Tax Day is Here

Today is April 18, 2016. And unless you’ve been entirely off the grid you know that U.S. federal income tax returns are due today. So a couple of related stories.

The first is that the city of Shanghai, which is one of four Chinese cities that enjoys provincial status, is about to pass a law that would allow parents to sue their adult children for not taking proper care of them – financially or emotionally. As with most Chinese regulations the requirements and the penalties are vague, but that’s by design. Unlike the Americans, the Chinese have figured out that if you make regulations too clear the lawyers will find it easier to discover the loopholes.

There is, in fact, already a national law in place that makes adult children responsible for taking care of their parents, and the practice is deeply embedded in Chinese culture anyway. I’ve never heard of a single Chinese ever even wanting to get out of the obligation.

In a rapidly aging country like China this is important stuff. And, of course, the intent is to both look after the welfare of the elderly – a noble thought, now that I’m about to turn 62 – and put the financial burden for their care with their own family.

The U.S., of course, puts the burden on the government but that obligation is actually funded by the people who work. And, less directly, by the people who pay taxes, whether they have living parents who are a burden to anyone or not.

Which, in turn, brings up the complexities and distortions inherent in the U.S. tax system. As most of you know, I haven’t lived or owned property in the U.S. for almost a decade. No house; no car; no condo, not even a time-share. Yet I still pay both federal and state income taxes every year.

That’s because the U.S. is the only country in the world that taxes the worldwide income of its citizens. In effect, the U.S. income tax code is a tax on your citizenry whereas every other country taxes your residency on the simple assumption that it is your residency that determines whose goods and services you are receiving the benefit of.

Unlike all other countries, the U.S. taxes your citizenry, not your residency.
Unlike all other countries, the U.S. taxes your citizenry, not your residency.

The citizenry tax dates back to the implementation of income taxes in the U.S. at the beginning of the Civil War. The idea, one presumes, was to prevent the wealthy from skipping out on their obligation to help fund the war.

The U.S. tax code is also one of the few codes in the world designed specifically to promote a very specific social agenda. Marriage, children, home ownership, religion, etc. are just a few of the code’s not-so-hidden agenda items.

Now bring in all of the lawyers, accountants, and other special interests and it is no surprise that the U.S. tax code is mind-numbingly complex. In 2014 my federal tax return alone ran close to 90 pages and I have no trusts or anything that might turn up in the Panama files. My effective federal tax rate, in fact, was just under 40%. The Obama’s, in the same year, had an effective tax rate below 20% and guys like Warren and Bill probably had effective tax rates even lower than that. Good for them. The law allows it. I’m only jealous that I’m not rich enough to hire the guys that know how to do that.

I also file income taxes here in China, of course, but only on the income I earn here. And my tax return is quite simple – one page. That’s right; just one page.

Unlike the U.S., China makes no attempt to use the tax code for social engineering. Everyone is the same.
Unlike the U.S., China makes no attempt to use the tax code for social engineering. Everyone is the same.

That’s because China makes no attempt at social engineering with its tax code. Everyone files their own return. There is no joint return for married couples. Everything is taxable. And there are no deductions. None. Nada. Zero.

The only thing that varies is the rate. Unlike the flat tax proposed in the U.S. in the past, wherein everyone would pay the same tax rate, the rate in China does scale with income and gets as high as 45%. The lowest wage earners pay nothing.

It’s all a bit insane, to say the least. Not only is the U.S. tax system indefensibly unfair, it is perhaps the most inefficient and wasteful system on the planet. Think of the productivity, much less the wealth, that is sucked out of the U.S. economy each year by the maintenance of the U.S. tax code and the filing of federal and state tax returns.

But I will end on a lighter note. When the Panama files were first released one of the first questions to pop into everyone’s mind was why there weren’t more Americans on the lists. And the best answer I’ve heard is, I think, probably the most accurate. Wealthy Americans don’t need to hide their money in Panama. They can hide it right out in the open in the U.S.

And, in case you’re wondering, I do believe that my American citizenship has value beyond what I would receive if I resided there at the moment. My American passport is, without a doubt, my most precious asset and they will have to pry it out of my cold, dead hands.

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Copyright © 2016 Gary Moreau

Gary Moreau Beijing, China
Gary Moreau
Beijing, China

Note: The views expressed in this post are strictly those of the writer acting in a personal capacity.

You may contact the author at glassmakerinchina@gmail.com