Tax law enforcement runs out petty criminals, profitable corporations
A record-high 560 U.S. citizens were published by the U.S. Treasury as either renouncing their citizenship or turning in their green cards, as reported by The Wall Street Journal.
That’s a 33 percent increase from our nation’s previous record high in 2011. According to Andrew Mitchel, a Connecticut tax lawyer who tracks the nation’s expatriate data, we’re currently looking at 2,369 citizens who have tossed in the towel in lieu of some more lucrative foreign soil.
These citizens, now living abroad, are known as expatriates, enjoying all of the benefits of being an American citizen. They’re also subject to all applicable U.S. laws, including tax laws that haven’t been enforced for much of their existence.
Regardless of your political ideology, citizens have a civic duty to adhere to the laws of their nation, even if they think these laws are unfair.
This kind of news is awful foreshadowing of the future of American-based businesses. Typically speaking, American expatriates aren’t the guys who weren’t capable of paying our taxes and called it quits. They aren’t criminals or lesser citizens or any kind of citizen that we should be happy to say farewell to.
Yahoo! Finance points out some of the rarities in U.S. tax laws. All income taxes earned by U.S. citizens, permanent residents and U.S. citizens living abroad are subject to taxation. Such policies aren’t true in places like Bermuda, the United Arab Emirates or other places where people would prefer to make a living — assuming they’re interested in making the most money possible.
These laws that have resulted in more expatriates crack down on the enforcement of offshore bank accounts. For decades, there have been laws against offshore bank accounts that have been largely unenforced.
Another slew of taxation laws was put into effect after the Sept. 11 attacks as a preventative measure, making sure that money wasn’t being funneled to terrorists or from American soil.
Since 2009, the U.S. government has been cracking down on undisclosed offshore bank accounts. Since then, more than 38,000 U.S. taxpayers have confessed to having an undisclosed offshore account and have collectively paid over $5.5 billion in back taxes, as reported by The Wall Street Journal.
Some of the taxpayers were well aware that they were breaking the law. Others, due to the low enforcement of these laws, weren’t aware that their actions were at all illegal.
Then, when these taxpayers have moved their assets back over and start adding in some income, the U.S. government has subsequently taxed that income.
Initially, this sounds like a positive, and in theory, it is. Other than those with offshore bank accounts, there aren’t too many people out there who wouldn’t advocate more heavy patrolling of these waters of tax evaders.
But here’s the thing about those who have offshore bank accounts: they’re wealthy, and they’re going to do whatever it takes to stay wealthy. They aren’t going to lie down and let their profits suffer from a law in one country that doesn’t exist in another.
They’ve got the best attorneys, the best resources and the means to keep as much of their assets as possible. Cracking down on offshore bank accounts is an excellent way to protect the U.S. from potential terrorist activity.
However, it may also be an indicator as to what happens when you tax the wealthy, believing it’s an easy solution with little to no ripple effect. For those who believe that taxing the wealthy will automatically raise revenues, let this serve as a cautionary tale.
Wealthy tax evaders are going to pack their bags, hand in their costly citizenship and take their business elsewhere.
While giving up your citizenship is an extreme example of tax avoidance, the underlying dynamic should be examined. It’s foolish to think that you can get away with increasing the taxes on the nation’s most affluent — that same 1 percent of the nation that has the resources to take full advantage of our law’s structural loopholes.
Just as this general dynamic applies to individual taxpayers, so does it also apply to corporations that pay taxes to the U.S. government. According to U.S. News & World Report, the United States currently boasts the highest corporate tax rate of any developed nation, at 39.2 percent.
It’s resulted in an exodus of U.S. based corporations — according to the Wall Street Journal, since these tax laws have become more heavily enforced, more than 10 companies have moved their headquarters to foreign soil since 2009, with six of those moves happening in 2012 alone. That’s up from just a handful of companies relocating between 2004 and 2008.
Just as individuals leave the country to avoid our often-lax tax laws, so will corporations. If our tax laws give them enough incentive, they’ll gladly take their revenues with them.
Senior staff columnist Cara Smith is a communications junior and may be reached at [email protected]