Monday, February 13, 2012

Congressman John Tierney (D-MA) wants to bankrupt US expats

Congressman John Tierney, D-MA
Public Domain Image
Hi Reddit! Be sure to read my update about Tierney's bill. It's been referred to the House Ways and Means Committee.

I could be facing a top marginal tax rate of 60% next year. Either I move back to the US or I renounce my citizenship. I may have no other legal options under a proposed US law (unless I want to move my family into a one-bedroom flat and live on rice and beans).

Congressman John Tierney has proposed the Tax Equity and Middle Class Fairness Act of 2011. You can read the full bill if you like.

A "Middle Class Fairness Act" sounds all well and good, but as you know, the titles of bills and their contents are often at odds with one another. He wants to remove oil and gas tax breaks. He wants to remove timber subsidies (is destroying the US timber industry good or bad? I can't remember). He wants to remove coal tax breaks (hallelujah!).

He also proposes "Removal of the foreign earned income exclusion which allows U.S. citizens living overseas to avoid paying taxes ($5.4 billion in 1st year)."

Here are a few interesting interesting points:

First, I pay taxes. Lots of them. I live in Europe. These aren't exactly tax havens over here. He probably meant "avoid paying US taxes", but as Congress is systematically stripping US expats of the benefits of their citizenship, I can't see many expats being happy about this.

Second, where did that "$5.4 billion in 1st year" figure come from? Given that the US Census, despite being required to in our Constitution (Article 1, Section 2), refuses to count Americans living abroad, we don't actually know how many US expats there are. How can we claim that we'll earn $5.4 billion when we don't even know where that money is coming from?

When I told my wife about this bill she was shocked and the first thing she said was "we'll have to move to the US."

I haven't lived in the US in years. I have a life here in Europe and I don't want to give it up, but I don't see what my options would be. I can't (yet) apply for French citizenship and while that does not legally block me from renouncing my US citizenship, I'm still not keen on giving it up. My other options are trying to hide from the IRS for the rest of my life or reducing my family to poverty.

It's entirely possible that the US-France tax treaty may shield me from the bulk of this, but as I'm hardly a lawyer and in trying to read through that, my eyes glaze over. And I see from consulting the list of US tax treaties that fewer than one third of the countries have have a tax treaty with the US. Given that many expats are paying in excess of $2,000 just to file a tax return (another charming "tax" to deal with), this is only going to increase our burden. And please note that many of these treaties reduce double-taxation but do not eliminate it, and the treaties generally only protect some types of income, not all. Further, while Americans on US soil have plenty of accountants to turn to, we have far fewer in Europe and we have more laws we have to deal with, making it even more of a red tape nightmare.

Johnny Depp left France
due to double taxation
Photo by Arnold Wells
So imagine an American living in the Netherlands where the top marginal rate is a confiscatory 52%. Add in the top marginal rate of the US and you're looking at a top tax rate of 87%. Of course, most Americans with professional careers in the Netherlands would only be facing a top marginal rate of 77%, so that's not too bad, right?

This law won't pass because it's attacking Oil, Gas and Coal and they have enough money to destroy this. For once, I'm glad that the US Supreme Court has said companies are allowed to donate unlimited amounts of money to political campaigns. That's completely immoral, but I don't know what I'll do if this law is passed.

Tierney's bill is going to force a lot of Americans to move back to the US or renounce their citizenship. What a nightmare.