Naomi - click here and write a clever title
Transcription of interview with Jackie Bugnion on March 4, 2013.
Douglas Goldstein, CFP®, Financial Planner & Investment Advisor
Jackie Bugnion is the director of American Citizens Abroad.
She heads the tax team on the executive committee and she also authored the recent proposal
for residence-based taxation.
Douglas Goldstein, financial planner & investment advisor, interviewed Bugnion on Arutz Sheva
Radio.
Douglas Goldstein: You’ve really been an advocate for Americans living abroad having
been outside the United States for how long now?
Jackie Bugnion: Forty eight years.
Douglas Goldstein: You also recently authored American Citizens Abroad proposal for residence
based taxation.
What’s all that about?
Jackie Bugnion: Residence-based taxation is actually nothing more than recommending that
the United States adapt the system that every other country in the world applies.
The United States is unique in its citizenship-based taxation and what this means is that Americans
who are residing overseas would be taxed at the same way that currently non-resident aliens
under US tax jargon are taxed.
In other words, there be an automatic withholding on US source income and taxes on anybody who
would have active income in the United States residing overseas would have to file.
There are several aspects to it but it basically means that people overseas would not have
to file the 1040 in principal nor would they be a subject to the FATCA reporting requirements
of the banks or on the 1040 nor would they have to report the FBAR.
In other words, they would be treated just like foreigners who are living overseas.
Douglas Goldstein: What benefit does the United States have for not collecting tax from people
like you and me?
Jackie Bugnion: Precisely, we believe that residence-based taxation will actually bring
in more revenue to the United States than the current system.
The current system of citizenship-based taxation is an anomaly because the United States has
to recognize foreign countries since you have the first right of taxation and therefore
foreign tax credits are applied and they also allow the foreign earned income exclusion
because they recognize that for Americans to be competitive in certain countries, this
is an essential.
The upshot is that 82% of Americans who are filing their taxes do not owe
any US tax.
Our estimates in our paper having looked at all the information available publicly on
the website of the IRS and the statistics, we estimated the revenue coming from Americans
who are residing overseas excluding US military personnel and individuals working for the
embassy who are in a different category and I’m talking about private American citizens
overseas.
The revenue is probably ranging from 3 to 6 billion, that ranges very large and the
reason is that there are different sets of statistics which come up with completely different
numbers and one of our aims of our paper is to try and get our proposal scored.
It would have to be scored before it would be accepted anyway.
Douglas Goldstein: So 3 to 6 billion dollars of tax revenue comes in to the United States
from Americans who live overseas.
It may not be a huge amount of money but that would certainly buy a few F-35s.
Jackie Bugnion: It’s a drop in the bucket.
It’s a small rounding error of 1% of the US budget.
It’s totally insignificant.
We believe that residence-based taxation will bring in as much money starting at the 6 billion
level.
We think it would bring in close to 8 billion a year and in addition, the transition phase
would probably bring in a one-time additional amount, so we’re talking over 10 years of
at least $20 to $30 billion.
Douglas Goldstein: You said if residence-based taxation and basically everyone in America
who is living there is paying taxes, we’re not talking about that.
We’re only talking about sending a letter to all of us who live overseas and from now
on, you don’t have to file or pay?
Jackie Bugnion: That would be wonderful if it would be that simple in the implementation.
The implementation would be a little more complicated than that.
Douglas Goldstein: It just seems though people like us have no representation on the hill.
Why do they care about what we think if the system is working okay, why bother to change?
Jackie Bugnion: The real fact of the matter is that the system is not working okay.
Citizenship-based taxation is extremely costly and heavy for the filers overseas.
It’s very heavy administratively to the IRS and it’s well-known that many Americans
overseas are not filing income taxes because they are simply not aware of the requirements.
Many were born in the United States of foreign parents and moved back to their home country
when they were 2 years old.
They lived their whole lives overseas.
It never occurs to them that they should be filing US taxes and never getting any services
from the US.
There are many instances of this kind of what they call accidental Americans and that’s
one of the reasons.
The other is that many people why should you have a heavy administrative system to have
everybody do this complicated filing when 82% of the people don’t owe any taxes and
unfortunately today with the citizenship-based taxation coupled with FATCA regulations and
the pressure coming from banks, banks being shut off from Americans, American citizens
overseas are increasingly being forced to renounce their citizenship in order to live
a normal life overseas, that’s why it’s networking and that’s why FATCA on top of
citizenship-based taxation has really become the disaster.
It’s really the straw that has broken the camel’s back.
Douglas Goldstein: The people who wrote the FATCA legislation would argue that they’re
just trying to get the money launderers to come out of the woodwork and this is a model
for the IRS to find those people.
How does that connect with citizen-based taxation because that could also be going after a US
resident citizen who is hiding money offshore?
Jackie Bugnion: I think the original impetus for the passage of FATCA was precisely the
American residents who are hiding assets overseas.
This legislation who has the almost the perfect storm that came up, you had the UBS case and
that led a lot of political ire in congress and to the higher bill.
Whoever had prepared this and there is a big mystery as to who but certainly treasury was
involved and it was many years of effort I think, that pulled this off the shelf and
it was never discussed in congress.
The whole origin of FATCA is very dubious.
It was sold as going after tax thieves.
The problem is that because Americans also who are residing overseas and I repeat that’s
the only country that does this, that it automatically implies that all people overseas by necessity
have to have foreign bank account, get pulled in to this whole FATCA reporting.
Douglas Goldstein: I understand having personally filled in FBAR and FATCA forms as well but
at the end of the day you have to look up these accounts anyway and it is the problem
that it just connects your form you have to file?
Jackie Bugnion: It’s much more than that.
FATCA reporting requirements are different from FBAR.
FBAR is only the individual who reports to the IRS.
FATCA requires the foreign financial institutions to become arms of the IRS because they are
required under the threat of serious legal considerations and serious withholding taxes
to report to the IRS on any American who has an account overseas over certain threshold.
Douglas Goldstein: If we just look at the United States treasury as trying to maximize
its income, why wouldn’t they do that?
Jackie Bugnion: That’s why they are doing it but they are looking for the reporting
to be able to prevent tax evasion, that’s their goal.
Actually FATCA has been very effective now from the point of view of the IRS because
they’ve combined it with the series of voluntary disclosure programs and the very wealthy Americans
who are hiding assets overseas recognize it and that program allow them to come clean.
The problem is that they’ve had a one size fits all in their solutions and it’s extremely
penalizing for Americans overseas who have not been reporting and try to get in to the
system.
Douglas Goldstein: When you were in Washington talking to them about the residence based
taxation, what did you feel?
You think there’s a possibility we’re going to get there or is it just a nice discussion
topic?
Jackie Bugnion: We were pleasantly surprised by the reception in the congressional offices.
Of course, we only talk of [staffers], but what we found were two things.
Number one is that good many people are very aware of the problematic situation created
for American overseas by FATCA legislation.
Second of all, everybody is talking about tax reform and they recognize the need for
tax reform.
Our problem is a small element of the major issue in the United States.
The United States tax code is just beyond limit.
It’s out of range right now.
When we talk about dissolving our problem and mainly what we think is it will bring
in more revenue to the United States, it will simplify the tax code, it will simplify the
administration, it will allow US companies to start once again to hire to represent the
nation overseas, it will stop the penalization of Americans residing overseas, the whole
is win-win solution and we really had a very favorable response.
This being said, we have no allusions and it’s a very long hard battle to get it integrated
into legislation.
Douglas Goldstein: How can people continue to follow your work?
Jackie Bugnion: Please go to our website which is www.americansabroad.org.
I also strongly recommend people to write to their legislators in the House of Representatives
to try to support H.R. 597 which was introduced by Carolyn Maloney which calls for a serious
look into all of the issues concerning Americans overseas.
Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host
of the Goldstein on Gelt radio show (Monday nights at 7:00 PM on www.israelnationalradio.com.
He is a licensed financial professional both in the U.S. and Israel.
Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA,
SIFMA.
Accounts carried by National Financial Services LLC.
Member NYSE/SIPC, a Fidelity Investments company.
His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered
at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.
Disclaimer: This document is a transcription and/or an educational article.
While it is believed to be current and accurate, divergence from the original is to be expected.
The original podcast can be heard at https://sites.google.com/site/goldsteinradioshows/.
All information on this website is purely information and should not be used as the
sole basis for making financial decisions.
The opinions rendered herein are those of the guests, and not necessarily those of Douglas
Goldstein, Profile Investment Services, Ltd., or Israel National News.
Readers should consult with a professional financial advisor before making any financial
decisions.
Please see the complete disclaimer at https://sites.google.com/site/goldsteinradioshows/.