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Author Topic: Tax time pushes some Americans to take a hike
cherrypoptart
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http://finance.yahoo.com/news/tax-time-pushes-americans-hike-204320491.html

> DIVORCE OR DISCLOSE

> Genette Eysselinck, a friend of Laederich's, renounced early this year. Her husband, a European Union civil servant, saw no good reason to share his account information with the IRS, she says. And after considering all her options, Eysselinck decided that renouncing was the best path.

> "It created a lot of tensions around here," she says. "Divorce seemed a little extreme, so I asked myself, 'What am I gaining as an American?' And the cons outweighed the pros."

> Eysselinck was born in Fort Bragg, North Carolina, and says she grew up on military bases all over the world. Her father, she says, was an Air Force pilot. Eysselinck has lived abroad for decades and no longer has any close connections in the United States.

> She spent her final months as an American collecting paperwork and filing tax returns from the past five years, even though she says she owed nothing. Her last act as a citizen was to swear before an American flag that she renounced all ties with the United States. She called the process "gut wrenching."

> "I grew up in a military family where patriotic feeling was very strong" Eysselinck says. "I'm amazed at how terrible I felt renouncing. But it was the only way to get them off my back. It's very distressing and time consuming to keep up with all the paperwork. But if it's this bad when I'm 64, how bad will it be when I'm 74?"

---------------------------------------------

"Last year, almost 1,800 people followed Superman's lead, renouncing their U.S. citizenship or handing in their Green Cards. That's a record number since the Internal Revenue Service began publishing a list of those who renounced in 1998. It's also almost eight times more than the number of citizens who renounced in 2008, and more than the total for 2007, 2008 and 2009 combined."

---------------------------------------------

It's a shame that it's come to this.

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TomDavidson
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Why?
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cherrypoptart
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People shouldn't feel forced to renounce their citizenship because our tax laws are too odious. The recent spike in this indicates that the IRS has gone entirely too far and people just aren't going to take it anymore.
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TomDavidson
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Hm. I don't actually agree with either of those sentences. For example, the woman actually quoted in your snippet is not renouncing her citizenship because the tax laws are odious; she is renouncing because her husband refuses to file and that puts her in a dangerous legal position as long as she remains a citizen. The issue, in fact, for every single person mentioned in the article is not that our taxes are too high or "odious" in any way, but rather that we tax citizens for income earned abroad. It's possible that this is what you consider "odious" about our tax structure, but I'd find that remarkable.

Furthermore, I would expect renunciations of this sort to continue to climb for some time, probably until 2019 or so, based on global demographics alone. A third of my friends are currently paying taxes to more than one country.

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Jordan
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"Foreign Account Tax Compliance Act"—ooh, so close to a dramatic acronym. [Smile]
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cherrypoptart
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There are also banks overseas that now refuse to allow Americans to open accounts. That's something relatively new and it means that our government is making it harder for Americans to live abroad. That is wrong and I can't imagine it's going to be good for business.
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cherrypoptart
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Let's say you have a Japanese wife living with you in America and she has a bank account at Bank of America. Now Japan passes or starts enforcing a law they have that makes that bank in America jump through hoops and do extra paperwork to keep up with compliance protocols required by laws coming out of Japan.

I'm not sure about other banks but the ones I've dealt with are freaking out about every little thing, trying to charge you a dollar for this and three bucks for that. They are driving people to the ATMs to make deposits (where there are no lollipops so no thanks) and with some accounts even charging if you interact with the teller too many times a month. So it's hardly likely they are going to want to do any extra work to comply with foreign tax laws just for a small time retail customer's savings or checking account.

Now multiply that by every country in the world insisting on the same type of tax compliance for their citizens living in the U.S. that the U.S. does for our citizens living over there. I'm sure we've been over how too many laws start to just get to be almost impossible to keep up with anymore, both to stay knowledgeable about the constant changes as well as in terms of maintaining compliance. This is getting absurd.

Did I say absurd already? That's just the beginning. Now on top of all that, Japan passes a law that says that I as an American married to a Japanese national in America have to open up all of my bank accounts and file my taxes with Japan too, and in Japanese. So I have to go hire a tax preparer or maybe even a tax lawyer, in America who speaks Japanese and understands Japanese tax laws. The situation was already absurd. Now it's just completely insane.

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TomDavidson
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Personally, I'm pretty confident that this particular issue is self-correcting. It's no great injustice, but if it's enough of an irritant for both citizens and tax officials we'll eventually see some corrective. In a discussion of "odious" tax practices, this particular one is a complete non-starter.
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cherrypoptart
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It's not that easily corrected for the people who gave up their American citizenship because of the IRS, unless after our government admits they made a huge mistake and fixes the tax laws they then allow these people their American citizenship back.
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TomDavidson
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They didn't give up their citizenship because of the IRS; they gave up their citizenship because it didn't mean as much to them as the inconvenience. It's not a huge loss.
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cherrypoptart
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Their American citizenship is not a huge loss to them? Or they aren't a huge loss to us?

The thing is all of this is completely unnecessary. The vast majority of them don't even owe any taxes.

And plenty of other countries manage their ex-pats, such as the ones living in America, without alienating them from their homeland and giving so much grief to America that American banks start closing their accounts.

It's amazing that there would be so many people in our government that don't see a problem with this, almost like they are purposefully trying to get rid of the ex-pats. And then later they're going to be scratching their heads wondering why the trade deficit continues to grow as tourism drops and America experiences a loss of connectivity abroad. These people act as some of our greatest ambassadors, or acted anyway, until recently.

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TomDavidson
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quote:
And plenty of other countries manage their ex-pats, such as the ones living in America, without alienating them from their homeland and giving so much grief to America that American banks start closing their accounts.
Absolutely. The policy -- which is designed to stem widespread tax evasion and stop a presumptive flow of money to terrorist/anti-American organizations -- is one of questionable wisdom. It'll probably get tweaked a couple more times.

Considering all the boneheaded, unjust bits of our tax policy, though, this one isn't exactly a priority. I've got a lot of friends working outside the country, and this hasn't been a real issue for any of them; every single person in the article you cited had issues specifically because they had (non-citizen) spouses whose income they didn't want to have to begin disclosing (or, in one case, whose spouse didn't want to begin disclosing his income to the U.S.). Since the intent of the bill was to expose funds hidden in ancillary accounts and/or spousal accounts, I don't think that there's a way to avoid this inconvenience if it turns out that there's a meaningfully significant amount of tax evasion happening. If there isn't, the hassle of trying to arrange this will result in changes in the law sooner rather than later; if there is, the people who care more about their foreign money than their American citizenship will leave, and we as a country will be stronger for it.

[ April 18, 2012, 10:20 AM: Message edited by: TomDavidson ]

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JWatts
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The US tax code which taxes American's living overseas on the money they earn from non-American sources is unique and a pretty silly idea. As far as I know, no other First World nation takes this approach and it doesn't generate significant income to the US treasury. The practice should be ended.
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TomDavidson
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Bear in mind that the intent here isn't actually to double-tax people (and, in fact, only a very small minority of remote workers will ever have to pay tax in this scenario). The point of these bills (one of which is nearly 40 years old) is to ensure that money which is off-shored to avoid taxation (or to facilitate some sort of illegality) is tracked.

It's worth noting, BTW, that this is an example of one of the problems that moving to a flat tax would not in fact solve or simplify.

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Sorkh Razil
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Maybe the massive increase in giving up citizenship to avoid over-taxation has led to this:
quote:
"Moving Ahead for Progress in the 21st Century Act," or "MAP 21," is a provision that gives the Internal Revenue Service the power to keep U.S. citizens from leaving the country if it finds that they owe $50,000 or more in unpaid taxes — no court ruling necessary.
This has passed the Senate and, as far as I know, is expected to enjoy bipartisan support and pass the House. It would allow the IRS to order the State Department to refuse to grant, refuse to renew, revoke or restrict a person's passport. It would suck to already be in a foreign country when that happened.
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cherrypoptart
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Wow. Never heard of that. It's almost like the IRS is putting up a wall to keep Americans in, and these barely managed to slip under the wire.
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JWatts
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quote:
Originally posted by TomDavidson:
Bear in mind that the intent here isn't actually to double-tax people

This is true.

quote:
Originally posted by TomDavidson:
(and, in fact, only a very small minority of remote workers will ever have to pay tax in this scenario).

Yes, but that's beside the point. All American's that have income outside of the country are subject to full financial disclosure. Even those who don't pay anything have to file cumbersome documentation.

From the linked article:
quote:
The United States is one of the only countries to tax its citizens on income earned while they're living abroad. And just as Americans stateside must file tax returns each April - this year, the deadline is Tuesday - an estimated 6.3 million U.S. citizens living abroad brace for what they describe as an even tougher process of reporting their income and foreign accounts to the IRS. For them, the deadline is June.
From the article:
quote:

Genette Eysselinck, a friend of Laederich's, renounced early this year. Her husband, a European Union civil servant, saw no good reason to share his account information with the IRS, she says. And after considering all her options, Eysselinck decided that renouncing was the best path.

"It created a lot of tensions around here," she says. "Divorce seemed a little extreme, so I asked myself, 'What am I gaining as an American?' And the cons outweighed the pros."

Eysselinck was born in Fort Bragg, North Carolina, and says she grew up on military bases all over the world. Her father, she says, was an Air Force pilot. Eysselinck has lived abroad for decades and no longer has any close connections in the United States.

She spent her final months as an American collecting paperwork and filing tax returns from the past five years, even though she says she owed nothing. Her last act as a citizen was to swear before an American flag that she renounced all ties with the United States. She called the process "gut wrenching."

"I grew up in a military family where patriotic feeling was very strong" Eysselinck says. "I'm amazed at how terrible I felt renouncing. But it was the only way to get them off my back. It's very distressing and time consuming to keep up with all the paperwork. But if it's this bad when I'm 64, how bad will it be when I'm 74?"


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JWatts
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The IRS is driving American's into renouncing their citizenship for a very minimal gain. This is just bad law.
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Jordan
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Cherry, I'm glad you posted this. I had no idea that the US (or, indeed, any country) had a law like that. I'm actually looking into finding work in the US, and even if I enjoy my time there enough to consider immigrating, this would affect my decision.
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Pete at Home
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quote:
Originally posted by TomDavidson:
Why?

She should be able to simply file separately. Her husband isn't a US citizen, and does not live in the USA. He has no obligation to send his info to the US government. She should be able to maintain her marriage and her citizenship. Putting her in that dilemma is a clear violation of the 5th and 14th Amendment.

Europeans re much more reticent about sharing their financial info than Americans.

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TomDavidson
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What is to prevent her from claiming household income far larger than it actually is, thus distorting her actual tax bracket?
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cherrypoptart
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> Jordan

> Cherry, I'm glad you posted this. I had no idea that the US (or, indeed, any country) had a law like that. I'm actually looking into finding work in the US, and even if I enjoy my time there enough to consider immigrating, this would affect my decision.

No problemo. Are you coming from Canada?

Do foreign nationals have to pay capital gains taxes on U.S. stocks they sell? Say if a Japanese National lived in Japan but bought Google or Apple or Facebook stock and then sold it for a huge profit. Would they have to pay U.S. capital gains taxes? I would expect almost certainly they only pay capital gains taxes in their home country, of course. But it's hard to take anything for granted, and it leads into my next question.

What if a Canadian wife and an American husband living in America bought an IPO, and it skyrocketed so they gained 10 million dollars in capital gains within a year that could be taxed at almost 40% (short term capital gains taxed as ordinary income), so basically their tax bill would be around 4 million dollars. Now what if they divorced before they sold it, and the Canadian wife got all the stock in the settlement, she went back to Canada, transferred the stock into her Canadian brokerage account and then sold it. Would she have to pay American capital gains tax on it? Canadian capital gains tax on it? Or both?

I just looked up the Canadian capital gains tax rate and my source said it's 66.67%, so that would be funny if it was both and you ended up with over a 100% capital gains tax and actually lost money even though the stock went up 1000%.

Well, I'm not sure anyone will know the answer to this. Guesses would be okay. Well, I suppose my point is that international tax law seems like it could start getting pretty complicated pretty fast, and the IRS isn't helping matters much.

I was just wondering also if you could renounce your citizenship before you sold a stock on which you'd probably end up paying more than a couple of million dollars in capital gains taxes and thereby avoid them (but have to pay them to your new country, perhaps one chosen for a lower rate).

Would your American citizenship be worth 2-4 million dollars?

And how difficult is it to get your American citizenship back after you renounce it?

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Pete at Home
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quote:
Originally posted by TomDavidson:
What is to prevent her from claiming household income far larger than it actually is, thus distorting her actual tax bracket?

Common sense. Why would she want to pay more taxes than she needs to?

An American citizen living abroad married to a foreign national should be able to report individually. There's no basis for the US to assert any claim on the salary of a British Citizen living in England who happens to be married to an American. The law needs to be fixed; times are not so rough that Uncle Sam's got to turn into a pimp.

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TomDavidson
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Yeah, I didn't realize until it was too late to edit that after a reordering of the sentence I'd failed to change the word "larger" to "smaller." [Smile]

quote:
There's no basis for the US to assert any claim on the salary of a British Citizen living in England who happens to be married to an American.
Except that we aren't actually making a claim on that salary; we're just determining things like deductions for the spouse.

That said, sure, the law could be tweaked. But to focus on this when there are far more urgent problems with our tax law is sheer bloodymindedness -- unless it's intentional distraction from the real problems.

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DonaldD
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quote:
Originally posted by cherrypoptart:
I just looked up the Canadian capital gains tax rate and my source said it's 66.67%

That is not even remotely correct [Smile]
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Pete at Home
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quote:
Originally posted by TomDavidson:
Yeah, I didn't realize until it was too late to edit that after a reordering of the sentence I'd failed to change the word "larger" to "smaller." [Smile]

quote:
There's no basis for the US to assert any claim on the salary of a British Citizen living in England who happens to be married to an American.
Except that we aren't actually making a claim on that salary; we're just determining things like deductions for the spouse.

That said, sure, the law could be tweaked. But to focus on this when there are far more urgent problems with our tax law is sheer bloodymindedness -- unless it's intentional distraction from the real problems.

Best way to avoid focusing on it is to acknowledge the problem fix it, and move on. It's not a complex fix. And it's stupid to create a situation where Americans are intimidated by Tax laws from working abroad. Other countries bring money in through expatriate workers. We've set up a stupid system which punishes Americans for expanding the job market.

Also, by yielding on a small point, take away fuel from right-wingers that would have us believe that the system is "unfair" because we don't sufficiently tax the homeless and desperate poor.

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JWatts
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quote:
Originally posted by DonaldD:
quote:
Originally posted by cherrypoptart:
I just looked up the Canadian capital gains tax rate and my source said it's 66.67%

That is not even remotely correct [Smile]
According to Wiki:

Canada: Currently 50.00% of realized capital gains are taxed in Canada at an individual's tax rate.

Note: That's not a 50% tax rate. Instead it's 1/2 of your normal marginal income tax rate.

Wiki

And here's a site that shows actual numbers:
http://www.taxtips.ca/taxrates/canada.htm

Highest marginal tax rate: 29%
Highest capital gains rate: 14.5%

TaxTips

[ April 20, 2012, 10:29 AM: Message edited by: JWatts ]

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JWatts
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quote:
Originally posted by Pete at Home:
Also, by yielding on a small point, take away fuel from right-wingers that would have us believe that the system is "unfair" because we don't sufficiently tax the homeless and desperate poor.

Pete, that's a complete strawman argument. The right isn't arguing that you should tax people who don't have income. But currently only about half the households are paying Federal income taxes. Nobody rationally defines a household in the 45 percentile of income as the 'desperate poor'.
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TomDavidson
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quote:
It's not a complex fix.
I don't think that's true, actually. The law was changed to require more reporting precisely because a lot of rich people were engaging in fraud and passing themselves off as less rich. We could write off their income altogether, and perhaps we should, but we've chosen instead to try to find a way to get at money they may be hiding.
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cherrypoptart
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Sorry I was looking here:

http://www.canadafaq.ca/what+is+capital+gain+tax+in+canada/

I'm sure I didn't understand it even remotely.

Just keeping my options open in case Obama gets elected again or if I hit it huge in the stock market or something. I'm not promising that Canada is where I'll go if I move out of Texas and out of America. There are some places besides America with nicer weather than Canada and most of the people speak English, such as California, plus I have some distant relatives there and I hear it's easy to get in. I don't think I'd be happy with their tax rates either though.

It also looked like Canada doesn't even tax the first $750,000 of capital gains, and if so that would be cool.

This was from the site I just linked:

"Inclusion rate refers to the amount of capital gains that is subject to taxation. Between 1972 and 1988, the rate was 50 percent while in 1988, the same went up to 66.66 percent. Two years later, the inclusion rate skyrocketed to 75 percent and in 2000, the government established a lower rate of 66.67 percent."

"There is a lifetime capital gains exemption in the amount of $750,000 while the deduction for property sale is up to $375,000. In other words, if you sell corporate shares to make a profit, the first $750,000 are received tax-free."


I'm sure there's a lot of fine print I don't get yet.

------------------------------------------------

Okay, here's another question, one that I was getting to earlier.

Is there any way you could possibly be taxed so much because of the double tax on ex-pats that if you filed your taxes honestly, you are actually taxed more than you make?

Trying to answer my own question, I looked at:

http://en.wikipedia.org/wiki/File:Income_Taxes_By_Country.svg

http://taxes.about.com/od/statetaxes/a/highest-state-income-tax-rates.htm

http://en.wikipedia.org/wiki/Capital_gains_tax#Belgium

(just liked this because Belize had no capital gains taxes so if you changed your citizenship to there before you sold your stock...)

It seems like Belgium has the highest personal income tax rate at about 55% and America's is 35% at the top so on income over about 90k it looks like you'd be paying about 90% in taxes, and then if you add in state income taxes (can you not be a resident of ANY state?) then with some of them at 11% you might be looking at a 101% effective tax rate.

So you wouldn't be taxed more than you made because some of that tax doesn't kick in until after 90k, but maybe you could be taxed on everything and then some after 90k, so that would be an effective income limit.

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Pete at Home
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quote:
Originally posted by JWatts:
quote:
Originally posted by Pete at Home:
Also, by yielding on a small point, take away fuel from right-wingers that would have us believe that the system is "unfair" because we don't sufficiently tax the homeless and desperate poor.

Pete, that's a complete strawman argument. The right isn't arguing that you should tax people who don't have income.
Many homeless and desperately poor people have some income. And since they do obtain goods and services with that income, they are paying taxes. Even if they aren't paying income taxes. So there's no need for the uber-right to sit up nights worrying about the homeless family that gets tax-free odd job income that they use to pay for their laundry and cricket phone coverage.
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Pyrtolin
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quote:
Originally posted by JWatts:
Pete, that's a complete strawman argument. The right isn't arguing that you should tax people who don't have income. But currently only about half the households are paying Federal income taxes. Nobody rationally defines a household in the 45 percentile of income as the 'desperate poor'.

What does the percentile have to do with it? Being poor is an absolute measure of ones ability to meet ones needs, not a relative one.

According to the Census data, 48% of Americans can be considered to be living in poverty, so 45 would be below that mark anyway.

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Pyrtolin
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quote:
(just liked this because Belize had no capital gains taxes so if you changed your citizenship to there before you sold your stock...)
You'd get taxed on your way out, since people who change their citizenship are taxed on the assets they take with them.

[ April 20, 2012, 01:07 PM: Message edited by: Pyrtolin ]

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Pyrtolin
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quote:
and then if you add in state income taxes (can you not be a resident of ANY state?) then with some of them at 11% you might be looking at a 101% effective tax rate.
Except you don't directly add those in, because you deduct those from federal taxes. I'd be surprised if there weren't similar deductions when figuring out foreign taxes as well, at which point a 100% tax rate becomes impossible without a tax that is actually assessed at 100%.
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Jordan
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quote:
Cherry:
Are you coming from Canada?

The UK. [Smile] I don't qualify for the green card lottery and the O-visas are amazingly difficult to obtain (example qualification: "receipt of a major, internationally recognized award, such as the Nobel Prize"), so realistically it will only happen if I get a job offer before you hit the H1B cap. Also damn hard, but easier than winning a Nobel Prize. [Wink]
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cherrypoptart
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I probably shouldn't volunteer everybody else like this but maybe someone at Ornery could help you out somehow.
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cherrypoptart
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Thanks Pyr, I'm finding out the information you're providing. It's easier when you know what to look for. Coming from Texas we don't pay state income taxes or state capital gains taxes so I wasn't sure how those worked.
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JWatts
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quote:
Originally posted by Pyrtolin:
What does the percentile have to do with it? Being poor is an absolute measure of ones ability to meet ones needs, not a relative one.

According to the Census data, 48% of Americans can be considered to be living in poverty, so 45 would be below that mark anyway.

[Eek!]

That's not even remotely close to the truth.

quote:

The data presented here are from the Current Population Survey (CPS), 2011 Annual Social and Economic Supplement (ASEC), the source of official poverty estimates. The CPS ASEC is a sample survey of approximately 100,000 household nationwide. These data reflect conditions in calendar year 2010.

The official poverty rate in 2010 was 15.1 percent — up from 14.3 percent in 2009. This was the third consecutive annual increase in the poverty rate. Since 2007, the poverty rate has increased by 2.6 percentage points, from 12.5 percent to 15.1 percent.

US Census
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JWatts
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quote:
Originally posted by Pete at Home:
Many homeless and desperately poor people have some income. And since they do obtain goods and services with that income, they are paying taxes. Even if they aren't paying income taxes. So there's no need for the uber-right to sit up nights worrying about the homeless family that gets tax-free odd job income that they use to pay for their laundry and cricket phone coverage.

Ok, fair enough. I can agree with that. In the same vein, there's no need for the uber-left to sit up nights worrying about the rich family that's not paying a 70% tax rate. [LOL]
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Pyrtolin
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http://www.cbsnews.com/8301-201_162-57343397/census-data-half-of-u.s-poor-or-low-income/

quote:
Squeezed by rising living costs, a record number of Americans — nearly 1 in 2 — have fallen into poverty or are scraping by on earnings that classify them as low income.

The latest census data depict a middle class that's shrinking as unemployment stays high and the government's safety net frays. The new numbers follow years of stagnating wages for the middle class that have hurt millions of workers and families.


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