ON September 30th, Dinesh Sharma wrote a wonderful, in-depth article, "The American Dream, Interrupted'. Whether it be a dream interrupted or the end of the American Dream, as described by Edward Luce in the FT, earlier this year (Luce's book about India, a current best seller in India, is a very worthwhile read!!), the fact remains that Americans living outside the U.S. are victims of US tax law and policy which, while laudable in intent, fail to meet the Rotary Four Way Test:

US laws and policy are NOT fair to all
US laws and policy are NOT beneficial
US laws and policy, as told to the public by elected officials and the Commissioner of the IRS are NOT the truth. Truth be told, I believe that those telling the lies know that they are lies......and that, as I see it, is the truth!!
US laws and policy are NOT beneficial, at all!

Sharma's article is, to a large extent, autobiographical. He likens his family situation to that of Deepa Mehta's protagonist in her brilliant film, 'Earth', and his family migration from Karachi to Mumbai in 1947. In the '70s, a time, once again, of political upheaval in India, Sharma's family migrated to the US, as did the privileged few who had the wherewithal to do this. Now, many of those US-Indian 'pioneers' are returning to find that while there might be advantages to being a returning NRI, there are also new burdens coming from their adopted country.

American Citizens Abroad, a non-partisan, non-profit association of volunteers based in Geneva, Switzerland, with worldwide membership in over 90 countries has been representing the interests of American citizens overseas for more than 30 years, on issues ranging from banking and taxation to voter registration. At the International Withholding Tax Summit in London, earlier this month, Jackie Bugnion, ACA executive director highlighted the harmful consequences of FATCA, the Foreign Accounts Tax Compliance Act of 2010. Bugnion stated that FATCA is the cause of:

* Significant discouragement of foreign investment in the United States - honestly, who wants to go through the paperwork required to bring monies into the US or, if 'privacy' is desired for legitimate purposes, see that US banks report annual information back to the country of origin (and there are many legitimate reasons to be concerned about this)

* Negative impact to US businesses operating in global markets - this puts US business at a distinct disadvantage in competition with all nations that tax upon territorial basis, in contrast to US taxation of worldwide activities

* FATCA simply does not achieve its stated purpose - it does not track down tax evaders! The IRS computer system is a joke; things are continually lost within that system and it can't handle what it is supposed to do at present - so expand its current activities to be an all encompassing eye on what takes place financially around the world involving Americans? Come on, now, be serious!

* FATCA has transformed overseas American citizens into pariahs in the world of international finance: I cannot open bank accounts, I cannot invest as I might wish.....ONLY because I am a US passport holder: THIS IS DISCRIMINATION AGAINST AMERICAN CITIZENS RESIDING OVERSEAS!

* The cost of compliance outweighs the anticipated revenue - and what happens as banks and financial institutions outside the US opt out of signing an agreement with the IRS?

And now I pose an entirely new question to all of you out there who are reading my thoughts about the U.S., tax system: what happens to the system when the funding necessary to operate that system is cut back?

There are budgetary problems in the U.S. - which, by now, I'm sure that you are all aware of. It seems that the ever expanding deficit just can no longer expand and that there will have to be across the board budget cuts to make ends meet. Provisions are pending both in the House of Representatives and Senate appropriations bills that will reduce the Internal Revenue Service's funding. The House of Representative's Appropriations Committee, Republican controlled, approved HR 2434 in July, that would reduce the IRS's budget by $US 650 million. IRS Commissioner Doug Shulman, in a letter to the House Ways and Means Oversight Sub-committee member John Lewis, a Democrat from Georgia, stated that not only would this create a 5 - 8 percent drop in IRS audits but that it would also mean a revenue loss of $US4 billion a year.

Question number one: Why didn't Shulman write to a Republican, since the Republicans control the House?

Question number two: Couldn't you just imagine how, if the appropriations reduction came from the Democrats, the Republicans would raise a stink about losing $4 billion a year?

Question number three: If the rank and file US taxpayer dislikes the the IRS (which they really, really do) and since we are in the middle of an upcoming presidential campaign, do you actually think that President Obama will risk anti-populist sentiment by alleviating that 5 - 8 percent drop in IRS audits?

Question number four: Since 92 percent of the IRS budget goes towards payroll and within the remaining 8 percent, computer upgrades are included, how do you expect a currently incapable IRS computer system to be able to expand and handle all the requirements imposed by FATCA? And what about all of those incorrect computer letters that are currently being sent out by the IRS? Oh, the IRS will deny that this is the case but I have 'examples' - plenty of them, to prove this without a shadow of doubt!! There are major problems confronting both the Internal Revenue Service and the United States that, perhaps, a more simplified tax system will rectify. Will there ever be a simplified US tax system - perhaps, but I wouldn't bet on it - at least within my lifetime.....and I fully intend to be living for quite a long time!!

Enough about the IRS.....for the balance of this article, let's talk China tax.....

Repeal the sewing machine tax!

What would you do if you were a factory owner in a rural township (and yes, China is so big that a 300,000 populated town is considered 'rural'!) and the local government decided, without notice to increase the tax per sewing machine within the town's factories, from 300 Ren Min Bi to 600 Ren Min Bi.......without any advance notification.....yet ONLY give receipts for 300 Ren Min Bi?

There were riots, my friends, right there in Zhili township. Zhili, a town within Huzhou City, a city within Zhejiang Province (whose provincial capital Hangzhou is simply one of my favorite cities in China) is home to over 12,000 childrens wear factories. That town accounts for approximately 30 percent of the childrens wear coming out of China.

While the Indian Revenue Service has absolutely no qualms regarding expanding its employment roster in its attempt to develop a coordinated effort towards tax uniformity and conformity (which, were it not for the hush money and speed money tax-like payments that are all pervasive throughout the country, might even work!), the State Administration of Taxation - both national and local offices - of China have not yet gotten to this stage of bureaucratic evolutionary development. Arbitrary assessment of what are seemingly illegal taxes are far more the norm than the central government would like anyone to believe. Were it not for the South China Morning Post of Hong Kong or the chat lines in China (where, when I get the interesting tidbits of what is going on from the translators who surf the web for me), I'd never have the full picture.

The Huzhou Daily, the official newspaper published by that city, reported what was essentially a tax riot as a 'mass petitioning incident'. This all took place three days ago, when hundreds of factory owners and workers rioted after a fight between Xu Rongquan, a 'private' tax collector hired by the Zhili tax office and a factory boss. This is one of those rare instances where the workers sided with the boss - after all, that instantaneous tax increase of 100 percent, without either adequately informing the taxpayers or issuing receipts for full amount is tantamount to corruption. True, the workers probably could care less about the corruption aspects of this but that additional tax could have had an impact upon their job security - or withholding of their wages for some convoluted reason - in order to pay the additional tax: perhaps a factory had 250 sewing machines but in an era of declining exports, only 100 of them were actually operating. The tax on all machines could have conceivably put many factory owners out of business.

Hiring private tax collectors or private security control forces by the local police is akin to hiring thugs. Private thugs for hire is a way of life in China - that way, the authorities, if things get out of control, can pin the blame upon others, and not directly upon the government that hired the thugs in the first place. Hopefully, one day soon, the central government will be strong enough to put an end to this - this will eventually happen in China, when the rule of law replaces the law of the rulers. This will happen - only don't ask me when!

This morning, the Zhili township government sent a public text message (did they spell it out or abbreviate, to save money on the texting?) stating that Mr. Xu had been fired and that the tax office has decided to suspend (not rescind - they'll still attempt to raise that tax) the 100 percent increase in the sewing machine tax. Praise for the forces behind this go to those chat lines which China would like to control but simply cannot - and to the SCMP, which remains my primary news source for events such as this.