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Death and Taxes?

Death, maybe. Taxes — in the era of global tax havens, widespread fraud, and code complexity that even the enforcers can’t figure out – are anything but certain. As an American who is taxed on all his income, because of citizenship, I was surprised to find the vast array and variation of expat taxation. It feels a lot like going to an expensive bar and finding out that everyone is getting free drinks except you. While I cannot believe that I am the only expat in the world paying taxes according to what all the governments say they are due, it certainly feels that way.

One of my most profound realizations about taxation came when we moved to China. Here, it is hard to find anyone who would pay any tax that was self-reported. Income tax filings? Hah! Most Chinese laugh at the suggestion that such an honor-based practice could ever work here. This led me to wonder where the American habit of voluntarily paying taxes originated. More important, it led me to realize that much of the strength and power of the American government derives directly from the willingness of Americans to be taxed according to a system that they believe (on some level) to be fairly legislated and executed.

I believe that global civil society is at an important juncture: either go down the path of narrow self-interest and paying minimal taxes, or recognize that governance and civility ultimately depend on a fair system of tax codes, enforcement, and compliance. As the “only paying customer at the bar,” sooner or later it makes sense to make sure others are pulling their weight. As a founding principle of Expat Nation, it makes sense to represent the paying customers instead of the free riders.

Let’s face it: taxes are broken. I could spend hours listing all of the random exceptions and perverse incentives, the overhead of collection and enforcement, the inability to corral free riders, and the huge inequities among peers not to mention “progressive” transfer payments between different groups. The question is, what can expats and Expat Nation do about it?

To begin with, it would make sense to focus on information, research, and representation. The “paying customers” benefit by knowing how much everyone at the bar is paying, even if the “comps” [complimentary customers] do not. It is easy to research tax codes for various jurisdictions to determine how compliant taxpayers in different countries fare in each. It would be even better to understand what the real payments are, much like looking over the tax returns of candidates for public office. Obviously the IRS has access to much more information than we do – is any of this available from the Freedom of Information Act? It would be very interesting to drive through some of the ritzier neighborhoods in the world, identify the occupants of the numerous mansions, and compare their tax burden.

The next step would be active representation of expat interests, to all host nations. For example in China, where real estate taxes and regulations were recently established for foreigners, no one represented expat interests except some real estate agents. I have read rumors that China plans to tax residents on all income, not just China-sourced, under a new income tax policy. What would happen if an organization representing the million or so expats in China, collaborating with Chambers of Commerce and embassies, coordinated a response?

In the realm of “poli-fi,” there are many opportunities for Expat Nation. Imagine an existing nation, such as Costa Rica or Panama, actively soliciting expats to become citizens without domicile. The expats would be taxed and managed in a different way than host-nation residents and citizens: their tax revenue would be earmarked for separate spending on Expat Nation priorities, less a small service percentage for the host country. The Expat Nation taxes would therefore be a tax credit against other countries’ taxes, such as the US’. Then, US expats could choose to allocate their taxes to solve global infrastructure problems, instead of paying to police Baghdad. How to spend this money would be, in my opinion, a “nice problem to have.”

I would certainly “emigrate” (or adopt dual-citizen status) if this were available. . .would you?

Economic Affiliation

Among American immigrants today, the vast majority come for jobs or opportunity. Among expats overseas, a good fraction comes for opportunity, augmented by novelty and a variety of personal reasons. Many cities around the world are more international in their ethnic and cultural mix than they are representative of their homeland nations.

Because residency is defined by work more than other affiliations, and because of the increasing mobility from globalization, “home” and “homeland” are often separate. The personal ties we form as expats are based on work; on social groups such as clubs, gyms, and schools; and through various referrals and networks. Ties to place – home or homeland – are, in my opinion, secondary to ties to people we know. If there is a conflict between people or cultures, these anti-ties are equally powerful in forming affiliations.

The ties to place – as opposed to nation — are a gradual accumulation of personal ties and group affiliations we form in that location. Defining these ties as meaningful — in the sense of “homeland” and nationality — is a very complex process. For some, the personal experience of a melting pot community in a college dorm, for example, becomes a defining feature of nationality. For others, it is a common enemy in the Army, or a shared hardship like a tsunami, or racial discrimination, that defines a bond. These sub-national bonds are aggregated in some very personal way, until we define some aggregation as constitutive of our nationality. For different people, the sub-bonds that make up each personal definition of nation are likely very different. In Benedict Anderson’s analysis, the ties that form to nation are historically linked to print capitalism more than personal ties to place. While this may be part of the picture today, there seem to be many influences that define the groups we identify with, from personal experience to “imagined.” Regardless of the cause, we ultimately pin more of our identity and certainly our resources – taxes, conscription, and legal citizenship – on this aggregation called “nation.”

One important subset of these bonds or affiliations is essentially economic in origin. Where we live (rich neighborhood or poor), where we go to school, what companies we work for, who we interact with professionally and socially – these are largely economic decisions and consequences. “Belonging” also has a major economic element – if we feel needed and valued by employment, then we feel comfortable and connected regardless of whether we are in our homeland or elsewhere. Sometimes we have to choose between economic connectedness and homeland affiliation, such as a Chinese upper-class family choosing a successful international school vs. the local public school, in order to build different relationships for career and later life.

How important are economic affiliations relative to other ties that bind? Obviously it varies among different people, but we can look at some examples for anecdotal evidence. Aihwa Ong describes an example from interviewing many Hong Kong Chinese in Vancouver. The more recent, well-heeled arrivals bear considerable contempt for [previous] lower-class migrants with poor manners and social skills. The class barrier in this case certainly trumps ethnic, language, and racial ties. The multi-cultural colleges and high schools across the globe provide plenty of evidence of emergent ties superseding traditional connections. In the movie Harold and Kumar Go to White Castle, a second-generation Chinese immigrant and his Indian college buddy are clearly more closely aligned to each other than they are to their parents. My international apartment building in Beijing provides a curious example: The Chinese staff monitoring the entries and elevators are much more likely to question and depose an unknown Chinese person, whereas foreigners of virtually any age, demeanor, or roguish manner can simply walk in unquestioned.

Quantitative assessment is a little harder to come by. One interesting estimator is the declining level of “hardship stipends” for international jobs. Expats are increasingly willing to take a job at a salary much lower overseas than they would accept in their homeland. While some of this is simply an awareness of the different cost of living, the trend over time – to what amounts to “negative hardship pay” – may indicate a preference for expat affiliation over homeland.

Shared economic interest is probably the most important factor in economic affiliation. In a global economy, the itinerant knowledge workers from all nations have a very similar set of interests. They [usually] face uniform barriers to entry or recruitment from national economies. Most nations favor their own nationals over expats for college admissions, scholarships, and tuition rates. In most countries, immigration policies are used to attract workers with scarce skill sets and deter low-wage workers from coming. Consequently, the global economy skilled labor force faces the same environment overseas, no matter where they come from.

These economic ties result in expats working for many of the same companies, teaching at the same universities, going to the same restaurants, and working out at the same gyms. Equally important, shared economic interest results in the same interface with local governments and nationalist interests, such as visas, airport security, residency registration, and health regulations. For example, if China opens a sector to foreign investment, all expats benefit and soon rush in. Similarly, if China restricts housing ownership to locals, all expat’s suffer as a result.

Expats have a much greater common economic interest with each other than they do with the average citizen of their homeland. In fact, global workers are usually at odds with their national compatriots on the issues of barriers to trade, labor and capital mobility, immigration policies, and national security policies directed at travelers, among other things. Indirectly, expats also have a much greater stake in non-governmental and international conventions, legal agreements, and standards, because these facilitate simpler trade and commerce. The more level the playing field, the better. Not so for nationals, many of who are still hoping to insulate themselves from an open world market.

Over time, shared economic interest will drive everything else – soon culture, educational curriculum, and values will begin to align, overcoming other barriers and traditions. Nations and governments will be powerless to stop it. If they try, it will simply speed their own decline as other, more prescient governments scramble to keep and attract multinational corporations, capital, and eventually, talent. In the neo-liberal anarchy of nation-states, it is “every one for themselves.” This could augur a very grim future for everyone, or it could mean something totally benign: new forms of non-governmental authority. . .