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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?

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