Residence Based Taxation: It needs to happen
I am writing to you today to make you aware of an Op-Ed piece from a contributor to the "Tax Notes Federal" journal that was published recently by Forbes. As a constituent of yours, I would greatly appreciate it if you read through the article and considered backing proposals for “Residence Based Taxation” that have been made by constituents & a variety of advocacy groups. Regardless of whether you believe in small government or a progressive, supportive safety net, the reality is that the unique US practice of taxing its non-resident citizens is deeply problematic and the burden of it falls disproportionately on working and middle class voters like myself. In addition to double taxation that arises from natural differences between the laws of the countries we live in & the United States, not mitigated by the FEIE & FTC, we also suffer from the very assertion that all US citizens are US Tax Resident regardless of where we actually live. This overly broad definition results in the leakage of laws and measures that limit our access to financial services in our countries of residence--we are subject to anti-offshoring measures that are wholly justified if talking about an actual US resident, but unworkable in the context of someone whose US residence is fictional. The article's author, Robert Goulder, makes a compelling case that the right thing to do is to adopt what's sometimes referred to as "Pure RBT + an exit tax": We'd amend the civil-war era definition of a tax resident and we'd realize capital gains on leaving the United States. Such an approach would be tight against abuse--evidenced by wealthy Americans’ deep concern over the removal of cost-basis step up & realization of gains on death. If there’s one thing the wealthy loathe, it’s having to realise gains and pay taxes on them. If the United States were to adopt a deemed sale of assets when someone transitions from resident to non-resident, it would preserve people’s liberty to legally reside outside the United States while serving as a remarkably strong deterrent against moving for the purpose of tax optimization.t The author makes it clear that any attempts to modify the present system of extraterritorial taxation on the basis of citizenship rather than amending the definition of a tax resident are doomed to fail. The band-aid fixes that attempt to “carve out” exceptions, such as the recent proposals from Democrats Abroad, will not provide the effective relief that they appear, on paper, to provide. The biggest barrier to any relief is a short-sighted Congress that seems willing to burn the working and middle class to the ground out of concerns that a wealthy person could benefit from urgently needed reforms. We need Pure RBT, and we need it now. Please read the article below: https://www.forbes.com/sites/taxnotes/2021/06/07/is-residence-based-taxation-compatible-with-progressive-idealism
First sent on June 10 by Nicholas
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