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Emigration from America: new dirt in the U.S. tax system

3,000 renounced their U.S. citizenship in 2013

I have filed 10 U.S. tax returns in my life. Well, in fact, it was 11 – including the "less than 180 days" at the beginning.

Well before I began to be harassed by professional "discriminated" feminists, professional "discriminated" blacks, and similar atrocious scum sometime in 2005, I hated that experience. The tax returns had to be combined with almost annual exercises needed to get new visas, prolong them, get new stamps for them, and so on. As you know, it's not just about the federal tax returns. One must also file the tax returns for a state – sometimes two states (California, New Jersey). The very doubling (federal, state tax returns) represent a staggering inefficiency in the system. Couldn't the federal IRS or the states' offices just collect taxes at both levels and use one form?



In average, I would spend about 3 weeks – 3 weeks subtracted from anything else I could do – with this terrible stuff (INS+IRS) every year, although the 3 weeks would take the form of a "part time job" spread to something like 5 weeks. The procedure would get faster whenever it would be "mostly repetitive" but new subtleties and changes of the status would emerge almost every year so the reduction was mostly compensated by something else. I could do these things more quickly but the knowledge of the uselessness of these activities just sucked most of the energy from me. Professional tax aides could have helped as well but one would have to pay some additional 10% of the income to these parasites and I always decided that things just can't be that bad yet.

When I would be playing the episode of the Mafia PC game, I would be imagining that the shooting took place in the building of the IRS.




Despite the huge time spent with the monstrosity known as the tax returns, I often couldn't figure out basic things – like whether I should pay any taxes at all, whether some interest from the bank is already taxed or must be reported again, and so forth. I got audited twice in the 10-year period, and had to pay some extra money – above $100 and above $1,500, respectively. With so much mess in the laws, it seems impossible to do things "quite right".

Yes, of course that I think that at least the Massachusetts tax office audit had something to do with Deval Patrick and his friends behind the scenes. The evidence isn't quite 5-sigma but it is close to a safe claim that I have been mistreated by the tax bureaucrats in similar ways as the Tea Party groups in recent years.




And things are not getting any better. CNN Money has informed us that 3,000 Americans splashed their U.S. passports into the toilet in 2013: enough is enough. That's almost a doubled number relatively to the previous record, around 1,800, in 2011, and 3 times higher than in 2012.

CNN claims that the main reason of the emigration is The Foreign Account Tax Compliance Act approved by the doubly Democrat-Party-dominated Congress in 2010 whose goal is to harass and rob not only Americans with savings in foreign financial institutions but these financial institutions themselves, too. Some new policies described in the law came to force in 2013.

I find the whole concept flabbergasting. We're told that "penalties may be high" for foreign banks that incorrectly report the on the accounts held by U.S. citizens (which is why many foreign banks prefer to kick the U.S. clients!). What I don't understand is how it is possible that there can be any penalties at all paid by financial institutions away from the U.S. (e.g. those in Switzerland which should be the ultimate "neutral country" protected from interventions by foreign powers) to the government of the United States of America. It contradicts my understanding of the basic national sovereignty of other countries. If Obama or the IRS wanted a Swiss bank to pay a fine even though the bank hasn't had any business with the U.S. government, the bank should just remind Obama that he is nothing else than a kitschy foreign souvenir on the Swiss territory, shouldn't it?

The root of the special insanities of the U.S. tax system is that unlike the citizens of other countries, the U.S. citizens have to pay taxes from their global income. This rule shows that the IRS is more intrusive and arrogant than other countries' financial offices but even if we agreed that the rule is tolerable, it doesn't give the IRS the moral right to harass companies operating in other countries. If the law can't be enforced, it just can't be enforced. It is a stupid law.

All these problems show how irresponsible it is to allow left-wing ideologues to mess with the tax system. They don't care about the efficiency of the system. They don't care about the total revenue – which will not really be increased substantially (those who really dodge the taxes will find another way to do so; this is clearly just an extra burden for the honest folks like your humble correspondent who may spend 4 weeks with this junk and not 3 weeks as I did). They don't care about people's happiness. They want to harass the wealthy people, the people who are just perceived as healthy, and their ideological enemies. They want to prove to their jealous, hateful electorate – the losers – that they're doing something against the "classes" that these losers hate. Left-wingers' very goal is to turn the world into a shittier place than it is which is why the treatment presented in the video at the top is a much cleaner method to deal with them.



Before you criticize the singing above, realize that it's sung by yesterday's Olympic biathlon silver medal winner, Ms Gabriela Soukalová, a #samiCZE. Czechia got another, bronze medal today – fourth for biathlon, sixth overall. The number 6 is already matching the country's records from Sarajevo and Vancouver. Still awaiting Ms Martina Sáblíková trademark 5 km speed skating race – and less realistically, praying for the ice-hockey team.

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reader TomVonk said...

Well when a state starts to mess with the fiscal legislation, then it starts to get in a very bad place where it will only loose.
The ultimate solution of every single citizen whose tolerance to fiscal creativity has been exhausted will decide to go away.
The only semi efficient way to stop people from going away has already been experimented, e.g in Czechia, and it consists to install mine fields, thousands of km of barbed wire and armed patrols who shoot on sight.
And even that doesn't really stop people from getting away.
.
Of course the very bad thing for the state is that people who want to go away are precisely those that tha state wants to keep - engineers, physicians, scientists, technicians and more generally educated and skilled people.
In France 10 % of citizens pay 90% of the taxes. 1% pays probably more than 20%.
It appears that if a state looses a negligible part of it's population f.ex like 0.1%, it looses a huge and noticeable part of its tax income.
Portugal has voted a law in which everybody who is retired and settles in Portugal, will pay no tax on his pension.
Compare with Hollande fiscality where the income tax may reach 50% and even 75% above 1 M€.
The result is that more and more French retired people settle in Portugal.
The net effect is that France looses massively not only tax income but the whole amount of spending of these people is reloctated to Portugal.
On the other hand Portugal estimates that the presence of these people will be equivalent to 1% of additional GDP (they buy houses, employ personel, spend in shops) what is far more than what it could get by taxing pensions.
.
So who did a better decision for his country ?
Hollande who declared that he "hated the rich" to please the dogmatic, jealous left wingers and lost tax income, skilled people and GDP ?
Or Coelho who called these rich and semi-rich welcome and received income, skilled people and growth ?
If I was American, it'd be already a long time that I would have given the US their passport back. There are in the world dozens of friendly, pleasant countries with common sense fiscality .


reader Luboš Motl said...

Exactly, Tom. Fortunately for the U.S., their emigration is nowhere near the Czechoslovak one - Czechoslovakia lost about 300,000 people after the war, didn't it? It was mostly a huge inverse brain drift.

Some people on the forums say "let them go" (the people who found it enough). This is quite amazing - the communist propaganda had to work hard to convince at least some of the remaining citizens that the emigrants were the dirt of the nation. Most people never bought it, anyway.

The FATCA 2010 U.S. bill requires citizens to report pretty much all of their financial and other holdings outside the U.S. even if they are earning nothing.

The very idea to terrorize Americans for the tax e.g. from their interests outside - when the real interest rates are negative - is rather distasteful, but to employ war-like techniques against foreign financial institutions to make the income even more negative is an enhanced level of distaste.

Some policies like that are perhaps no problem for someone - but it may be a legitimate problem for many others. It's like the spying, although a very different kind of policy in details. Someone just doesn't like it. So Merkel and Hollande are thinking about creating a European Internet

http://www.france24.com/en/20140217-european-internet-plans-nsa-spying/



that would allow servers etc. that may be possibly spied by NSA etc. I sort of sympathize with it. The Internet is now taking care of a huge fraction of people's lives, so we can't remain equally generous about "let the American companies and their government to do anything they want with these routers".


Of course that my desire to (want the European politicians to) fight such spying etc. would be lower if I agreed with the U.S. policies but I am not enthusiastic about them in recent years. Obama's "friendly foreign image" mostly applies to dictators and theocracies and similar places but the relationships to allies may be getting worse. Not a good combination.


reader Bernd Felsche said...

Air traffic above Europe was much more interesting over Western Europe while Eyjafjallajökull was active. I was watching flightradar24 every evening (and sporadically throughout the day) as my sister was left stranded in Vancouver, unable to fly into Europe because there was some innocuous dust notionally able to be ingested by jet engines and deemed hazardous because engine makers hadn't specified any level of hazard. (That's how the risk-averse EU works, isn't it; everything is immediately lethal, even when you know nothing about it.)

The number of "test flights", first in Germany and later out of Toulouse, France (Airbus) was interesting.

And frustrating as there were only ever reports of "all clear". For weeks, while air traffic was banned without a tangible reason.

I dare not mention to such bureaucrats that skin is soluble in water, or they'll ban everybody from walking out while there's the risk of getting wet.


reader TomVonk said...

This is quite amazing - the communist propaganda had to work hard to convince at least some of the remaining citizens that the emigrants were the dirt of the nation. Most people never bought it, anyway, because it's so ludicrous. Everyone saw something similar to myself.
This was exactly my point Lubos.
There is a critical point where a kind of avalanche is released and it can no more be stopped.
In Czechia if you consider only the closest family (e.g brothers, aunts, cousins, parents and grandparents) and consider a 2 child family then
the probability that at least one of them emigrated was 40% what is of order 1.
For instance in my case it was 6/16, in your case 2/16 etc.
.
But when almost every single citizen has somebody in his closest family who emigrated, then any propaganda regardless how good it is (and the communists brought the propaganda to an almost perfect art), must necessarily fail.
Indeed if the propaganda tells you X and your closest family says Y and has personnal experience of Y, then you have no doubt about the truth value of X and Y.
I am pretty sure that due to your uncles, you were perfectly able to separate truth from propaganda already when you were a small kid.
And this valuable lesson is something most center-east europeans share. Perhaps the youngest generations have it no more but everybody above 30 years has.
.
This critical point is not very far - if a state looses a few % of its population, most of them educated and skilled then virtually 100% of the remaining citizens know that very serious s...t hit the fan and that it's highest time to do something.


reader FlanObrien said...

Lubos,
Coincidentally before reading your post I was reading how the Automatic Clearing System saves 93% in financial transactions compared to credit cards. Vias/Master Card et al are a tax in themselves. The conversation then continued to "automatic tax" It would be great to have your opinion on http://www.automatictax.com
Supposedly it would eliminate all parasites of which you spoke, and for example, save enough money to pay for the US health system.
It would be great to have your analysis.


reader SteveBrooklineMA said...

"Left-wingers' very goal is to turn the world into a shittier place" Yes Lubos, but an equally shitty place for everyone! That's what's important. And TomVonk's analysis regarding France and Portugal just shows how important it is that we build a truly uniform global tax system. Then the exploiting class will have no place to run!


reader Luboš Motl said...

I have proposed such things in the past. My current worry is that such systems may easily be abused - especially by a government declaring some urgent need of something by which it effectively controls all transactions and wealth and may brutally modify what's going on.


Unfortunately I've seen too many reasons to increase this worry.


Otherwise I would think it's a way to go.


reader Luboš Motl said...

LOL, Steve, it's probably important (and good!?) for *them* that the world should be equally shitty for everyone, but it's not important for me.


reader AJ said...

The USA's Foreign Account Tax Compliance Act (FACTA) has been making the news here in Canada. Stories abound of Canadian citizens who just happened to born in the US suddenly having their bank accounts closed and of joint accounts held by "mixed" nationality couples facing similar difficulties. This response by the Canadian banks is understandable given the asymmetrical relationship. The subsequent renunciation of US citizenship is also a logical response.

FACTA is extraterritorial but what can we do? The US is much more important to us than we are to them, so we play along even to the point of signing agreements that contravene our own privacy laws. I don't think you could create an effective bank in Canada that didn't have any US dealings either directly or indirectly. It would be interesting to try though. I'd name it the FU Bank :)


reader Luboš Motl said...

Hi AJ, the acronym is FATCA. Amusingly enough, FACTA is another financial bill

Fair and Accurate Credit Transactions Act

https://en.wikipedia.org/wiki/Fair_and_Accurate_Credit_Transactions_Act



Well, in Canada, maybe. But in European countries, the interactions with the U.S. are far weaker and far less economic in character.


reader FlanObrien said...

Understood and agreed. The ACH system is private and, for example, bitcoin is a distributed peer to peer system. Most people dismiss automatic tax as unworkable because "people will refuse to pay 2.5% tax on their transactions", forgetting they already pay 3% or more with credit cards!
Distributed+private = difficult for government to control.


reader AJ said...

Yes I realized the misspelling right after I hit the post button (as usual). I fixed it not realizing you had already responded.


About 75% of Canadian exports go to the U.S. That would include my salary as I currently work on an engagement with an U.S. client. Apparently about 1 million U.S. citizens live in Canada or about 3% of our population.


reader cynholt said...

Lawmakers make byzantine tax laws with all these loopholes carved out by lobbyists, then they are shocked - SHOCKED - when rich people pay lawyers to find all the loopholes. I'm sure the solution is to make even more complicated tax laws (which lobbyists will surely create loopholes in). They deserve what they get. Starve the beast.

Switch to some version of a flat tax with no deductions whatsoever, period. They could probably lower the income tax rate and still generate more revenue by getting rid of all the deductions and other loopholes that can be used only by people who can afford (and justify the cost of) tax lawyers.

Better yet, abolish the income tax and replace it with VAT.


reader Dilaton said...

Oh, such technical problems are annoying, I hope you did not losse too much of your work ...
But its ok, we do not have to hurry too much ;-)


reader Uncle Al said...

If al Qaeda had any brains at all, it would target US IRS buildings, including its star chamber courts. A few dozen car bombings would have Washington overflowing with "Burqa Rights!" and rag-headed Congresscritters.

38.892444,-77.027230 It's what's for dinner.


A mere 73,964 US Tax Code pages stumped one of our planet's premier intellects. This is why the US Constitution's Second Amendment is so important. Freedom is one more bullet.


reader Dilaton said...

Haha, his being a bright student probably explaines his 1.rep :-D

BTW how much are you willing to bet against my claim that David Z or any other of the moderators will never accept my answer there or take it serious and act accordingly and stop calling graduate-level questions homework or even closing them? My answer (which is the only reasonable one from a physicists point of view) has currently a net score of +7, whereas John Rennie is at +3, and Nathaniel at 0.

If this voting paterns persist, I expect the ruling cast to bring up the usual excusese and pretext for ignoring my answer even though it is clearly the one with the highest net score. They will keep doing what they want and have always done anyway. Since the last elections, Physics SE has been completely politically bureaucratized, such that just changing things for the good and doing the right things has become impossible. All of these meta discussions are way too bulk and nothing but a meaningless ceremony. The mods and other dominant people take the outcome of them only serious, if it fits their bill ...


reader AJ said...

Congrats on your win over Slovakia. Good luck in your match against the U.S. Maybe our teams will meet in the semi-finals on Friday.


reader rsala said...

Did you mean that it was not realistic that you would be praying for the hockey team, or that your prayers would be answered?


reader Luboš Motl said...

LOL, both.


Czechia just defeated Slovakia now, 5-to-3 (4-to-0 ultimately became a dramatic match), so the Czechia-U.S. match will be tomorrow. When we beat the (star-filled) U.S. team in Nagano 1998, it was an important step towards our Olympic gold.


reader rsala said...

So it seems that even the prayers of atheists are answered ...


reader Ondřej Čertík said...

I've been just hiring a CPA each year, you pay them something on the order of $200, and he or she takes care of our family taxes. It saves me weeks of time, they do it correctly and the risk of IRS audit is much lower, since they are experts in tax law. I used to think that CPA are be parasites (just like you), but after the experience I must say not only they are not parasites, they are great people, who help me, and so they do useful work that I don't have to do and such a work has a price. Plus, so far, the CPAs always paid for themselves, since if I did the taxes myself, I would always overpay (not knowing all the legal features/loops of the tax code).


reader lucretius said...

You sound exactly like you know who ;-)

http://www.youtube.com/watch?v=rv5t6rC6yvg


reader John Archer said...

Wasn't it something to do with tax and intrusive 'leadership' that kicked off a revolutionary war in your part of the world in the first place?

Your authorities, and ours, need to tread carefully. Preferably on anti-personnel mines.


reader HelianUnbound said...

I'm really surprised that tears of gratitude aren't rolling down your cheeks, Lubos. After all, you were never audited, were you? If you had been audited, you would have experienced what being pistol whipped by the U.S. government really means.


reader anna v said...

If one looks at it logically, there can not be a world government without world taxation, and that is the way we are being channeled , world government, with globalization.

At the moment the system is unbalanced, everybody can take his/her money to a tax haven through off shores and avoid paying taxes anywhere. At the same time the globe has acquired a global casino in the form of international trade in values.

Banks want globalization, huge industries too and have succeeded in this but the imbalance will leave sovereign countries poorer and poorer squeezing the middle class towards lower class, with internal taxation trying to have a minimum income for common needs within a country. One can understand the US trying to get a handle on this. In previous centuries such imbalances would lead to war. Now there is blackmail on economic repercussions , economic war seems to be game.

We live in interesting times.

I think


reader Luboš Motl said...

LOL, all the credit and copyrights to her. ;-)


reader TomVonk said...

how important it is that we build a truly uniform global tax system. Then the exploiting class will have no place to run!
.
There are 2 paramount problems with that statement even if it is a mantra often heard.
First is who is the "we" in "we build" ? I clearly do not belong to this "we". And if I do not, there are hundreds of millions of others who do not belong there either. And if they don't then they would obviously group in another "we" which would build a tax system which is completely different from the above "we".
.
Second is much worse and I will illustrate it by an example.
France is one of the few countries which has a tax on all private assets called ISF. That means that everybody (and I really mean everybody) has to evaluate every year the totality of his assets. That means house, car, chairs and tables, your pets if you have some, your clothes and your books. Simply everything. Then if the sum is above a rather low limit (800 k€) you pay a tax. Basically everybody who owns/inherited a house/appartment in a large city or a touristic resort is above this limit regardless of his revenues.
Belgium has not such a tax, Germany had one but saw that it had large negative effects on economy with only one advantage which was to please to communists. But as there are not so many communists in Germany, the tax was again eliminated.
.
So once a french left-wing journalist (pleonasm) was agressively interviewing a belgian parliament representative.
"It is a real scandal! French rich people, business people and artists move to live in Belgium so that they escape paying the ISF tax in France. When will you at last take action to converge towards a truly uniform tax system in Europe ?"
And the representative answered :"It can actually go pretty fast. For a quick start just begin with eliminating the ISF tax in France."
The spluttering journalist was a view for sore eyes :)