Monday 11 May 2009

Barack Obama's Tax Code Sound Byte

Robert Samuelson’s Op Ed in today’s Washington Post, Tax Dodge Myths, is a welcome reminder of the insanity of the US Tax Code.

There is no justification that I can see for the US Government to tax the foreign earnings of either its multinational corporations or its citizens living abroad, providing they pay tax in their respective country of residence.

Most countries have a system of double taxation treaties: If I am registered in France, for instance, and I have a subsidiary in Cyprus, then I am taxed once on my income in Cyprus, and can repatriate the balance to France without income tax. There would be little point in having income taxed once in Cyprus taxed a second time in France. What’s the point, as long as income gained in France is declared and taxed at normal rates?

The same absurdity applies to personal income tax. As a US citizen, I am legally obliged every year to file a tax return with the IRS, even if 100% of my income is derived from outside the United States, and I am legally resident outside the United States.

Sure, I have a US tax exemption for the first $ 70,000 of income earned per year. But what right should the IRS have to tax me at US rates on income earned above $ 70,000 per year, especially since this income has already been taxed in Greece, my country of residence?

US citizens – corporate or individual – should have the right to be taxed a single time on their earnings from outside the United States. To double tax is inherently unfair, and only reinforces the negative incentive to avoid taxation by no declaring income at all.

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