Supreme Court hears a case that experts say could wreak havoc on the tax code
npr.org
npr.org
Good. The US has the most draconian and ridiculous laws for expats in the world. The 10 million Americans living abroad could use some relief. The minute you leave the country you're treated as a "rich tax dodger" (as this clearly naive author suggests) when this is not the case for 99.999% of expats.
In the past 15 years its become impossible to open a bank account abroad, invest money abroad, or even conduct business activity from abroad due to these laws. The US is the only country in the world that taxes its citizens and green card holders for life after they leave (there's one other tiny country in Africa that tries but doesn't have the power). Its time to finally get with the rest of the world on this.
Yes on citizens, but not true about green card holders.
Residency can be abandoned relatively easily, at which point you're not under the obligation anymore... mostly. If you stay out of the country too long, the US may decide you've abandoned your residency whether you intended to or not. An absence of 2+ years is effectively abandonment in almost all cases.
Citizens can renounce their citizenship through a formal process that costs thousands of dollars. As part of this, all their assets will be taxed at current market value so if you bought a house for $300k and it's now valued at $800k even though you still own it, you'll be taxed on a capital gain of $500k.
I said "mostly" because if you've been an LPR for 8+ years, you are subjected to the same mark-to-market tax that people renouncing citizenship have to pay.
That's why at a certain point you may as well naturalize because you have all the negatives of citizenship and none of the positives.
One question I had after reading this, what’s the significance of the 8+ years when it comes to LPR? Like, afaik the only difference I am aware of is that being roughly 4-5 years into LPR you are usually able to apply for citizenship (exceptions apply, e.g., you can apply a bit sooner if you did it through a marriage visa or did the expedited process through the US military service).
Fully agreed with you on everything you said about citizenship and how sticky its tax obligations are.
> exceptions apply
There are multiple conditions required for naturalization. What you're referring to is the continuous residency portion. Continuous residency is defined as the period prior to application an unbroken US residence. What constitutes a break? An absence from the US of longer than 6 months with very few exceptions (eg working for the US government or military is I believe about the only exception).
Generally yes, 5 years of continuous residency is required. Marriage to a US citizen is the most common exception: 3 years of continuous residency (and being married to the US citizen for 3+ years). There is another though: 1 year of service in the US armed services also will qualify the continuous residency requirement for citizenship by naturalization.
If you do have a gap in continuous resiency, a new rule kicks in. IIRC instead of 5 years of continuous residency, you qualify 4 years and 1 day after your return to the US (assuming no 6+ month gap in that time).
[1]: https://www.expatriationattorneys.com/green-card-u-s-exit-ta...
I have a client who isn’t even an expat. She’s a digital nomad running a company from her computer. Her business is regulated and she holds all the necessary licenses. Her business is US based, with US based employees.
But God help her when she’s traveling, which used to be most of the time. She’s had US banks close her business and personal accounts simply for continued cross-border use. Her business doesn’t really permit her to use foreign banks. But she has had a hell of a time finding a bank that’s OK with her traveling outside the US for months at a time.
https://www.bloomberg.com/opinion/articles/2023-12-04/whose-...
1. The "investor" was actively involved in the company for some time, so there is an argument that the profits of the company can pass through as personal income, like a LLC or S-corp. The short-term loans (60 days) at high interest rates (12%) that just sat in a bank is definitely sus.
2. The trump tax cuts had a provision to bring these profits home. Previously, if you received profits off-shore, and kept them off-shore, you would not be taxed until you reshored them. The main target here in was the bigger corps, who, according to NPR, have complied
This over being taxed on $15K, tells me there are some bigger players in this case vs some farmer who wanted to take this case to the supreme court over "principle"
once you get into the complexities that apply to investors and rich people, income is a slippery concept. you have a hot dog stand and pay yourself 10k, is it salary, dividend, capital gain, return of capital? maybe you didn't even make money after depreciation, inflation.
"Income, like sausages... are esteemed most by those who know least about what goes into them." - paraphrasing Alvin Toffler
That's why most economists prefer VAT, simple tax based on the value of work when the work is monetized at any stage of production. (you still need to deal with progressivity, income from capital gains / interest / dividends / wealth creation, the cash flows that cause those to arise are subject to VAT if not the animal spirits but that's another matter)
If you focus narrowly on cash transfers, then you get an unfair tax system, where some forms of wealth accumulation are taxed much more heavily than others.
Progressive tax systems are the headline policy of standard social democrat[0] dogma. But if you happen to own something that increases in value, it isn't usually "visible" to a progressive tax system, so it subverts the intent, and it's just working stiffs who get taxed the most, and not people who are accumulating wealth the fastest.
[0] not to be confused with democratic socialism
Related but different point, using homes as massive wealth stores probably isn't ideal for society. It invites all sorts of nasty NIMBYism.
The same way that a car is not a wealth store, but is, instead, a wealth pit.
Different tax or zoning rules, 99-year-land-leases, etc, can very well turn housing as a whole from a speculative investment into what it ought to be - a depreciating, but necessary-for-life asset.
Land isn't widgets. Unlike industrialists, real-estate 'Investors'[1] aren't making any more of it. The world would go on just fine, better even, if we got rid of all of them.
[1] Not to be confused with developers, who actually build useful things.
According to [1], "the national census identified that owner-occupied households were 60.6% of all household units".
While I'd like that percentage to be higher and would also like to prohibit corporations from owning thousands of housing units, let's also recognize that it is nowhere near a "small cabal" who own all housing, when well over 50% is owned by those who live in them.
> The same way that a car is not a wealth store, but is, instead, a wealth pit.
That's not even remotely comparable. A car depreciates because it wears out somewhat quickly. A house can last many lifetimes so it's going to retain value for a very long time.
Which, over time, will exceed the cost of the house.
If you're replacing the engine and transmission and body of your car every 300,000 miles you can also keep it running for a lifetime.
You would have to go to extraordinary efforts to keep a century old car running since everything will be a custom built part at that point. Some people do it but it is a labor of love (for the car itself or for preserving history). People who do it are fully aware you could buy a new car for one-tenth (at worst) of the cost of a restoration.
Houses are the exact opposite. Maintaining houses for centuries is normal, you don't run out of parts and the cost to maintain is a tiny fraction of buying a new one.
Generally, though, if you're using the value of something, it should be realized (and thus taxable) at that point.
I myself have some first-hand experience in this area. A now-deceased relative owned some (quite modestly valued) property in another state. It came within a hairs-breadth of being sold for $12.00 in back taxes. Yep, twelve bucks. It seems she'd neglected to pay the $4.00/year in taxes while she was busy dying of cancer.
Fortunately one of the neighbors took the time to search me out and let me know about this, so I was able to save it. It was a near thing, though.
Even the history of property tax is more of an income tax because property was income generating- think back hundreds of years where taxes were things like “1/10the the produce of your fields”.
Having taxes being directly against income means that when your income falters or is stopped, the expense reduces or is eliminated also.
For example, an on-paper billionaire whose wealth is stock ... gets a loan, secured against that stock (which they never sell). When the loan is due repayment, they roll it over with more debt and go again. Works fine when the loan is a small enough proportion of their wealth that rolling over is no issue. Should they simply never pay income tax?
They've received money, but they haven't sold.
For your unicorn growth billionaire, like someone else suggested, you could require realization at the time you value the asset to put it up for collateral.
I don't think it's practical to tax unrealized gains nor do I think that taking stock options should incur a tax until they are sold or borrowed against.
I don't see how this is different.
From the lender's perspective, the property is just like any other security: it reduces the risk of the lender so they can reduce interest rates and compete. The same with ownership of a company.
From each lendee's perspective, their loan comes at a cost: if the thing they are using as a security falls through, they could go bankrupt paying it back, and lose their home as part of that process.
From the government's perspective: they've written the rules this way so that loans are not taxed, presumably for a good reason. It would be good to know that reason before we start changing the rules.
When you buy a house with a mortgage, you are valuing the property as X, and the lender is also valuing the property as X. That's your cost, and no gain yet. If the value increases in a few years, it's unrealized gain.
Now, if you want to use the increased value to get a HELOC, that would be considered 'realizing the gains'. If eventually you pay off the mortgage and either sell the property or use it as a collateral to buy another property, that is also 'realizing the gains'.
My answer is to give them tax credits, transferrable tax credits, they could sell those credits and then pay the tax again, apply the credits to the tax cost of the underlying asset at the time of liquidation, or even transfer them with the asset to a third party as part of a sale. They could also even apply those credits as a rebate in the event they sell the asset for less than the original taxed amount.
A first mortgage probably not, but we tax reverse mortgages, why not tax other vehicles?
Is this because you'd like to have a mortgage and not pay tax on a debt, or is there a financial principle behind this?
You buy a house for $400K and take out a loan of $300K using your $400K home as collateral. There is no gain here. Your net worth has not increased. So there should be no income tax applied.
Later, you want to refinance. Your home is now worth $600K, and you'd like to pay off your existing mortgage and take a new loan out for $500K. This should be considered income! Your net worth has suddenly gained +$200K, and you have realized the gain and are directly benefiting from this through your loan. In principle, you should pay either capital gains or income tax (or something!) on this income. Otherwise, you've found a way to gain income tax-free.
You should pay tax on that gain, and the asset's cost basis should be adjusted to $600K at that point, in case you later sell.
Correct. You have a $400K asset and a $300K liability giving you $100K in equity.
>> Later, you want to refinance. Your home is now worth $600K, and
Nope, no "and". Before you even consider refinancing, you now have an unrealized gain. You have a $600K asset and a $300K liability giving you $300K in equity for an unrealized capital gain of $200K. Whether you take out a new loan or not, your net worth has increased $200K.
>> and you'd like to pay off your existing mortgage and take a new loan out for $500K. This should be considered income! Your net worth has suddenly gained +$200K
No, your net worth increased when the value of the house went up, not when you took out the loan. The loan is not income.
>> and you have realized the gain
No, the gain is still unrealized. You have a $600K asset (the house), a $200K asset (cash out from the refi) and a $500K liability (the new loan) giving you equity of $300K. You have not realized the capital gain. You have not made any income.
What you are trying to do is to use a refi as a trigger for taxing unrealized capital gains.
Nitpick: it was already this, but in the house equity.
You can defer taxes on investments for years until you liquidate the investment. Buy stock in a company or fund that does not pay dividends. You do not owe taxes until you sell the stock.
The US government's interests are constrained by the US Constitution, which limits the type of taxes the government can impose.
Sixteenth Amendment: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
Words have meanings, and a loan is not "income".
(the collateral in this case is all of the borrower's future income, given that student loans cannot be discharged in bankruptcy).
What if the student loans are turned into beer?
Should they then be considered "income"?
If you think this sounds facetious, you've never been on a college campus the day the student loan checks hit the banks.
There's a hole, here. and it is being exploited.
Also, this claim is factually untrue. We tax property based on unrealized gains all the time. There's absolutely no reason why we couldn't do this with other assets.
[1]: https://smartasset.com/investing/buy-borrow-die-how-the-rich...
A healthy economy is one that there's a lot of money flowing from hand to hand. It's effectively how _value gets created_. The more people are spending, and the more money is being distributed, the better and more healthy the economy becomes.
An unhealthy economy is one that there's wealth being gathered and concentrated. One where spending, and receiving money is penalized. You can imagine taxes a form of penalization on money.
Furthermore, one of the most important use cases of the government under capitalism is protection of property. If you believe that's one of the most important jobs they're doing, then people with the most property (e.g. wealth), should be paying for that protection.
So, no I fundamentally disagree with you, and it seems like Matt does too if you read that piece. Wealth should be the form of taxation. This also means unrealized gains in stocks. It also means housing.
If we actually taxed wealth at the federal level, and got rid of income taxes, a lot of economic problems we're facing in the US would simply go away. Housing would literally not be able to get as expensive as it is right now because there would be an ongoing cost to maintain that price, driving the incentives to actively build more housing to reduce property values.
If you also did this, you'd really help in leveling the playing field. Having a rich family would still put you ahead of others, but not by the egregious levels it does today.
1. Destruction of the administrative state. This is why we're seeing so many cases (and rulings) that limit the power of agencies and the rights of people. This is the deregulation component of neoliberalism. Make no mistake, the only reason for this is to transfer wealth to the already insanely rich; and
2. Cutting taxes and "entitlements". Again, this is just neoliberalism: to transfer wealth to the already insanely rich. But it also creates a debt-laden (and thus compliant) work force. After all, if you're living paycheck-to-paycheck, you're showing up to work and you're certainly not risking that job by unionizing.
Once you realize this, you can see through the politics for what it is. For example, the Republican-led House recently proposed funding the Israel military and now, suddenly caring that we're spending too much, wants to fund it by cutting funding to the IRS [1].
This is ridiculous for two reasons.
First, every $1 spent on the IRS produces >$1 of tax revenue [2].
Second, of the $33 trillion in debt the US government has accumulated in over 2 centuries, nearly a quarter of that came from the 4 years of the Trump presidency [3], mostly from tax cuts to the ultra-wealthy.
Again, all of this is simply wealthy transfer to the ultra-wealthy.
[1]: https://www.reuters.com/world/us/us-house-republicans-unveil...
[2]: https://www.usatoday.com/story/money/2023/11/09/irs-uses-fun...
[3]: https://wisconsinwatch.org/2023/07/did-the-us-debt-increase-...
What do you expect us to do? Sit and equivocate while the Republic is reduced to what will be effectively a slave state?
I spend a few years in the US before returning to Europe. The first thing I noticed on my return, that I was viscerally aware of, right in my stomach, was that nobody was afraid.
We are not asking for communism, just a clear eyed judgement on what has been going on since the end of the 70s.
So you're going to claim that you know people's true motives better than they themselves do, like you're some kind of political Freud? This is really stupid. I don't know why we should pretend that it's impossible for two people to reach two different sets of conclusions in good faith.
You're claiming criticism of th eRepublican agenda is attributing evil motives to everyone involved. This is an obvious straw man. But evil intent and evil outcomes aren't really that different.
Take housing policy. Lots of people vote and campaign to restrict building more housing. This has the net effect of making housing more expensive and creating homeless people. These policies quite literally kill people. It's a policy you could describe as "evil".
Now, the people involved do this for a variety of reasons. Some have an interest in increasing their home's value without necessarily considering the consquences. Others want to "maintain the character" of their neighbourhood. Sometimes that's cynical but sometimes it isn't. Others vote out of fear of various things: crime is a big one, racism is another.
So if you criticize housing policy because it kills people you could attempt to say that such criticism is ascribing "evil intent" to everyone involved but that's not the case. If anything, it's narrow self-interest and fear of change.
You need to go deeper. What motivates people to, say, fear crime from increasing residential density? Or why are people afraid of losing the "character" of their towns or cities? Why don't people realize the link between housing cost and homelessness? Why don't they care about that?
It's because a lot of money is spent on making voters care about such things. Some of that money comes from property developers and realtors who benefit from this. Other times, politicians stoke fear to get into office and increase their own power. Some involved clearly understand the consequences and don't care. Others truly believe wrong things. The outcome is the same: people die from lack of shelter.
So when people talk about the "Republican Project", it's based on decades of evidence where they've come out and said it. The current hysteria around abortion, for example, was completely manufactured by people who were fighting desegragation. In the early 1970s, the Southern Baptist Conference published a letter saying they didn't really care about abortion.
yet now it's a polarizing issue. Why? Because forces seeking power for other reasons have made a bunch of people care about it. Is everyone involved aware of this? Probably not. But again, the outcome is the same. People die as a result of abortion bans.
So I don't ascribe intentional evil to your actions, if this is something you happen to believe. More likely you're simply rationalizing emotions and/or are easily manipulated by arguments of religion or emotion.
This entire thing is well-documented. Here's a good starting point: google "Lee Atwater 1981 interview" for example of how abstract concepts are used as a veneer for racism.
Aside from interviewing the judges potentially involved (which happens almost never?) what could they have done?
Also, every article has a bias to it. If the author on NPR led with how the tax was potentially illegal and frame it that the couple is being unjustly taxed, that would have a very different feel than this article. The NPR author could then bury quotes from the author of the law further down in the article. Order of delivery of facts and the title of the article clearly show the authors bias in a certain direction.
Here is an argument in favor of th couple. https://www.wsj.com/articles/the-supreme-court-will-finally-...
How much of the rest comes from tax-deductible corporate donations and grants from tax-free nonprofits? Almost all of it.
Since that money is not taxed, one could certainly argue that it represents a de facto tax increase on other people. That is, if the federal government needs $x/year in tax money, and Exxon doesn't pay taxes on the $y/year it gives to NPR, that tax money is going to have to be made up from someone else.
Right?
And anyway the piece isn't "slanted." In contrast to e.g. the Bloomberg piece it makes clear this is a relatively minor international tax regime issue and some of the facts are disputed. The SC isn't going to weigh in on realized vs unrealized gains writ large. I mean, a bunch of them might be assholes and idiots but they aren't fools.
It's completely true.[0] 1% of NPR's funding comes directly from the Treasury. Sure, not all of the funding comes directly from the government, but certainly enough to give NPR a financial incentive to preserve government revenue. Further, another ~10% comes indirectly through the Corporation for Public Broadcasting, which is "non-governmental" but is Treasury-funded and administered by presidential appointees. CPB allocates grants to states & local stations, who use those grants in part to pay for NPR programming via fees. The law dictates that a certain percentage of CPB grants are allocated toward NPR's nationally-produced programming.
> And anyway the piece isn't "slanted." In contrast to e.g. the Bloomberg piece it makes clear this is a relatively minor international tax regime issue and some of the facts are disputed. The SC isn't going to weigh in on realized vs unrealized gains writ large. I mean, a bunch of them might be assholes and idiots but they aren't fools.
The Supreme Court is a trier of law, not facts, so factual disputes are irrelevant. Whatever unresolved factual disputes exist will be handled at the trial court level whichever way SCOTUS decides. That's just one example of the slant in the article.
The article clearly paints the Moores with a skeptical brush, both with the "disputed facts" canard and with editorializing. Sentences such as this are clearly telling me what to think rather than telling me what happened: "The Moores are portrayed as sympathetic plaintiffs in Supreme Court briefs and a video posted on the webpage of the anti-regulatory Competitive Enterprise Institute." How are they "portrayed" as "sympathetic" in briefs and in the video? Why would we ever expect plaintiffs not to be portrayed as such in their own briefs and public relations content? What purpose does this sentence serve, other than to have the reader draw a negative inference about the Moores?
The government's side of the the argument is given no such skepticism. A tax law professor and a GOP staffer who worked on the law each label a victory for the Moores as a "tsunami" and "enriched uranium," respectively, in the world of corporate tax law. NPR presents these without qualifications. These two experts constitute the vast majority of the expert opinion in the article; an expert favoring the Moores' interpretation is given a few sentences.
It ends with an accusation of hypocrisy against the US Chamber of Commerce: "As [GOP staffer] Callas caustically observes, for the chamber [US Chamber of Commerce] and other stakeholders years later "to discover constitutional concerns that they didn't raise before" strikes me as "opportunistic."" The law in question is 186 pages long. Isn't it possible - likely, even - that defects in the law exist which jeopardize the constitutionality of the law and, upon their discovery, groups which are organized against taxes might champion this position? I'm not sure how that counts as "opportunism," except insofar as the author is presenting a tendentious, slanted argument.
[0] https://www.influencewatch.org/non-profit/national-public-ra...
The WSJ is a good place to look for tendentious coverage. NPR- it certainly has a theory of government- that it should exist, be functional, and serve the public good. The people who work there would make that argument independent of the source of funding and in fact are inspired by the degree to which their funding comes directly from their listeners. Which is what it does. Single digit grants for non-profits are come and go.
There was a time in the 1980s and 1990s when things were different, but Joan Kroc helped changed that, as much or more than that idiot Reagan.
Best wishes to you.
What does NPR's "theory of government" have to do with anything?
> Single digit grants for non-profits are come and go.
Let me point out again the CPB allocates a relatively predictable (and monotonically increasing) budget of grants to local public broadcasting stations, and a certain percentage of those grants by law must be used to license NPR programming. CPB is funded by the federal government. It's simply not true that public radio stations and NPR are worrying whether the feds will fund them next year. If ~11% of federal funding is so irrelevant to NPR, why do they need it at all?
> The people who work there would make that argument independent of the source of funding and in fact are inspired by the degree to which their funding comes directly from their listeners.
Something like 87% of NPR listeners lean toward voting Democrat. If the argument is that they're satisfying their donors, then that suggest NPR is much more biased than if it was simply doing the duty of Congress, each house of which is approximately split in half between Republicans and Democrats.
> [T]his narrative is not even wrong. I mean that with all respect.
Thank you, I guess? Do you have any issues with the facts or inferences I actually pointed out in my argument? Did I cherry-pick some facts? Are there contrary facts which undermine my argument? Is there a flaw in my logic?
I’m not saying we shouldn’t do some of the programs, I’m saying the federal government is the wrong/worst place to do it.
I say smash that tax code.
Before you go out breaking windows, you damn well be sure that you have something to replace them with.
"No point in steering now!" --Doug McKenzie realizing his brakes are out
https://www.usaspending.gov/explorer/budget_function
To the larger point, the tax code needs to be simplified but your real problem is with Congress – we haven’t had a balanced budget since the Clinton administration and that’s because of what they’ve authorized spending on and, in the case of Republicans, defunding the IRS so there’s a substantial deficit between the actual taxes collected and what’s due (especially at the top end where you need experts to show that some rich person is hiding income). Blowing up the tax code won’t solve any of those problems.
Well - until you do that you don't know if there's a substantial deficit between what's collected and what's due.
The easiest way to think about this: cases dropped after Republicans cut funding for investigations in 2011. There’s no reason to think that everyone became more honest at the same time, so we’re under collecting taxes by at least the gap between now and then – and well under the optimal rate where enforcement is likely enough to deter most people.
https://www.propublica.org/article/after-budget-cuts-the-irs...
Both have a separate line item and can't really be compared with the rest of our tax dollars.
What's more important is what the discretionary budget is being spent on, and the largest portion of that is the US DOD.
There's no good reason to have a balanced federal budget, even as a long-term goal.