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.


  1. Yes. Am in a very similar position. I do not plan on going back to the U.S. (though I did consider it for retirement). I'm also in most productive years and need to think about saving for that retirement. Today there is too much I cannot do because I'm a US citizen.

    My biggest fear is not this particular bill but all the bills that I am sure will be forthcoming that we cannot fight effectively because we are politically castrated living abroad. I personally think that we will be left with no choice but to renounce or relinquish.

  2. Never underestimate the stupidity of Congress. That said, it is not as bad as you think. Virtually every tax treaty that the USA signs has a provision about double taxation in it. For instance in the US/France treaty it is article 24. You'll get a credit on US taxes for French taxes paid.

    While you're right that there are a lot of countries that the USA has not filed a tax treaty with, the Pareto principle applies here. The countries that the USA does have tax treaties with should cover the majority of US ex-pats.

    1. btilly: it's not that simple. Even if you are nowhere close to the IRS's "earned income" cap, it's a nightmare. Read Victoria's lovely story about paying US taxes for a French property bought with a French loan and paid for with a French salary. She had no protection with either the earned income exemption or the tax treaty.

      On top of that, because expats have more complicated reporting requirements than US residents, we have to pay a hell of a lot more money and time than you do.

      And only 1/3 of countries have tax treaties with the US. There's a large American expat community in Argentina. There's no tax treaty there, but there is a 35% flat tax on the Americans. Assuming a modest (for US) income, Americans in Argentina are looking at a 60% top rate. If you were an American living in Argentina for the past 20 years or so, what would you do? You'd be screwed.

      Given that most countries in the world don't have tax treaties and even those countries that do don't offer adequate protection to expats, why the hell should this be reasonable?

  3. I've been living in Australia for nearly 20 years now as a permanent resident. I've never felt the need to give up my US citizenship, but after my last visit back there (1st in a while) I think I would gladly give it up if forced to choose. America has completely jumped the shark in my opinion.

  4. Once again our government finds inventive ways of collecting more money, instead of decreasing the spending. I find it ironic that on a state to state level, you can credit your state tax bill by what you pay the other state. In other words, if you work and pay payroll deductions in one state, but live and file taxes in another state, you deduct what state taxes you paid through patroll deduction from what you owe your home state. It's too bad that doesn't work across county borders. My brother has been living out of the country for around 20 years or so, I wonder now if he's given up his citizenship. It would be sad considering he's an ex-Marine. How would they collect this tax? Do the tax treaties call for property seizure by the government you live under?

  5. This sucks, but not a fraction as bad as you make it out to be.

    Like the other commenter said, if you are paying taxes overseas, you submit an affidavit from that country (I lived in both Thailand and The Philippines, and I know that their affidavits are accepted) stating that you already paid taxes in those countries.

    Before this bill, if your income was less than $80-something thousand dollars, then regardless of the amount of taxes you paid, you would pay no taxes in the U.S. If your income was over $80K-something, and there was a positive difference between the foreign tax affidavit and what you owed the IRS, you would have to pay that difference in taxes.

    With the new bill, the ONLY change would be that the $80K cap would be removed, so ANY positive difference would result in a tax liability as described above.

    Whether that difference would add up to $5 billion? I personally doubt it.

  6. More tyranny from Washington. America's founders would be ashamed. Today's expats are being forced to renounce their citizenships like America's founders did 236 years ago. And Tierney comes from Boston of all places. Shows how ignorant contemporary politicians are when it comes to American history.

  7. The US is just so greedy when it comes to money!

  8. That just makes no point. It's like you start moving to hongkong to make a living under HK rules but you're still taxed under US rules. Unbelievable.

  9. Hopefully after we finish the conveyancing process of our next home and move out of America, those taxes will leave me be. There's no point of being taxed under US rules if I would cut the connection between me and US.

  10. Guess, the real deal if one chooses to have a double citizenship in two different nations. They should double pay for their obligations in both countries especially if they specify that, they've got their own houses in both places.