Learn how to calculate how little you would pay under the FairTax

One of the most misunderstood aspects of the FairTax is how the Family Consumption Allowance (the “Prebate”) works. It seems that almost every time I speak, whether in person, or on the radio, someone asks about either the Prebate or what would be their FairTax rate. Since those two issues are effectively joined at the hip, we made this video, to show just how simple it is for you to calculate both your Family Consumption Allowance and your REAL FairTax amount, along with the tax rate that this amount would represent.

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Obama’s Enduring Soak-the-Rich Legacy (final numbers)

Obama leaves a "Soak the Rich" legacy that hurts all taxpayers.Obama leaves a "Soak the Rich" legacy that hurts all taxpayers.
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Obama leaves a "Soak the Rich" legacy that hurts all taxpayers.

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The IRS has released the final citizenship renunciation numbers for the Obama Administration and they aren’t pretty.

In short, Obama’s Soak-the-Rich agenda and his other attacks on success, not the least of which was the Foreign Account Transaction Compliance Act (FATCA – a part of the HIRE Act of 2010 (H.R. 2847)), were the driving forces in an epic 2,343% increase, in citizenship renunciations, among our most prolific taxpayers, during his administration. The problem with this is that the renouncers we’re talking about are among the top 1% of income earners, who now pay about 40% of all personal U.S. income tax.

In Obama’s last quarter in office (Q4 of 2016), 2,364 wealthy U.S. taxpayers formally renounced their citizenship and in doing so, left behind all U.S. income tax liability. That’s a massive 65% more than the previous record quarterly high for renunciations (1,426, in the third quarter of 2015). This brings the total number of renunciations among the wealthy, just last year, to 5409! To put this into perspective, that’s a whopping 2,343% increase, over the mere 231 renunciations, among this same income group, that occurred during Bush’s final year in office.

Over Obama’s entire eight years in office, there was an epic 21,163 formal renunciations among wealthy taxpayers! That’s shameful! But that’s not the worst of it. As you can see from the chart above, that count was increasing sharply, when Obama left office. Over a quarter of that total occurred just last year.

These aren’t just estimates. They’re hard facts. For every one of those numbers, there is a name of a real, living breathing, wealthy renouncer that is published in the Federal Register. Those names are published because of the Reed Amendment that was attached to the the 1996 Health Insurance Portability and Accountability Act (HIPAA). Under Title V, Subtitle B, Section 512(a) of that law, the name of every wealthy taxpayer, who renounces his U.S. citizenship, must be published quarterly, in the Federal Register, in a report titled, Quarterly Publication of Individuals, Who Have Chosen to Expatriate.

Links to all of the quarterly lists can be found on our Taxpat Lists Page.

The purpose of creating those lists in HIPAA was that certain career politicians mistakenly thought that if the wealthy people who were considering renunciation knew that their names would be published, the thought of such publication would shame them into staying. In fact, those in Congress who supported that amendment often referred to the lists as, the “name and shame lists”. But as with most other proposals by members of Congress, who have never had to actually work, to earn a living, they completely misinterpreted the motivations of the successful taxpayers, who were leaving.

The tax and spenders tried to paint renouncing U.S. citizenship as being somehow “unpatriotic”. But where congressional tax and spenders miscalculated was in thinking that those people were giving any thought, whatsoever, to either personal shame or patriotism. In fact, when given a choice between patriotism to a nation that has punished you for your success and protecting what you have earned the hard way, most successful people will eventually come around to choosing economic survival and shame is not even in their vocabulary. Moreover, as it turns out, many wealthy expats now consider having their name on what they refer to as, the “Taxpat Lists”, to be a badge of honor. It says that they were smart enough to get out before the rush.

Of course, as the above chart shows, that rush has been building steadily, since Obama assumed office and began his attacks on success. In fact, the above chart is not that far from what we publicly projected it would look like, back in 2013 (our projection, at that time, was that 6,800 renunciations would occur in 2016). In an un-published projection, covering out to 2024, using the same projection formula, we predicted that if a Democrat followed Obama, renunciations of our most prolific taxpayers could reach as high as 50,000, in 2024. At that rate, our tax base would be so eroded that we could never recover and successful people would be scrambling over each other, trying to get out.

The United States really did dodge the bullet, when Donald Trump was elected. He is already implementing policies that will not only keep most of those successful people here, but that are encouraging wealth from other countries to relocate here, thus reversing the dangerous trend, fueled by Obama’s “Soak the Rich” mentality.

So just what is the definition of wealthy, used in these “lists”? Well, the term that is applied in the actual law is, “covered expatriate”. It was defined in the original bill (HIPAA) and has been revised, over the years. Since 2008, the net worth specification has remained at two million dollars and the income specification has been tied to the cost of living. Each year, you can find that definition on the IRS website page titled, “Expatriation Tax“. Here is what is says, today. (Note: The numbers in orange come from different sources, explained below.)

If you expatriated on or after June 17, 2008, the new IRC 877A expatriation rules apply to you if any of the following statements apply.

  • Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($151,000 for 2012, $155,000 for 2013, $157,000 for 2014, and $160,000 for 2015) ($161,000 for 2016 and $162,000 for 2017).
  • Your net worth is $2 million or more on the date of your expatriation or termination of residency.
  • You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.

If any of these rules apply, you are a “covered expatriate.”

Explanation for the orange text, above:
The specific tax liability requirement of $161,000 for 2016, can be found in paragraph 3.30 (page 19) of the IRS publication “Rev. Proc. 2015-53”, concerning Inflation Adjusted Items for 2016. Beginning in the first quarter of 2017, the tax liability requirement for a covered expatriate will be $162,000 and it can be found in paragraph 3.32 (page 21) of the IRS publication “Rev. Proc. 2016-55” concerning Inflation Adjusted Items for 2017.

So to understand just how serious this is, let’s work these numbers backwards. Since the 2014 is the last tax year for which we have all of the relevant numbers, we’ll use those numbers. So consider these facts about 2014.

  1. To be a “covered expatriate” in 2014, you had to have an income tax liability of $157,000 for each of the 5 prior tax years (see above).
  2. The top earning 1% of taxpayers paid income tax at an average rate of 27.16%, in 2014 (see extract of IRS Collections Data).
  3. To be in the top 1% of taxpayers in 2014, one had to earn at least $465,626 (see extract of IRS Collections Data).
  4. In 2014, the top earning 1% of taxpayers paid 39.48% of all personal income tax collected that year (see extract of IRS Collections Data).

In order for the average person in the top 1% of taxpayers to have owed $157,000 in personal income tax, he would have had to have earned over $578,000 ($157,000 x 27.16% = $578,055.97) that year. Since the income threshold to be in the top 1% of taxpayers, in 2014 was $465,626, that income of $578,056 would put all of these taxpayers safely in the top 1% of U.S. personal income taxpayers. But that was the base line minimum, to be considered a covered expatriate, in 2014. In all likelihood, most covered expatriates today, earn significantly more than $700,000 a year. That’s not poor!

But let’s consider one more point. In response to a request from the Senate Finance Committee, the Joint Committee on Taxation reports that more than half of Americans pay no income tax, whatsoever. The following is taken from the Joint Committee on Taxation letter to the Senate Finance Committee.

“In summary, for tax year 2009, approximately 22 percent of all tax units, including filers and non filers, will have zero income tax liability, approximately 30 percent will receive a refundable credit, and approximately 49 percent will have a positive income tax liability.”

What this means is that if someone is in the top 1% of “taxpayers”, then he/she is in the top economic 1/2% of all Americans. So when we talk about the U.S. expats, whose names appear on the Taxpat Lists, we aren’t talking about people who are just somewhat rich. We’re talking about taxpayers who make up the very elite top 1/2% of all Americans. These people pay a disproportionately high amount of U.S. income tax, based on their income. According to the latest data available from the IRS, the top 1% of income earners pays roughly double their share of taxes, based upon their share of income earned by all Americans.

So when Obama was driving these people out of the USA, with his “Soak the Rich” agenda, he was driving out the top half of that elite top 1% of taxpayers.

Finally, consider number 4, above. The top 1% of taxpayers pay almost 40% of all personal income tax that is actually collected by the IRS. That’s after all deductions, adjustments, exemptions, credits, and even cheating. It’s actual collections. This small group of taxpayers are the people who make up more than a third of our tax base and they are the people that Barack Obama was driving away. What’s wrong with this picture?

Obama’s enduring legacy, in this regard, is that once an American — wealthy or otherwise — renounces his U.S. citizenship, he can seldom be persuaded to return. But just maybe, President Trump will be able to undo a part of even that terrible damage.

There is one thing that would go a long way toward reversing that damage. That’s the FairTax (H.R.25/S.18). It would completely replace the entire income tax system with a progressive national retail sales tax. The USA would then be the only top-tier nation, without an income tax. That would turn the USA into a huge magnet for wealth. That, along with Trump’s actions could completely turn around that wealth flight.

While President Trump is Making America Great Again (#MAGA), the FairTax would Make Taxation Fair Again (#MTFA).

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