Near Yellow Mountain

Monday, April 15, 2013

Taxing Matters

Today is tax day in the US. I think it goes without saying that most cultures are united in their dislike of the government getting into their pockets any more than necessary although there certainly are differences as to what various cultures think of as “necessary”. Europeans seem to have the greatest tolerance for high taxes but, of course, there has to be some way to pay for all those weeks of vacation and social benefits that some other regions of the world (including North America) as a general rule don’t get.
Tax Day is upon us
 We have a President that is in hot pursuit of what he believes is a tax policy that requires a “little bit more” out of those he thinks should pay what he deems their “fair share”.  It costs a lot of money to have all those secret service agents on the golf course after burning up copious amounts of jet fuel and advance team personnel hours getting the POTUS to his “home” state of Hawaii or is it Illinois? Do you think the secret service agents do double duty - protecting the President’s (golf) balls from going OB? But I digress.

In 2009, according to a memo from the Joint Committee on Taxation, a bi-partisan Congressional committee, only 49 percent of Americans owed money on their Federal income tax returns. For tax year 2011, the non-partisan Tax Policy Center estimated that only 54 percent of Americans would pay any amount of Federal income tax. The top 20 percent of Americans earn 53.4 percent of the total U.S. income, but pay 67.2 percent of total income tax [source: Tax Policy Center].  Maybe government spending is the problem our leader should be focused on given the President doesn't seem to feel half of the population should pay any tax.

Why is the fair share of tax for half of the citizens in the country – zero? I think our tax policy could be improved but I also think everyone should pay something even if it is a token amount.

The ex-pat has a completely different situation than half of Americans who pay no tax. The ex-pat pays in the country they live in and in the US even if they didn’t set foot in the America one day in the year.

The US is one of the only countries in the world that makes citizens living overseas pay taxes at home when they pay taxes in the country they are living in. Yes, skeptical readers, there are certain exclusions that lower the tax burdens of ex-pats but those exclusions are minimal.

When I lived in Japan, my employer paid KPMG (a large global accounting firm) to do my taxes for Japan and the US. My employer paid all of my Japanese taxes and the extra taxes due in the US because my income was higher when I was working overseas. If the company hadn’t paid my taxes I could not have afforded to live overseas. The first year living Kobe my Japanese taxes were almost as much as my salary. When I got the tax bill in Yen and did the calculation back into dollars, I thought there was an extra zero mistakenly added to the bill. The company wired me the money for the tax payment and that was taxed too. When I complained that taxing the tax payment as income was a like a “circular reference” in a spreadsheet, the local tax office said it wasn’t “because we only tax the first transfer not every time”. Not sure of the logic but fortunately it was not my money paying the tax.

My employer paid the tax without complaint as a “cost of doing business” and I got a nice postcard in the mail from the Ashiya Tax office thanking me for paying my Japanese taxes and giving me a lucky number for the “tax lotto” drawing. I never won the lotto drawing but I saved the postcard.

Being transferred from Japan to China after five years was largely driven by the fact that Japan’s tax laws got even tougher after five years as a resident. The company wanted me to stay in Asia but they didn’t want to pay taxes that amounted to more than my base salary and part of my bonus.

China was even tougher – the company had to pay a higher % of my income and subsidies for housing, the kid’s school, etc each month but at least they gave me a few more deductions.  The tax laws of China also become more severe after five years in country which was part of the reason I never saw year six as a resident of Shanghai.
So between golf boondoggles and keeping Air Force One in the sky, maybe the President should think more about elimininating expenditures like the one below than contemplating what "fair share" means when his target group is already paying most of the tax and half of America is paying nothing. Happy April 15th.

This is just one useless expenditure on a long list of government waste