Is the U.S. still the land of opportunities?

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)

FATCA (Fat Catch) (courtesy of taxesforexpats.com)

FATCA (Fat Catch) (courtesy of taxesforexpats.com)

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.

Loopholes only for millionaires and billionaires. (courtesy of saveenergysystems.com)

Loopholes only for millionaires and billionaires. (courtesy of saveenergysystems.com)

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.

 It seems that the only legal recourse left for U.S. citizens and small companies to even out the current tax burden is to actually renounce their U.S. citizenship in order to protect their finances and avoid legal prosecution for themselves and their families. Just in 2011 over 1,800 citizens renounced their U.S. citizenship, eight times more than in 2008, and more than the combined total for 2007,2008,2009. What is interesting is that while it is not too hard to renounce the U.S. citizenship, the process includes also an exit tax. Something kind of funny when you consider that this is actually the same issue that is forcing americans to leave their country. One of the best examples of people leaving are the co-founder of Facebook Eduardo Saverin, who saved over $300 million just by renouncing his citizenship. Still renouncing the U.S. citizenship may not completely free you from the obligation of reporting your income to the U.S. government for up to 10 years after the fact. It seems that the famous freedom of the country, it only extends to their millionaires, billionaires, and multinational conglomerates. The rest of the citizens are treated barely better than Jonathan Swifts yahoo’s, and with the stagnated economy, bloated debt, and divided government, theirs may not be the promised land anymore.
 
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