genius. who needs voluntary transactions live venture capital or angels, what have they ever done? instead lets take money from everyone (if they don't like it we can lock them in a cage) and then give it to others who we decide are worthy.
I don't know why people downvote this. There are two problems when you have a democratic system of government (the US is no longer really a republic IMO):
1. Special interest groups
2. Involuntary taxation
The two combined make for some quite uncomfortable moral hazards. If you pay taxes in the US, you are paying for continued aggression. Or education you'd rather provide yourself. Or any number of things that you don't agree with. For every citizen, there are just a few government services they use over and above the common services everyone else uses as well (not listing them, numerous).
The majority of money that the government collects from the citizen is not spent on the citizen themselves.
"Sure", you say, "It's to help the poor!". As Milton Friedman said: if government could solve the problem of poverty, then why are there still poor people?
In my locality, there are instances of local governments spending $60K per poor family of four annually. Only $20K actually got to the family. The rest becomes overhead.
I think it's quite valid to say that the government should not be involving themselves in commerce in this manner because then they become indispensable. Not because they are useful, but because then they fund a set of uneconomical businesses that no one else would invest in.
I downvoted it because it was a horribly written political cheapshot. I don't necessarily disagree with the sentiment but the quality of the post was terrible. Politics doesn't really belong on HN anyway so if you are going to inject it into a discussion it has to be intelligent (ignoring my snarky response to him that will likely garner downvotes as well).
Other option for people who don't like it: leave the country.
You wouldn't know it listening to most people complaining but unemployment insurance was not something implemented in 2008, it goes back to the 1930s. That should have been plenty of warning for you to find a place with a tax rate and entitlement system to your liking. Sorry, there aren't a lot of options in the 1st world without taxes and entitlments, but that must just be a coincidence.
I'm conflicted on the idea of leaving the country as a solution. Its not enough to simply live and work in another country -- you're still liable for taxes. You have to fully expatriate and renounce your citizenship. This is often very difficult and time-consuming to do, and near-impossible if you're not in a skilled line of work.
I'm still a Canadian citizen, but because I don't live in Canada, don't have assets in Canada, and don't earn income in Canada, I don't pay taxes in Canada.
As far as I know, being taxed on worldwide income is just an American thing.
It is just an American thing. And it's a great example of why "if you don't like it, leave it" is bullshit particularly when spoken in the context of American politics.
Ah, I was using the term incorrectly. I meant that one must renounce their citizenship in their birth country to be completely free of taxation. Expatriation can be hard. Renouncing birth citizenship extremely difficult if not impossible in some situations (catch-22s, etc)
For US citizens, to renounce you need to prove that you've paid all income taxes over the previous 5 years, pay an excise taxes on all assets being taken out of the country (which I think is %1-2%) and -- here's the kicker-- get permission of the federal government to be allowed to renounce your citizenship. If they think your earning power is significant enough, they can deny you by claiming your "renouncing to avoid taxes".
However, if you live outside the USA full time, I believe that the personal exemption on income is around $80,000. So even if you're making millions, if you pay yourself $80k or less, you can avoid income taxes in the US on your worldwide income.
Thus, holding stock in a startup that is appreciating avoids taxation, however, if you ever sell that stock, then you'd be realizing the gain and run into the issue.
PS - of course you're right that some countries simply won't allow you to renounce, and that might even end up being the case for some US citizens. I'm just giving the information I've been able to gather on this topic, not really disagreeing with you.
Your underlying assumption is that the US can increase taxes and regulations indefinitely without consequence. But capital and talent are more mobile than ever before.
Record numbers have been renouncing citizenship in recent years (Google it). Most likely when the current flow of expatriation becomes a flood, though, there will suddenly be restrictions imposed on exit: an asset tax, a waiting period, anything to stop the talented from leaving. We've seen this movie before in East Germany, 1961. Remains to be seen whether the US government will do more than expropriate 50% of your assets (2008's exit tax) to deter you from leaving.
Your facts are a misrepresentation. There have been many american expats for a long time. We usually keep our citizenship because there was no need to give it up. Having to file taxes to the US every year is annoying but not enough to renounce citizenship over.
Lately, however, the US has been getting more and more intrusive in my foreign life. Why do I owe any taxes on money I earn in a foreign land? I'm not using any US resources (don't give me any nonsense about navy seals coming to my rescue if I get kidnapped), I'm not working there, I have no property there, nothing.
Now they want to know how much money is in my bank account! I have a hard time finding banks that will do business with me because I happen to be in a "tax haven" country so doing business with americans means you have to have infra to send information about my banking activity back to the US. The cost of rejecting a handful of american customers is minuscule compared to the cost of setting up such infra.
I don't want to give up my citizenship but I'm not putting up with this mafia-style protection racket anymore.
Well, the country could just say no but once the country has said yes (probably after some very one-sided negotiation) the bank no longer has a choice. That is the case here: have American customers? Then you have to comply with the US rules.
The US is making a lot of trouble in banking. For example, if two non-US parties trade some US-based stock, then the whole thing has to be reported to the US specially independent from the normal reporting they have to do. I wish the US were a small enough player that everyone could just ignore this kind of nonsense but that's not the case at the moment.
"The Exit Tax works as though you have died. It’s calculated similarly to the Federal Estate Tax. It requires American taxpayers to identify all assets and debts to determine their net worth, and then to compute a theoretical gain or loss on all assets. The Exit Tax applies to anyone with a net worth of more than $2 million. It also applies to a taxpayer whose average U.S. income tax liability for the past five years is above approximately $124,000. Net worth is without inflation adjustment, which means increasingly more individuals will fall victim. It treats all property as being sold, and all deferred income retirement accounts as being distributed. There is an exclusion of $600,000 for any unrealized gain or deferred income. Then a 30% withholding tax is automatically withheld before deferred income accounts are distributed."
Ah, yes, the 'HEROES' act. (Hard to vote against something with an acronym like that, huh?)
That's the one that might bankrupt me if either I or the federal government ever decides I'm no longer a permanent resident -- because the taxes on the value of all that illiquid (but highly-valued, on paper) startup stock, marked-to-market, would be more than my liquid assets.
And my wife wonders why I get nervous when crossing the border.
Er....no. It was not free before; section 877 of the Internal Revenue Code was amended in 2004, and even before that reflected the assumption that any expatriation from the US was for purposes of tax avoidance. All US income for 10 years after expatriation was subject to US income tax for 10 years, and if you spent more than 30 days of any given year within the US, you were treated as a resident and liable for full US taxes on all income worldwide. Now you can spend up to 120 days in the US per annum after expatriating.
They don't take 50% of your net worth; they take progressive amounts on assets above the inflation-indexed $600k exemption up to a top rate of 35% (same as the estate tax). The 50% thing is a special case for future deferred income from a US asset; you pay 30% up front and 30% on distribution, which comes out at 51%. The idea here is that you should pay more because you are trying to have your cake (live outside the US and not pay US income tax) and eat it too (enjoy the fruits of the US economy and enforce any future income claims in a US court if required). If you really don't want that, then you can sell the asset, giving up any deferred income, and take the 30% hit.
I am not a tax lawyer, or any other kind of lawyer right now. Nor do I have a very strong opinion on whether this tax is good or bad; I'm just pointing out that there are factual errors in your statements above.
By your own admission you are not a tax lawyer. Perhaps this is why you are conflating two different things, income and assets.
All US income for 10 years after expatriation was subject
to US income tax for 10 years
Yes, and that was bad enough, but what is new is this:
they take progressive amounts on *assets* above the
inflation-indexed $600k exemption up to a top rate of 35%
(same as the estate tax). The 50% thing is a special case
for future deferred income from a US asset; you pay 30% up
front and 30% on distribution, which comes out at 51%
That is a tax on assets in addition to income. Assets. Meaning everything you've built up to this point, not just your continuing revenue streams while overseas. An asset tax for expatriation is a new development in American history.
Then maybe you should have made that clear in your original post, rather than claiming that expatriation was 'free,' as if there were no costs at all. If you read the IRS instructions a little more carefully (or peruse the more detailed treatment at http://www.irs.gov/publications/p519/ch04.html#en_US_publink...) you'll see that liquidation or exchange of any US assets, including property, were booked as gains prior to 2008.
For the majority of people (ie: not multi-millionaires) it has become easier and cheaper to take up citizenship elsewhere than it used to be. The worldwide taxation approach of the IRS is an anomaly, but a long-standing one rather than some recent innovation. You have yet to show that the increase in voluntary expatriation is correlated with high earnings, much less caused by them.
While a small number of Americans hand in their passports
each year for political reasons, the new surge in
permanent expatriations is mainly because of taxes.
Amid mounting frustration over taxation and banking
problems, small but growing numbers of overseas Americans
are taking the weighty step of renouncing their
citizenship.
The IRS doesn’t tell us why people expatriate, or who they
are or where they go. Lawyers say most are wealthy
Americans who have expatriated to all manner of countries.
EDIT: Look, I'm as put off by deeply nested arguments as the next person. My empirical points are primarily two fold. One, the new exit tax is both substantial and yet also just the beginning. Two, many are seeing the writing on the wall and trying to get out while the tax is "only" 51% of assets.
Given the discussion in the United States about raising taxes on the successful* to balance the budget, do you really think this is an irrational decision on their part? Or that it is irrational to infer that this is part of their decision-making process, especially given copious media reports to this effect?
I agree about the nested arguments. We're going to disagree about the tax thing; I think your teleological argument takes no account of circumstances, but on the other hand I don't think the media saturation on fiscal questions does much to clarify the issues.
Hardly conclusive. From the same WSJ article: Other attorneys who specialize in helping the Americans expatriate say the reason is that the IRS is cracking down on overseas bank accounts and offshore income. There is a population of U.S. citizens who live overseas and may never have paid U.S. taxes on their non-U.S. earnings and non-U.S. accounts. Now that the IRS is enforcing the rules, with criminal penalties for scofflaws, the overseas residents would prefer to expatriate rather than pay. ...and a great many of the comments (by people who have actually left, as opposed to people venting their spleen) say the paperwork is more onerous than the taxes.
The Time article contains several factual errors, such as ignoring the fact that most countries have tax treaties with the US which prevent double taxation, and stating that the allowable visiting period for US expatriates is 90 days rather than 120 (which is 90 more than what it used to be- perhaps sloppy copyediting is to blame). The NYT article quotes one person who has been abroad 20 years and renounced citizenship after 10, which must logically have been back in 2000 or 2001. I fail to see how this provides any insight into current behavior. It strikes me as somewhat telling that both stories use the example of people living in Switzerland, a country famous for banking privacy, and somewhat infamous for acting as a tax shelter. I'm not sure that typifies the expatriate experience at all.
Not that I don't think taxes are an entirely irrelevant factor, mind. This paper offers a rather more plausible explanation, albeit a dry one: that low-tax entrepots with high standards of living risk becoming unaffordable for US residents unless consumption taxes can be offset against income, and recommending repeal of taxing on citizenship rather than residency (which I support, incidentally). http://www.aca.ch/joomla/images/pdfs/taxnotes.pdf
>There is a population of U.S. citizens who live overseas and may never have paid U.S. taxes on their non-U.S. earnings and non-U.S. accounts.
This really pisses me off. If I don't live in the US why on earth would I pay taxes on my non-US earnings? No other first world country expects this and no country has a right to it. Am I slave who's very soul belongs to the US government?
>Now that the IRS is enforcing the rules, with criminal penalties for scofflaws
Scofflaws? If I ignore laws of countries I don't live in I'm a scofflaw?
Instead of downvoting me, I suggest you take your complaint up with the writer of the Wall Street Journal article. I quoted that extract to demonstrate that there were contradictory points of view about the reason for the recent uptick in renunciation of US citizenship besides the one offered in the grandparent post.
As for why US citizens living abroad pay US income taxes, that has been around since the time of the civil war, when a temporary income tax was imposed for reasons that I hope are obvious. It seems to have escaped your attention that I said I don't support it, and even linked to a paper in a tax law journal arguing that it makes poor economic sense. On this topic, you should take your complaint up with the US government.
I think "like it or leave it" isn't really a useful response, and it takes the discussion into the realm of politics. I'm not going to debate the politics, but since I did "leave it", I thought it might be enlightening to share a bit of my experience. (Leaving the USA had nothing to do with unemployment insurance.)
It is not difficult to find first world situations that don't involve burdensome taxes or regulations. One strategy would be to domicile your business in a country that doesn't tax worldwide corporate income, only local income. Believe it or not, most countries meet this criteria. Banking in a second country and living in a third, where the latter doesn't tax your worldwide income (like the USA does, but again, the US is the exception rather than the rule) would result in you effectively living tax free. (A US citizen, owing for their worldwide income would have to pay taxes on the amount earned above the living-aboard exemption.)
Further, even if we decided that we wanted to bring our business back into the USA, the USA does not want us to be located here... because at some of our founders are not US citizens and the hassle and cost of importing a foreign entrepreneur to the USA is much higher than it is for many other competitive countries.[1] There are first world countries that, believe it or not, are welcoming to entrepreneurs who want to relocate there.
So, while I'm not going to go into specifics because if I did, the possible combinations are more than could be discussed here, I can say with first hand experience that there are many, many options for doing this.
[1] Just coming in for a short term stay was more ordeal than I like to put up with, and more than we've experienced with any other country.
I don't throw out the 'love it or leave it' for 99% of posts on almost all issues, but when a person equates taxation with theft, it's just a lost cause.
We can and should debate what to do with our tax money, but fundamentally the system always ends up in a state where some people are unhappy with some of the spending. There is no way to reconcile what those on the far right and far left want. We end up somewhere inbetween and that means at the end of the day some people are unsatisfied. Those people still need to pay taxes or the system falls apart.
For those people there are two solutions. Convince people to agree with you and change the policy, or leave the country. (Of course another option is to just whine about it.)
Your "love it or leave it" attitude towards taxation assumes that all individuals should for some reason resign themselves to the sovereignty of the Unites States Federal Government.
My chosen geographic location is not an admission of consent to be 'taxed' by men with guns.
Edit: Oh cool, looks like I stepped on somebodies toes, they went back and downvoted all my currently votable comments at once. So tell me Mr Revenge Voter. What here do you actually disagree with?
Thankfully that statement makes sense to such a small group of people even if all of you dropped out of society completely it wouldn't make one lick of difference politically or financially.
I'm not the downvoter of your comments, but I basically disagree with your entire sentiment.
Obviously, no one enjoys paying taxes. But guess what, everyone benefits from government services and you have a responsibility not only to the other people currently paying taxes that benefit you, but also to those generations that paid the taxes before us to make our country what it is today.
You will probably be thinking right now 'but I don't use many (any?) government services, I don't need the government to do this stuff'. Sure you can be home schooled, grow your own food, live off the electric grid, protect yourself with a gun etc etc etc etc. I don't care. That argument will never convince me. As a single guy with no kids making way more than the national salary and renting an apartment, guess what, I pay an enormous amount of taxes and get basically no deductions while using almost no government services. Too fucking bad for me.
At the end of the day, this country is what it is because of the massive amount of taxes paid by people over the last 235 years that has gone into settling the country, building the economy, and running our defense dept. It's my turn to pay the bill and while I'm not happy about it, I know I'd rather be paying the taxes I pay and living in this country than paying no taxes in an anarchist state.
I am not questioning that some percentage of money collected at gunpoint by the group of men who call themselves 'government' is put back into society.
I am questioning the so called sovereignty of those with the guns.
I downvoted you because, although I am sort of interested in potential government support for entrepreneurs, I have zero interest in reading an argument about whether countries have a right to tax their citizens. This is HN, not prisonplanet.com.
Well I hope you took the time to downvote this entire thread then.
What is a citizen anyway though?
Edit: I just looked up prisonplanet.com. Interesting how extreme left-wing positions (I am an anarchist) can be easily mistaken for extreme right-wing positions, such as those of Alex Jones.
You can bet that I downvoted the majority of it. (Although I upvoted your comment below about American exceptionalism regarding taxing the assets of expatriates, since afaik it's accurate and it's informative.)
"and that means at the end of the day some people are unsatisfied" -- exactly! And somehow you think this is awesome? It is, for the bureaucrats. They see the pendulum swing from left to right and back every other decade, collecting their ever-growing cuts along the way, primarily for wearing a special hat.
Taxation is only feasible because the authorities have guns and use them to jail tax resisters. And 100% taxation is quite literally slavery. Do you seriously disagree with either of those two points?
No one signed up for continual boiling of the frog. Many, many millions of people in this country oppose this kind of divisive policy. A poor statesman rams it down people's throats by brute force. The consequence is that when the other party gets hold of the apparatus of state, turnabout is fair play.
Compared to all the thousands of ways in which the government tends to find to waste taxpayer money with near-zero chance of it helping anybody, I just can't seem to be so offended by this one.
If you hate the idea of taxation or stimulus, that's fine, you're certainly not alone, and I'd even agree with a lot of your arguments. But do you really think this is such a poor attempt at it, compared to the other things governments tend to try? As far as I can tell, this is aimed at allowing people that would have been on the dole anyways to spend their time doing something productive in an entrepreneurial capacity rather than sitting on their asses and deliberately not working so that they don't lose unemployment benefits.
Personally, I'd take even a half-baked attempt at spurring entrepreneurialism over monetary fiddling, another round of tax cuts for the rich, or a $50 check in the mail, any day of the week. At least this has a small chance of incentivizing innovation, which is known to help the economy in the long term, as opposed to most of the other options which mostly rely on wishful thinking...
The gyst of it is that if you are receiving unemployment insurance, you no longer forfeit it by starting work on a pre-revenue startup. Previously, you would have been "self employed" and lost access to your unemployment.
I'll further note that this bill, as far as I know, does not make venture capital illegal.
The government can borrow money at negative interest rates. People are literally paying the U.S. government to take their money. It may have a large budget deficit, but the government has no shortage of cash.
> The government can borrow money at negative interest rates.
The feds are borrowing at less than the rate of inflation, but they're not borrowing at negative rates.
Note that current interest rates don't accurately reflect the interest cost of borrowing because those loans will be rolled over a couple of times. Do you really think that the low interest rates will continue?
More to the point, said borrowing has to be repaid. If the expected/likely additional tax revenue from this program is less than the amount spent, it's a bad deal.
That's not true at all. SBA and SCORE offices help entrepreneurs all over the US get outside funding. Silicon Valley may have the largest numbers, but it doesn't mean the rest of the country isn't investing...
I think it is a salient point that one of the reasons these "voluntary transactions" are not happening in the rest of the country is because the government has already stepped in.
I would be an angel investor, if the SEC would let me. It is silly that I could blow $20k on a bad stock investment, but can't put it into a tiny startup.
The regulatory burden and the prohibition on "non accredited investors" quells a lot of support the entreprenurial community could use.
Interestingly, you sometimes read stories about immigrants who came to the USA, built small businesses, and then helped later immigrants with investments and loans... resulting in thriving communities (the korean grocer community in LA is an example I heard about.) They wouldn't have been able to do this if they had been following SEC rules!
One of the cool thing about this job bill is crowdfunding might be now legal. It could be cool to be allow to put under 100 bucks to fund a startup idea. You could spread that 20k around.
I didn't say they were illegal, I said there was a regulatory burden and prohibition:
"If, however, not all of the investors are accredited, founders will need to provide a lot more disclosure to the investors, including a full-blown private placement memorandum, risk factors and financial statements. Also, note that all non-accredited investors in a Rule 506 offering must be sophisticated, which means that the company must reasonably believe that non-accredited investors (either alone or together with their investment representatives) have sufficient financial and business knowledge to allow them to evaluate the risks and merits of an investment."
Its prohibited to take investments from non-accreddited investors in the straightforward manner you can from accredited investors, and if you do, you have a greater burden, and additional risk to bear.
