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Monday, March 18, 2013

Global Labor Mobility and Taxation

"Globalization has forgotten the worker.  Scholarship on the tax consequences of globalization emphasizes the movement of capital and corporations, neglecting labor."

Ruth Mason
Tax Expenditures and Global Labor Mobility

Alas, this is all too true.  In the debate about catching rich tax cheats and going after tax-evading corporations, the worker is hardly ever mentioned and the impact on him or her isn't even considered in the fights against tax evasion and the implementation of different and creative taxation regimes.

People migrate for many reasons but one of the most common is moving to another country because there are good employment opportunities there as opposed to where they are.  It's not just a question of different unemployment rates, it's also because a skill or a degree can be worth more in another market.   Speaking English in the U.S. or the U.K. is no big deal in the home country but a lot of English speakers can earn a living in other countries teaching that language or filling a job abroad where the foreign company has decided they want someone with native English.  The first is not well-paid but the latter can be if it's combined with other skills and talents including integration into the host country language and culture.  Other examples abound like plumbers, electricians, IT workers, secretaries, engineers, musicians, technical writers, construction workers and mid-level managers.  The terms "highly-qualified migrant" and "low-skilled labor" do not even begin to do justice to the diversity of the migrants seeking economic opportunity outside of their home countries.  Even workers from developed countries can better their situation by moving abroad if they find the right match and the right job.

For globalization to work for people, and not just to the benefit of corporations and elites, it is essential that natural persons (aka "human beings") be able to seek out opportunities all over the world and not just be "captive citizens" of their homelands while capital and jet-setters flow freely from one country to another.

The biggest impediments to global labor mobility are local laws and immigration policies.  The question today is:   Given the efforts of many states to combat cross-border tax evasion, talk of exit and diaspora taxes, and the attempt to create a worldwide system of financial information exchange are we putting a mighty tool in the hand of governments to extract revenue from their diasporas and to prevent emigration?

I think that is a real possibility.  We are already seeing how Americans abroad are disadvantaged compared to the migrants from other countries because of U.S. citizenship-based taxation.  Americans who seek work abroad can be double-taxed (owe taxes in both the host country and the U.S.)  This is a fact and you have only to check the IRS website to see that, while there are methods to alleviate that burden, they do not eliminate it.  Other possible impacts are having to pay for expert advice in order to fill out tax returns and to comply with reporting requirements (all required even if no tax is due).

How many Americans, if they knew the full extent of their own country's worldwide taxation regime and its consequences, would still contemplate taking a job in Canada, South America, Asia or Europe?  How many American companies, faced with the added cost and complexity of sending their U.S. personnel overseas, will simply fill the position with a local?  High-level managers (executives) will still be able to go but lower-level skilled people like an IT worker or a finance person will be shut out from all the benefits they might have expected to enjoy when they sought employment with a home country multi-national.

From that experience we can extrapolate and imagine what would happen if other countries developed their own "tax the diaspora" schemes.  Would a French person bother to go to California to start a small company if he knew he was going to have to report his financial activity and pay taxes to the French government?  Ditto for the young person from the U.K. seeking a job in Singapore or a Chinese national offered a job in Canada.  Much of it depends entirely on the ability to pay and this is where it could be become flagrantly discriminatory.  A potential migrant who is highly-skilled (an executive) or has a particular talent (a movie star) will probably command a high salary in the host country and will be able to pay experts to navigate the home country tax system as it applies to expats.  They will be able to take full advantage of globalization and international mobility because they can pay the direct or indirect tax on it.  The young who are just starting their careers, and those with skills that command only modest salaries, probably can't.

Many countries have floated the idea of taxing their emigrants.  You could almost say that the bigger the budget deficit, the more attractive it looks.  Very politically popular.  Plus, it would have the added benefit of discouraging emigration in a way that is just devious enough not to fall foul of international law.   So why haven't more countries gone ahead and done it?

One reason is because it was almost impossible to enforce.  A country can try to say to its diaspora, "OK, ladies and gentlemen, you owe us 1% of your earnings in the host country," but how in the heck to make that stick?    A Frenchwoman in Boston has a W-2 so the US knows what she makes and can tax her but that information isn't automatically passed along to the French government.   As for the contents of her bank account, American banks  are known for their fierce resistance to sharing that information with other countries even when it concerns a national of another country.  Other countries have similar policies and privacy laws to prevent it.

This is where automatic worldwide sharing of financial information comes in.  The scope of what is being proposed goes way beyond the idle rich and corporations (though this is given as the driver behind it).  It is no less than the exchange of huge databases containing private financial information on literally millions upon millions of people.  In these databases there will be retirees, plumbers, foreign language instructors, fast-food industry workers, stay at home mothers, and many many others who don't fall into the category of "rich".  FATCA contains provisions so that only accounts over a certain amount have to be reported but that is no guarantee that the databases won't still be filled with the lower or middle-income who have retirement savings, for example.  There is also no guarantee that other proposals like the French or UK FATCA won't apply different rules and seek a much lower threshold for their citizens living abroad.

The danger is not so much the automatic information exchange itself as it is the potential for governments to use that information in ways that have only a tenuous connection to the goal of unearthing those "rich tax cheats not paying their fair share," and everything to do with their own domestic agendas:  extracting tax revenue from all their diaspora members living abroad to balance their homeland budgets and, of course, slowing down emigration of the young, the skilled and semi-skilled, and the adventurous by making it onerous and financially disadvantageous to leave the home country.

The threat to global mobility as I see it is in the combination of a worldwide information exchange of financial information coupled with countries passing their own laws inspired by the American model of citizenship-based taxation.  With the first they would actually have means to enforce the second.

I personally do not believe for one moment that these countries would restrict the scope of these new tax laws to the entrepreneurs, idle rich and the investor class.  Why?  Do the math.  In 2010 there were around 40 million immigrants in the U.S.  Most are probably not rich or even upper-income.  If their home countries could get as little as 100 USD out of them, that would be a chunk of change, wouldn't it?  Same holds true for all other governments - even small amounts would make a difference where the diasporas number in the hundreds of thousands or millions of members.  And where these people do not have much political power in the home country and only modest salaries in the host country, they have few defenses against this.  As far as I've been able to determine there is nothing in international law that would prevent countries from doing this to their emigrants once their governments have the information in hand.  And you just have to ask to what extent global mobility would be slowed down by the implementation of enforceable diaspora tax regimes.

Maybe it won't ever happen.   Still, I would argue that someone should be watching this closely so that this sort of thing does not evolve into yet another impediment to global mobility and another nightmare for global migrants.  What is really distressing right now is that with all these potential impacts on the working international migrant is that international labor organizations and migrants advocacy groups are not more implicated in the discussions around information-sharing initiatives and cross-border tax issues at the international level.   There is a real potential here for abuse and the danger is that the burden will fall hardest on those who are least able to bear it.

Not the rich who have access to expensive international legal counsel and who will undoubtedly move their money around to whatever country decides not to share information with the others.  But on those who dream of distant shores and on those who are already there and terribly vulnerable twice over:  as immigrants in the host country and as emigrants from predatory states.


Blaze said...

There are also those people working for or volunteering for NGOs (i.e. World Wision, UNICEF, Doctors Without Borders, Red Cross, etc.)

These folks have no access to an accountant or sometimes even computer, telephones or electricity.

Yet, US expects the Americans working for those organizations to do their due diligence and get their returns, FBARS, FATCA, etc. in accurately, completely and on time.

On another website, I saw two different people question why anyone would be working in a developing country or a war zone unless they are in the military. That tells us all we need to know about a lot of American attitudes and values.

CarnetsdeSeattle said...

It is really scary and you make it scarier.

Could you please become a député so that I can vote for you?

Anonymous said...

I spent my whole life working in various developing countries and war zones - places most homelanders wouldn't be able to find on a map.

I renounced US citizenship primarily, among other reasons, due to the just plain unfairness of citizenship-based taxation.

I now have a passport from a banana republic, which requires me to apply for visas for traveling pretty much any place in the developed world. But at least I managed to get rid of the curse of being born in the USA.

Victoria FERAUGE said...

@Blaze, And then there are the missionaries and the retired military (people not on active duty who have decided to stay abroad once they got out) and a whole host of other folks.

@Loic, Oh, so nice to see you here. Thanks for the comment. Loved your post about the comicon in Seattle

@anonymous, I'm really curious - how much of a hassle is it really to have to get those visas? Does it make it a lot harder to travel or is it just an inconvenience?

bubblebustin said...

The only thing that America's citizenship based taxation has had going for it is that hardly anyone knows about it. As devastating as FATCA would be for many, it would expose America's dirty little secret to some who will recognize it for the impediment to freedom it really is, but what will be the mechanism for change? US renunciations, a form of protest now in record numbers, show that citizens living outside the US know the state of affairs, but what about those living within the US, the homelanders? Their opinion is critical to the outcome, and to me they seem very divided. There are those I call the blind patriots who don't have a problem with the status quo, in fact are perversely proud of the exceptional nature of it, and there are those who might disagree in principle, but because they aren't directly effected by it aren't motivated to change it. I suspect most won't see that eliminating citizenship based taxation is an investment in America's future. I fear that there may be an acceptance of it and a willingness to live within the confines of it as there will be no other easy option available to them. They will accept the message that world is your oyster, just don't wander too far or too long and certainly don't mingle with the natives! Let's face it, we may very well be the last generation who were blind to the shackles around our ankles. Interesting, like prisons, the US only shackles it's inhabitants when they leave!

Anonymous said...


Getting visas is a major pain in the butt however it sure beats dealing with all the citizenship-based taxation BS. At least making mistakes on visa applications doesn't come with high penalties and fines.


"like prisons, the US only shackles it's inhabitants when they leave!" Very well said, it sums up the reasons why I renounced.

Victoria FERAUGE said...

@bubblebustin, There is a link at the top of the post to Ruth Mason's article which is a really good read. She talks about Labor Export Neutrality (there is a post there I think) and I think this is a goal worth fighting for. Basically it says that someone who decides to work in another country should not be penalized in any way by the home or host country tax systems. Sounds right to me.

Victoria FERAUGE said...

@anonymous, Over the years I've had to get visas to go to China and India. I was expecting it to be a hassle and it turned out to be much easier than I thought. I concur that this minor administrative hassle might be a much better way to go than compliance with CBT.

bubblebustin said...

Do you have the Coles notes on it? Just kidding. I'll read it, thank you.

Tim said...


If you want an interesting research project start look at all of the members of the European Parliament see what ones might have FATCA ties to the US. There are 754 so there has to be someone in there. I found quite a few not born in Europe but none from the US yet. (Technically you can run and be elected to EU Parliament simply on a long term EU visa like what you have without having EU member state citizenship). A few have done this successfully.

Sick n' tired of it all said...

Well, I filed my 56 pages of back-crap and it's been 3 months and non news Which means nothing, I know. Still, I'm wondering how those lucky ones who were able to renounce did so without heaps of back-filing,even complmentary, since I'd understood you have to go back 5 years and make sure ALL of it, in whatever circumstances you're in, was onde. Can someone help me on this ? Thanks !

Victoria FERAUGE said...

@Tim, That would make a great research subject and a great post. I will look into it. Or maybe Curtis Poe might be interested.

@Sick and tired, Same happened with me when I backfiled all those FBAR's. Silence. I suppose no news is good news but it's still troubling.

My personal opinion is that a lot of people are either doing the bare minimum before renouncing or just renouncing without doing any backfiling at all. If they don't have any assets in the US and don't intend to travel there any time soon, then how would any attempt to get them to file post-renunciation work?