U.S. Citizenship: The land of opportunity (to be taxed)
According to the current U.S. tax laws, and thanks to the last U.S. presidential campaign now we know that:
U.S. millionaires like Romney, pay only $13,900 in taxes for every $100,000 in income.
U.S. middle class citizens, pay $34,900 in taxes for every $100,000 in income.
When the U.S. millionaires and corporations claim that taxes are too high you have to wonder what are they talking about. If you need to run the math, U.S. millionaires pay about 13.9% in taxes, or about 60% less than the rest of the country thanks to ever growing tax loopholes, deductions, and endless government support. With a stagnating economy, a declining dollar value, and increased regulations, the U.S. government increases their taxes on the middle class in order to protect their most wealthy citizens, and the new tool developed by the feared IRS (tax collectors) is the FATCA (Foreign Account Tax Compliance Act.
FACTA (fact and fiction)
Enacted in 2010 by Congress (the same ones that sign on the tax exceptions for millionaires), the FACTA law forces foreign financial institutions (banks) to report to the U.S. government the financial activities of the U.S. citizens abroad. The key word here is forces, and even the ever so secretive Swiss financial industry has seen itself being forced to comply with the regulations, or face potential fines and penalties. The target of the regulation as you can expect are the regular individuals and small business owners who own or conduct business or financial transactions overseas, and their families. That’s correct, not only the U.S. citizens but also their immediate family are being forced to report their foreign financial information to the U.S. government or face potential penalties. And if you doubt the power of the IRS, let’s just remember a citizen called Al Capone, caught by the IRS for tax evasion even when the FBI could not pin a single crime on him for many years.
It is very interesting that while citizens and companies are obligated to report their foreign assets, U.S. millionaires and multi-billion dollar companies are not obligated to repatriate their foreign assets. In addition many of them even don’t pay a single cent on their foreign earned income, even when it is very well known that they are using foreign subsidiaries to hide and evade their U.S. tax obligations. According to the U.S. tax law, if you are a millionaire, you are measured by a different set of standards (and can become member of congress as it seems).
A recent U.S. Senate investigation found that:
- Microsoft avoided paying almost $7 billion (7,000,000,000) in taxes by hiding their assets in a Puerto Rico (still part of the U.S.) subsidiary
- Hewlett Packard has also evaded taxes by several billions
- Companies like Apple, Cisco, Dell, Johnson & Johnson, Coca-Cola and others keep between 60-100% of their cash in foreign accounts completely avoiding taxes.
The U.S. is the only country in the world that imposes tax on its citizens abroad.
The reality is that there is nothing small business and individuals can do legally to take advantage of the same tax loopholes that large companies and millionaires do. The current U.S. tax law is filled with loopholes very specifically crafted to meet a specific set of criteria, and it requires highly specialized (and expensive) financial structures designed to take advantage of the loopholes. In addition, most of the schemes offered to individuals and small business could actually put them at a serious financial and legal risk since they can involve questionable investments and/or simply tax evasion (different according to the IRS and the U.S. Senate and Congress) from the tax avoidance techniques used by millionaires and multinational companies.
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- Mister Taxman: Why Some Americans Working Abroad are Ditching Their Citizenships (world.time.com)
- Should You Renounce Your Citizenship? – Yahoo! Finance (finance.yahoo.com)
- Puerto Rico Beyond IRS Reach Woos Paulson-Sized Fortunes – Bloomberg (bloomberg.com)
- Costa Rica firms ready for new U.S. Tax Law / Business / Costa Rica Newspaper, The Tico Times.
- Foreign Account Tax Compliance Act (FACTA) – U.S. IRS
- Foreign Account Tax Compliance Act (FACTA) – U.S. Treasury
- When big companies offshore profits to dodge taxes, small business owners say they are left footing the bill – money.cnn.com
- Senate Report Details HP & Microsoft Offshore Tax Ploys – forbes.com
- Should You Renounce Your U.S. Citizenship? – wsj.com
- US citizens leaving the country to avoid stiff tax bills – nypost.com
- American Expatriates Renounce Citizenship Over Taxes – huffingtonpost.com
- More U.S. citizens renounce citizenship to dodge taxes – upi.com
- Tax time pushes some Americans to take a hike – reuters.com
- Just like Eduardo, nearly 1,800 people renounced U.S. citizenship this year over taxes – venturebeat.com
- Hegemony and After – foreignaffairs.com