Latest posts by John Engle (see all)
- Why Might There Be No 15th Dalai Lama? Pure Politics - September 17, 2014
- The Business of Business is Business - September 15, 2014
- Time to Stop Worrying About GMOs - September 7, 2014
America is supposed to be the land of the free, yet it has one of the most vicious tax regimes in the rich world. Once blessed with comparatively low tax rates and levels of regulation, businesses and entrepreneurs flocked to the United States from the sclerotic systems of Europe (and elsewhere). Now American businesses are fleeing America’s shores and foreign-born entrepreneurs are less inclined to come at all.
What happened? Basically, America has stood still while other countries have been improving their business and market climates. Today America’s corporate tax rate of 35% is far above the OECD average. Personal income tax rates are still a bit lower in America than in Europe, but the federal government has worked hard to erode that advantage by other means.
One major government imposition on American citizens is its tax on foreign income. The United States is one of the only civilized countries to actually force its citizens to pay taxes on income gained abroad. That means Americans working in foreign countries, and thus not taking or using any American social services, still have to pay income tax to Uncle Sam. So Americans trying to work abroad are confronted with a huge disadvantage: After paying the income tax to the country in which they actually live, the American government gets a cut.
There is little possible justification for such an imposition. Evidently Americans are so indebted for the gift of citizenship that they have to pay a fee to keep it. That is directly contrary to the idea of the social contract as it is generally understood. Most countries tax their citizens (and non-citizens for that matter) for the economic activity conducted within their borders. That is where they have preeminence as the sole governmental bodies as sovereign states. Yet the United States believes it can claim that foreign income for itself, simply because the generator of the income holds an American passport.
Apparently American citizens are so free that they have the privilege to pay for Uncle Sam’s spending even if they have no inclination to live in the United States. So long as they hold that passport they will be milked for all they are worth. That attitude creates a real incentive for Americans moving abroad to not come home. It antagonizes foreign countries that see America extending its grubby begging cup all over the world without regard for sovereign borders.
America should join the rest of the world and end its backward taxation policy. Individuals working and living in America ought to pay the taxes the government levies on them. It makes no sense at all for them to pay for a country they do not live in.