Tuesday, February 14, 2012

The far-reaching damage of Rep. Tierney's bill

Amongst non-expats, there appears to be some misunderstanding about the serious nature of Representative John Tierney's attempt to bankrupt expats.  Expats have first-hand knowledge of the damage this will cause, but Tierney doesn't seem to understand. This is frustrating as hell because I like Tierney. I like his politics and I support many of the causes he stands behind. The problem is that he's dead wrong on this one. I'm hoping he just doesn't understand the full implications of this bill and will change his mind when he does (side note: he opposed SOPA. There's some meta-irony going on here).

Some people are claiming that the US tax treaties will protect us, but they won't. Victoria Ferauge wrote about paying US taxes on a French bought with a French loan and paid for with a French salary and there was no tax treaty or Foreign Earned Income Exemption to protect her.

Many expats live in Argentina
Photo by Pablo D. Flores
But look at that tax treaty list. Count them. Only a third of the countries in the world even have tax treaties with the US. There's actually a decent-sized US expat community in Argentina and you'll note that Argentina is not on the tax treaty list. Americans have a 35% income tax in Argentina. If Tierney's bill passes and they have a modest US income, their tax rate could easily exceed 60%. Tierney will bankrupt them.

But consider a far, far worse scenario: Dubai.

Dubai is an emirate in the United Arab Emirates (UAE). Here are a few interesting facts about them.

So you're in Dubai, you have some debt, Tierney's bill passes and all of a sudden, your income drops dramatically. They take your passport and you are never leaving Dubai. You don't have the option of returning to the US. You can't take citizenship in Dubai to escape the US debt. You're trapped. It's happening in Dubai today; with Tierney's bill, it will only be more frequent (I've read of one couple in Dubai whose children can't go to school because the couple can't afford it but their passports were seized).

Representative Tierney genuinely seems like a nice person, but he's going to hurt Americans the world over with this one.