US tax system

The ridiculous US tax system

There are many reasons for wanting to escape the collapsing Western world, but one of the most impactful ones is the draconian tax regime you are most likely suffering under right now.

And the United States of America, the land of the “free”, has one of the worst tax systems.

You work for the government

If you are living in any Western nation you pay a shit load of taxes compared to the rest of the world.

And if you are living in the US, it is very likely that you are paying among the highest amount of taxes in the entire world.

I’m not going to go into detail about how much exactly, because it varies from person to person, but if you are an average American, know that there are both hidden taxes (such as sales tax and excise taxes) and apparent taxes (like payroll taxes, federal income tax, and so on).

If you add all of those up, the average person pays between 50 and 70% of his or her income in taxes.

That, to me, is insane.

The largest expense in your life is paying your government – by far.

Nothing even comes close, not buying a house, a car, sending your children to college, nothing.

Taxes take away more of your income than anything else does. Insanity.

Read this excellent article for a more in-depth breakdown of the numbers.

Look at this way: roughly half of the year on average (often much more), you are working for the government – regardless of your job.

You aren’t working for yourself, or even for your boss, you are working for your quasi-totalitarian, inept, wasteful, and corrupt Western government.

Imagine if you could avoid this.

Imagine if you suddenly get to keep all the money you earned … wouldn’t that be wonderful?

Sure, in Europe and Canada, taxes are very high as well, but not as much as in the US.

And it gets worse.

Taxes on foreign sourced income

If you’ve read some of my “Moving to …” articles, you’ll know that one of the seven major factors I use to determine a country’s rating is “Taxes on international income”.

There are plenty of countries (like Belize, Paraguay and Panama) with 0% taxes on this sort of location-independent international income.

That means that if you move there, become a resident or citizen, you do not have to pay taxes on your income – because, I hope, you do not derive it from that country.

If you have at least one (hopefully more) source of self-employed, location independent income, you are free to live anywhere you want in the world – but I strongly recommend you move to a country which doesn’t tax this income.

Now, does the US tax foreign sourced income?

Of course it does.

If you live in the US, as a resident, citizen or otherwise, you have to pay taxes on income that you do not derive from the US.

This includes wages (any income paid to you for services or goods), interest (money from a foreign bank account), dividends (from foreign-owned stock) and rental income from your non-US property.

Where does the US get the authority to tax things that do not concern it?

From the decades-long silent consent of the American voter.

No income that you derive from a foreign source is tax-free when it comes to the US.

Of course, there are some loopholes you can use, such as the Foreign Earned Income Exclusion, which help reduce your taxes. For example, you can exclude up to around $108,000.

The ridiculous US tax system

So far, we’ve already established two things:

  • The United States taxes its residents and citizens a lot, among the highest amount in the world
  • This taxation extends to all income its citizens derive from everywhere, including from other nations

Now, this isn’t very uncommon, and in fact most Western nations could be described as such.

Where the US takes it one step further, however, is the fact that taxes are based on citizenship, not place of residence.

If you’re unfamiliar with what this entails, I’ll lay it out more clearly:

When you are considered a citizen or a permanent resident of the US, you will pay income tax regardless of where you are living.

Oh and, the US considers you a resident if you were physically present in the US on at least 31 days during the current year, and 183 days during the current year plus the prior two years.

So if you have an American passport, but live in Thailand and earn 0 dollars in and from the US, you will still have to pay taxes on whatever income you make from wherever.

If this system sounds a bit ridiculous and greedy to you, that’s because it is.

There is one other country in the world with such a taxation system, and that’s Eritrea.

Eritrea, you say? Isn’t that a war-torn shit hole in East Africa? Why yes, that is correct.

No other country in the world imposes this tax system on its citizens.

Conclusion

US citizens and permanent residents (remember, you’re considered a resident when residing there 183 years over a 3 year period) pay a shit load of taxes, among the highest in the world.

As a regular employee, you usually cannot escape these taxes.

If 100% of your income is earned abroad, you could exclude a certain portion of it, but everything over this sum is still taxed.

And even if you go live in another country, you will still have to pay taxes on all your income, even if that income has nothing to do with the US, because its tax system is based on citizenship, not residence.

Not having to pay taxes anymore to the collapsing US will free up half of your money, effectively doubling your income.

In summation: the United States of America has the worst tax system in the world.

If you live in a Western nation, I always recommend you move away … but keep your passport and your citizenship.

For Americans with a decent income, however, I would strongly suggest you get passports from other, less taxed countries, and as soon as you have 2 of them, renounce your US citizenship.

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