United States Taxation on Worldwide Income

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In recent years, the United States has increased enforcement of non-resident tax liability, generating debate surrounding the U.S. moving towards a territorial model of taxation. An increasing number of Americans living abroad are renouncing their citizenship. According to the U.S. Treasury, 1,781 Americans gave up citizenship in 2011. Contrast that with 742 in 2009 and 278 in 2006 (McKinnon 2012). Corporations also bear the burden. In 2008, 12 percent of all federal revenues came from corporate income taxes, of which about half was paid by multinational corporations reporting foreign income (CBO). Thus, many corporations are following suit, using tax avoidance schemes to reduce the scope of their U.S. tax burden or simply moving to other tax jurisdictions. The United States is one of only two countries in the world that taxes its citizens on their worldwide income, without regard to physical residence. Throughout the rest of the world, taxes are imposed on individuals based on their residency, not citizenship (McKinnon 2012). Such a statement brings the question as to why the United States is such an outlier in this respect? This paper will serve as a discussion of the origins of the United States’ system of worldwide taxation, the tax system’s current state and implications on U.S. corporations, and recent proposals to amend the system. The United States’ system of worldwide taxation garners its origins from national conflict. The first national individual income tax, enacted in with the Revenue Act of 1861, coincided with the outbreak of the Civil War and sought to help the funding of war expenses (Terrell). The Act imposed a 3% tax on income over $800. However, a 5% tax was imposed on income earned by any citizen living abroa... ... middle of paper ... ...er 2012. Web. CBO. “Options for Taxing U.S. Multinational Corporations.” The Congressional Budget Office. 8 January 2013. Web. Desai, Mihir A. “Tax Only the Income Earned in the U.S.” The New York Times. 30 May 2013. Web. House, Billy and Sarah Mimms. “Baucus Floats Ways to Close Tax Loopholes for Overseas Businesses.” The National Journal. 19 November 2013. Web. IRS. “Foreign Financial Accounts Reporting Requirements.” The Internal Revenue Service. 13 August 2012. Web. IRS. “Income from Abroad is Taxable.” The Internal Revenue Service. 3 September 2013. Web. McKinnon, John D. “U.S. Companies Split on Tax Plan.” The Wall Street Journal. 19 November 2013. Web. McKinnon, John D. “Tax History: Why U.S. Pursues Citizens Overseas.” The Wall Street Journal. 18 May 2012. Web. Terrell, Ellen. “History of the US Income Tax.” Library of Congress. Web.

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