Author Archives: george

So far, the discussion has ignored any foreign income taxes on Sue's surgeries. It now is time to look at this double taxation –- US income taxes plus foreign income taxes.

An obvious preliminary question is why do foreign income taxes, as compared to other costs of doing business overseas (like other foreign taxes), present a special case? The idea is that most costs are reflected in the prices at which goods and services are sold. Federal-level income taxes, however, are bone by the owners of the business. Thus, being required to pay US and foreign income taxes is double taxation. (The born-by-owners assumption is shaky, but further analysis is beyond this little post.)

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I have argued thus far that (ignoring foreign taxes and the possibility that a US tax would drive Sue out of the US) the US should tax Sue on her foreign surgeries. Even under the assumptions thus far, however, the analysis is incomplete. I must address the argument that we should not tax Sue as that would undermine her competitiveness.

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I was catching up on my reading and stumbled upon something: Last week, the US and Barbados agreed to fix the treaty-shopping article of their income tax treaty. This treaty was the heart of a structure used by some of those great American corporations that reincorporated in Bermuda to avoid US tax. If I understand the significance of the amendment correctly — these deals are real complicated — the Bermuda/Barbados structure will trigger a lot more tax as soon as the amendment is ratified by the Senate. Also, new expatriations will be discouraged as planners see new taxes on the horizon. May talk about this more next week.

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Back to my Sue hypothetical from yesterday. The right would say that we can't tax her, so we shouldn't. I prefer a more optimistic, can-do, American approach: See if we want to tax her and how, and then figure out a way to do it. (In other words, I'm putting off discussing the hard practical problems.) Also, let's ignore the European taxes for now.

So, should the US tax Sue on the income received as a consequence of her offshore surgeries? Well, she is a US citizen. The historic US view has been that US citizenship alone justifies taxation on world-wide income. After all, Teddy Roosevelt would send gunboats to protect a US citizen. This argument just seems out or date to me, however.

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Everybody seems most interested in talking about US taxation of multinational enterprise, so, bring it on!

As a law professor, I must start with a hypothetical: Sue is a leading heart surgeon. She went to college and med school on federally-guaranteed loans at schools that received considerable state and federal support. Her clinical work, internship, and residencies were at hospitals that received much government aid. After establishing herself at THE private clinic in New York, she decided to operate only in countries with “reasonable” malpractice laws.

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