Tag Archives: tax reform 2017

Tax, culture and how the USA uses #citizenshiptaxation to impose US culture (and penalties) on other countries

Civilizations and countries define themselves in part by their tax policies

In 1993 Samuel Huntington wrote “The Clash Of Civilizations“. His basic thesis is captured in the following paragraph from Foreign Affairs Magazine.

World politics is entering a new phase, and intellectuals have not hesitated to proliferate visions of what it will be-the end of history, the return of traditional rivalries between nation states, and the decline of the nation state from the conflicting pulls of tribalism and globalism, among others. Each of these visions catches aspects of the emerging reality. Yet they all miss a crucial, indeed a central, aspect of what global politics is likely to be in the coming years.

It is my hypothesis that the fundamental source of conflict in this new world will not be primarily ideological or primarily economic. The great divisions among humankind and the dominating source of conflict will be cultural. Nation states will remain the most powerful actors in world affairs, but the principal conflicts of global politics will occur between nations and groups of different civilizations. The clash of civilizations will dominate global politics. The fault lines between civilizations will be the battle lines of the future.

Tax policy and the possible “clash of civilizations”

To what extent does the insistence of the USA on imposing the Internal Revenue Code (“citizenship-based taxation”) on the citizen/residents of other countries, foreshadow a “clash of civilizations”?

This post was motivated by the article by Virginia La Torre Jeker which is referenced in the above tweet. It is an excellent discussion of how the Internal Revenue Code might (or might not) accommodate the reality of Sharia law. The post raises many questions and alerts practitioners to the challenges of applying the Internal Revenue Code to the lives of people whose culture is largely outside the United States. The post raises many “technical issues”. I expect there will further discussion of this issue on Virginia’s blog.

Taxation does NOT exist in a cultural vacuum. A country’s tax system reflects the counry’s cultural values. As the tax historian Charles Adams has noted, the rise and fall of civilizations can be linked to its tax policies. To impose the Internal Revenue Code on people who live outside the United States is to export U.S. cultural values and impose those values on other nations. The United States claims the right to impose the Internal Revenue Code on U.S. citizens who live outside the United States. The reality is that there are millions of people with no connection to the United States (other than a place of birth). U.S. citizenship is acquired automatically if one has the fortune (or misfortune depending on your point of view) of having been (as Bruce would sing) “Born In The USA!

FATCA and the tax compliance industry are working hard to identify those who may be U.S. citizens and do NOT live in the United States. What the United States views as a good source of tax revenue should be seen more broadly. Leaving aside basic issues of fairness, to impose U.S. taxation (according to U.S. rules/cultural values) on the residents of other countries, is sure to create problems. As part of tax reform, the United States must stop imposing the Internal Revenue Code on people who are NOT residents of the United States!

The following “Storification” is an attempt to explain the problem from an “outside the USA” perspective …

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#Taxreform17 means that the USA should stop imposing U.S. taxation on the residents of other countries! @SpeakerRyan @RepKevinBrady @SenateJamLdr @OrrinHatch @Stevenmnuchin1

Some of you may be interested in the “short letter” that I sent by regular mail to the “powers to be” in Washington who are working on “Tax Reform”.

A “Town Hall” interview with Speaker Ryan suggests that Tax Reform is going to happen.

The interview confirms that there is pressure to move U.S. corporations to “territorial taxation”. See also the following tweet from the House Ways And Means Committee.

The question is whether individuals will also be considered. In January of 2017 Republicans Overseas proposed “territorial taxation” for individuals. This week the Republican National Committee adopted a resolution from Republicans Overseas urging that “territorial taxation” for individuals be adopted.

Both U.S. corporations and U.S. citizens are “U.S. persons”. If the United States moves to “territorial taxation” for corporations then “territorial taxation” for individuals should follow.

The United States would be will advised to stop imposing U.S. taxation on the tax paying residents of other countries.

What follows is my “short letter”. A PDF copy of the letter is here:

taxreform

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