Thanks for your comments. Yes, I am a Canadian citizen. However, I also am a permanent resident of the U.S. (green card holder) which means that I must pay U.S. income taxes (on top of our Swiss taxes) if I wish to keep my green card.
While it is true that I do not work, it is false to assume that I do not have income (dividends, capital gains, etc.). Let's just leave it at that.
"What you get for your taxes is a country to return home to." Let's get this straight...I have to pay taxes in order to return home to the U.S., but I don't have to pay Canadian taxes in order to return home to Canada. A German person working in the U.S. pays U.S. taxes, but doesn't have to pay German taxes in order to return home to Germany, the same is true for the French, British, Italians, etc., etc.
If you'll take time to read the articles I referenced, you'll see that the fact that U.S. citizens/permanent residents have to pay U.S. taxes even when they are working abroad just ends up hurting American competitiveness in the long run.