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Posts tagged ‘income’

How America’s Child Support System Failed To Keep Up With The Times

clinton-child-support-celebration
When the U.S. child support collection system was set up in 1975 under President Gerald Ford — a child of divorce whose father failed to pay court-ordered child support — the country, and the typical family, looked very different from today.

And as the nation’s social, economic and demographic landscape has shifted, the system has struggled to keep up. Cynthia Osborne, director of the Child and Family Research Partnership and associate professor at the University of Texas at Austin’s LBJ School of Public Affairs, explains how these changes have outpaced the decades-old system — and left the country with more than $113 billion in unpaid child support.

Walk us through what the child support collection system looked like in 1975. What issues was it designed to address? What did the typical family look like?

It was officially launched in 1975, which is when the government established Section IV-D of the Social Security Act. No-fault divorce had recently been passed, and there was a rapid increase in divorce.

In 1975, this system would try to ensure that after a divorce, we would try to replicate what the household looked like prior to the divorce with regards to the children’s well-being. So the father would continue to provide income to the child, and the mother normally would get the child following a divorce in terms of physical custody, and she would use the resources from the father.

The whole system was set up in a way to try to bring back what the nuclear family looked like prior to a divorce, and nearly everyone who entered into the child support system was a product of divorce. There were very few nonmarital births at that time.

During that time period, divorce was one of the single greatest predictors that a woman, especially a woman with children, would fall into poverty. The research indicated that fathers typically gained financially following a divorce, even though they were ordered to pay child support, and mothers typically lost financially, they had both the children and reduced income. And so the child support system was hoping to try to offset some of that.

The 1970s and ’80s saw profound social, economic and demographic changes. What sort of shifts were occurring, and how did they affect child support?

There was this huge increase in divorce, and a beginning rise in nonmarital childbearing that was nearly nonexistent in the early 1970s — then becoming, by the mid-1980s, up into the 20 percent of all children.

Those were big changes that were occurring in the family, and simultaneously there were gains and losses in the labor market. There were more and more women who were starting to enter into the labor market during both the 1970s and ’80s. And the question about what women’s role was, vis-a-vis caring for their child and working and so forth, was starting to be really front and center in the discussion of women’s place within the family and the economy.

Still, though, the majority of women, when they became mothers, were the primary caretakers and not the primary breadwinners. The single mothers also were not very likely to work. So married moms were staying at home to take care of the kid. Single moms were on welfare, and our welfare rolls were expanding quite rapidly.

The 1980s [also] saw a huge boom in the return to college education, and this is especially true for men. And those who got this education— with higher skills and higher-wage jobs — were starting to really pull away from men who had lower levels of education or moderate levels of education. And men at the very bottom, who had no high school education especially, were starting to lose in real terms of their value of earnings. And that’s really a trend that’s continued until today.

And when we think about who those men are partnered with, often they’re partnered with the same women who are more and more likely to be dependent on welfare rolls — during this time there was a huge increase in welfare rolls — and also mostly among less educated women.

So you now had a growing number of women who were either divorced or not married who were seeking public assistance, and a growing number of less educated men who had very few prospects in the labor market, and declining prospects at that.

It really can’t be overstated how important in the whole welfare reform debate [it] was that one of the fastest entrants into the labor market were women with children under the ages of 5. And it became harder and harder to justify that we should have a system that would support one group of women to stay at home with their children while this other group of women was choosing to enter into the labor market.

And all this set the stage for welfare reform?

Yes, with that kind of backdrop — with two earners becoming necessary, women making this conscious decision to enter into the labor market and the general dismay about the existing welfare reforms system — we started really to think seriously about how we should do this differently, and what should we expect of moms and so forth, and I think that’s why the work requirements became so steep in the welfare reform debate.

And with child support, by the mid-1990s when all of these reforms were being put into place, nonmarital childbearing had risen from being something that was not very pervasive to nearly one-third of all births, 25 to 28 percent. Now, it’s at 41 to 42 percent.

What were the hallmarks of the 1996 welfare reform?

Welfare reform really did punctuate this idea that fathers should be responsible for providing for their children, that the state will do it in limited circumstances, but that we want the fathers to be the ones who are responsible for this. And there was a very strong notion at that point that men who weren’t paying for their child support were not involved in their children’s lives, were just deadbeat and avoiding the system.

The Personal Responsibility Work Opportunity Reconciliation Act (PRWORA) made it so that the guidelines had to be more specific, and that the states had to enforce them more carefully. It changed what the performance measures were for states — basically, if you set an order, you have to collect on it and there could be penalties if you didn’t. And it really punctuated the idea that child support is a direct link with welfare, that there really isn’t a way for a mom who’s going to go on public assistance to avoid seeking child support.

In 1994 our rolls on welfare were some of the largest that they had been; they had really ballooned up to the point where upwards of 7 percent of kids were on welfare rolls. There was no end in sight because of the increase in nonmarital childbearing and who was now coming into the system was a different family type than what the system was initially set up to accommodate. And that, I think, remains one of the biggest challenges of our system.

And so the initial system was set up to replicate the nuclear family of dad as breadwinner, mom as homemaker, and now you have families in which mom and dad may have never lived together. They may have lived together when the child was born for a short period of time. They may or may not have shared resources. The father may have been contributing or not contributing.

And that gets us to the massive amount of unpaid child support — $113 billion and counting.

Right. Each state does it differently, but Texas will determine what a noncustodial parent’s income is. If he says zero, well, there isn’t zero child support, there will often be a presumption that he should be working full time, full year at at least minimum wage. So the judge will often set what’s called a minimum wage order, and it’s about $215 a month in Texas, which is about 20 percent of your net income of that. So here is a father who is now going to owe $215 a month plus about $50 a month in medical support. And he did not disclose that he had any income at the time that he established those awards.

It could be even worse, it could be — and this happens very often — that that man comes in, but his child is 2 years old. And now, either he’s been evading for two years, or he didn’t know he had this child, or they were together for almost all that time, but now they’ve separated. There could be lots of different reasons, but the child’s now 2 years old. The judge could order at that time that not only does he owe $200 each month moving forward, but he owes $200 a month for those two years …

Even if they were together but not married?

That’s right. And so this back child support is something that’s very real. A lot of the men start off in this hole that they just simply cannot dig themselves out of. For some of these guys, having a $5,000 arrears payment, it would be like a middle income person having a $50,000 debt that they’re just supposed to somehow work their way out of. It feels almost impossible.

What about the people who argue that this just doesn’t make sense?

I think it is actually not a simple answer. We do need to feel like men are being held accountable for their children, or noncustodial parents are supporting their children in some way. I do think that it’s reasonable for people to say somehow men have to demonstrate that they are going to provide for their children. Even if it is $200 a month and even if they don’t have a job, we are going to hold them accountable.

That just ignores, though, the fact that we can say that, but that doesn’t mean that they’re going to be able to pay it. We often know that if they’re not able to pay their child support formally, that they’re less likely to be able to contribute informally. They’re going to stay away from the child; they’re going to be less involved.

So although it makes sense on some level that we want to find a way to hold these dads accountable, in fact, what we’re doing is making it less likely that he’s going to be engaged in his child’s life by providing informally or being involved in other sorts of ways, and it’s going to cause difficulties in the co-parenting relationship between the mom and the father.

And for those reasons, there are proposals by the Obama administration — and other folks have been advocating this for quite a while — that say, let’s set what we call right-sized orders, that we actually take into account what he actually has the ability to pay when we establish these child support orders, and that we’re hoping that if he pays $25 a month now, that we can modify that order later when he gets more income and he’ll pay a little more and so forth.

This applies also to fathers who are incarcerated. We have a huge number of fathers who are incarcerated at some point in their child’s life. But it has not been a material reason to alter your child support award amount. So that’s another change proposed by the Obama administration, that if you are incarcerated, that we modify the child support order in some way to reflect that you cannot earn an income during that time.

In Texas, the average arrears payment that a father owes who’s been incarcerated coming out of prison is $8,000. When he comes out with high levels of arrears, he’s less likely to enter into the formal labor market and have his wages immediately garnished, so it just sends him back to the underground economy and the chances of recidivism and incarceration are really high.

Ultimately, then, what’s the purpose of child support system?

The states’ incentives really are to set amounts that can be collected on that make it look like they are reaching collection goals. But the performance measures at the federal level are based on the proportion that you collect based on the proportion that’s established.

So the states could benefit if they move to this more right-sized orders approach. But we have to be careful that that big dollar amount out there of what we’re collecting doesn’t become the driving force of how to maintain our child support enforcement system.

To be perfectly honest, I think if I could be queen for the day, in today’s families, I would change the presumption that there is an equal division of time and an equal division of responsibility for providing for that child. That’s not going to work for every family. Some of them have never been contributing, some have both been contributing but at disproportionate amounts.

But if we started with the 50-50 presumption, then the judge could work with the families to say, well, how do we get to some form of equality that works for you guys?

If we really started with this presumption that we’re going to jointly care for our children, even though the parents are not married to each other, and then let’s work out a system that seems fair in both the amount of time that we’re spending and the amount of resources that we’re spending, that it costs to raise this particular child, it’s a lot more work on the part of the state to figure out what that is, but it just feels like that would be more fair.

For our low-income guys who can’t afford anything, the moms are having to work, why don’t they provide the child care? We’re not ready to go that way with our families, but our families have changed so much, we need a system that starts to keep up with them some way.

from NPR

Child Support: Income That Doesn’t Exist’

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Human rights in the USA

“When people have orders that they can’t comply with, it doesn’t motivate them to work and pay. It does the opposite,” says Turetsky of the Office of Child Support Enforcement.

She says too many men quit jobs, turn down promotions or go underground when courts set child support orders too high. One problem, she says, is that when there’s no evidence of income, many jurisdictions “impute” it, often basing payments on a full-time minimum wage job.

“I’m going to call it magical thinking,” Vicki Turetsky says. “You could call it the income we think you should have. But the bottom line is that it is income that does not exist.”

The child support system was set up four decades ago, and Turetsky says it seems stuck there — as if a man with no college can still walk into a factory tomorrow and pull down middle-class wages. In fact, a large majority of child support debt is owed by men who make less than $10,000 a year.

“We’re asking that [women and children] become dependent on men who are just as poor as they are,” says Jacquelyn Boggess of the Center for Family Policy and Practice.

When parents face incarceration for nonpayment, it can burden entire families. Boggess has seen men’s mothers, even their ex-girlfriends or wives, step in to pay to keep a father out of jail. And child support debt never goes away, even if you declare bankruptcy or when the children grow up.

“We found that there are 20- and 30-year-old children who are paying their father’s child support debt, so their father can keep whatever small income they may have,” she says.

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Balancing Responsibility And Reality

Among the Obama administration’s proposed changes to child support rules is a provision barring states from letting child support pile up in prison. There is wide support for that, even among conservatives.

“Everyone agrees, yes, we should be tough,” says Ron Haskins of the Brookings Institution. “But if a father goes to jail for five years, should he owe $15,000 in child support when he comes out? You know that guy’s never going to have $15,000 in his whole life.”

More controversially, the administration wants to make sure child support orders are based on a parent’s actual income.

“We can’t be naive when we’re dealing with parents who have walked away from providing for their children,” says Robert Doar, of the conservative American Enterprise Institute.

Doar, who used to head child support enforcement in New York state, says there will always be some parents who go to great lengths to hide income. He does support suspending debt during incarceration and more job training programs — but he worries that the proposed changes would make it too easy to dismiss cases as “uncollectible.”

“We’re talking about poor, single parents, often moms,” he says. “And the child support collections that they get, when they get it, represents 45 percent of their income.”

Republicans on Capitol Hill have filed bills to block the proposed regulations. They worry they’ll undermine the principle of personal responsibility, a hallmark of child support enforcement measures in the 1990s. They also say any regulatory changes should be made through Congress, not the administration.

The Disconnect On How Child Support Laws Are Viewed & How They Work

reviewed by Moody Jim Rathbone

child support formulasThe public views court-ordered formulas calculating child support in the United States and England to be unfair, according to a study released Monday. Articles proclaim that researchers hope that this will be valuable information for policymakers dealing with family law issues. Existing child support law is not consistent with the basic application of fairness that most people have.

Here’s the kicker. The research ultimately found that the public believes child support should be adjusted higher or lower based on the mother’s income (assuming she is the custodial parent caring for the children). If you take this statement alone and at face value, the danger and disconnect here seems to be that the income of the father is ignored. Hm-m.

In some states, child support is based solely on the noncustodial parent’s income, while in others both incomes are used in the calculation with an emphasis on the noncustodial parent’s income. Each state has a set formula for judges to use in child support cases.

justice and moneyThis study used face-to-face questions and feelings about certain courtroom scenarios. Respondents were found to be three times as responsive than the law when it came to adjusting child support based on income changes of the noncustodial parent. In one hypothetical scenario, if the noncustodial parent made less than a custodial parent, the amount of child support would be lowered, by $100. In that case, the respondents reported they would actually lower the amount by $300. Judges have grown to be jaded and unfair.

The study also found that once a father was ordered to pay a certain amount, that percentage of his income should remain the same even if his income increased or decreased.

The law doesn’t pay any attention to remarriage of the custodial parent, but respondents wanted to take into account the stepparent’s income. This is also a dangerous precedent, allowing for more ravaging of real families by the state. This begins to tell me that a fair percentage of participants in this study were sympathetic, yet disconnected from the damage that child support is already doing to families.

Non-custodial parents have become targets for a state-operated racketeering and extortion operation. Increasingly, the state is proving to be the mafia, even though most of us have become conditioned to this. Is that an insane statement? Hardly. It becomes apparent when you are the target.

dad-slavery-2Child support is routinely established at levels higher than the noncustodial parent can pay. Child support is determined by judges who refer to an income table and set of guidelines. Judges do have the authority to depart from those guidelines and modify amounts depending on certain circumstances, but they must justify in writing why a case needs different treatment. This may, or may not be a problem. Yet, the difficulty of modifying court-ordered child support in situations where non-custodial parents have lost their job or had a pay cut is another shortcoming of the current system. Fear is designed to be the continued motivation for the non-custodial parent.

What the study found to be unique was that respondents agreed across many boundaries. “You get that same result no matter what — if it’s about women and men, there’s no difference. High-income people and low-income people are the same, same pattern. If they’re Democrats and Republicans, no difference,” said Ira Ellman, an author of the study and professor of psychology and law at Arizona State University. “You get this result over and over again, it’s true in the U.K. also, so that’s a powerful result, I think.”

Is this study valid in your mind? I’d be interested to hear your thoughts.

The Child and Family Blog

Monica Lewinsky’s Lost Child Support Profits

by Philip Greenspan

WASHINGTON - AUGUST 11:  (NO U.S. TABLOID SALES)  President Bill Clinton whispers in wife Hillary's ear during the Medal of Freedom event where former President Gerald R. Ford was honored at the White House August 11, 1999 in Washington DC.  (Photo by David Hume Kennerly/Getty Images)

I was chatting with a litigator about Real World Divorce and politics. The subject of the Clintons’ roughly $22 million/year in earnings came up and the litigator noted “Monica Lewinsky could have done pretty well for herself if she hadn’t left the white gold on her blue dress.” What did she mean? It turns out that if Monica had stayed in the District of Columbia with Bill Clinton’s child she would have been entitled to roughly $2 million per year for 21 years, i.e., about $42 million total in tax-free profit.

What about the fact that some of the money was earned by Hillary? “A judge could use discretion to award child support based on the combined income in a variety of ways,” she explained. “One is by awarding a higher percentage of Bill’s income with the explanation that Hillary’s earnings can replace those lost to a child support plaintiff. Another is by accepting the argument that Hillary wouldn’t be earning any of her speaking fees but for her relationship with Bill and being part of the couple. A third way of getting a child support award based on the full $22 million would be to argue that much of the Clinton Foundation spending, e.g., on travel or parties, should be considered income to Bill and Hillary. Adding in a judge-determined amount from the Foundation to Bill’s income would bring his income for child support calculation up to $22 million per year.”

Think it’s funny that an attorney is writing this? Not to me. This illustrates the cool calculation of the authority that presides over men and women over the nation. It’s about the greed money for parents and government corporations of all kinds at the hands of the people in the name of children. At least, the Clinton’s are wealthy, exactly where wealth redistribution needs to happen if it happens at all. – Rathbone

Skip Child Support. Go to Jail. Lose Job. Repeat.

captiveBy his own telling, the first time Walter L. Scott went to jail for failure to pay child support, it sent his life into a tailspin. He lost what he called “the best job I ever had” when he spent two weeks in jail. Some years he paid. More recently, he had not. Two years ago, when his debt reached nearly $8,000 and he missed a court date, a warrant was issued for his arrest. By last month, the amount had more than doubled, to just over $18,000.

That warrant, his family now speculates, loomed large in Mr. Scott’s death. On April 4, he was pulled over for a broken taillight, fled on foot and, after a scuffle with a police officer, was fatally shot in the back.

The warrant, the threat of another stay behind bars and the potential loss of yet another job caused him to run, a brother, Rodney Scott, said.

Scott-police-fatal-shooting“Every job he has had, he has gotten fired from because he went to jail because he was locked up for child support,” said Mr. Scott, whose brother was working as a forklift operator when he died. “He got to the point where he felt like it defeated the purpose.”

Walter Scott’s death has focused attention not just on police violence, but also on the use of jail to pressure parents to pay child support, a policy employed by many states today. Though the threat of jail is considered an effective incentive for people who are able but unwilling to pay, many critics assert that punitive policies are trapping poor men in a cycle of debt, unemployment and imprisonment.

all about the greenbacksThe problem begins with child support orders that, at the outset, can exceed parents’ ability to pay. When parents fall short, the authorities escalate collection efforts, withholding up to 65 percent of a paycheck, seizing bank deposits and tax refunds, suspending driver’s licenses and professional licenses, and then imposing jail time.

“Parents who are truly destitute go to jail over and over again for child support debt simply because they’re poor,” said Sarah Geraghty, a lawyer with the Southern Center for Human Rights, which filed a class-action lawsuit in Georgia on behalf of parents incarcerated without legal representation for failure to pay. “We see many cases in which the person is released, they’re given three months to pay a large amount of money, and then if they can’t do that they’re tossed right back in the county jail.”

There is no national count of how many parents are incarcerated for failure to pay child support, and enforcement tactics vary from state to state, as do policies such as whether parents facing jail are given court-appointed lawyers. But in 2009, a survey in South Carolina found that one in eight inmates had been jailed for failure to pay child support. In Georgia, 3,500 parents were jailed in 2010. The Record of Hackensack, N.J., reported last year that 1,800 parents had been jailed or given ankle monitors in two New Jersey counties in 2013. (The majority of noncustodial parents nationwide are men.)

rich guyUnpaid child support became a big concern in the 1980s and ’90s as public hostility grew toward the archetypal “deadbeat dad” who lived comfortably while his children suffered. Child support collections were so spotty that in the late 1990s, new enforcement tools such as automatic paycheck deductions were used. As a result, child support collections increased significantly, and some parents rely heavily on aggressive enforcement by the authorities.

But experts said problems could arise when such tactics were used against people who had little money, and the vast majority of unpaid child support is owed by the very poor. A 2007 Urban Institute study of child support debt in nine large states found that 70 percent of the arrears were owed by people who reported less than $10,000 a year in income. They were expected to pay, on average, 83 percent of their income in child support — a percentage that declined precipitously in higher income brackets.

dollar bondageIn many jurisdictions, support orders are based not on the parent’s actual income but on “imputed income” — what they would be expected to earn if they had a full-time, minimum wage or median wage job. In South Carolina, the unemployment rate for black men is 12 percent.

The Obama administration is trying to change some of these policies, proposing to rewrite enforcement rules to require that child support orders be based on actual income and consider the “subsistence needs” of the noncustodial parent, to bar states from allowing child support debt to accrue while parents are incarcerated and to finance more job placement services for them.

“While every parent has a responsibility to support their kids to the best of their ability, the tools developed in the 1990s are designed for people who have money,” said Vicki Turetsky, the commissioner of the federal Office of Child Support Enforcement. “Jail is appropriate for someone who is actively hiding assets, not appropriate for someone who couldn’t pay the order in the first place.”

kangaroo courtUnder a 2011 Supreme Court ruling, courts are not supposed to jail a defendant without a specific finding that he or she has the ability to pay. But that process does not always work as intended, especially when the client does not have a lawyer, advocates for the poor say.

In the Georgia class-action case, the plaintiffs were jailed in civil contempt-of-court proceedings in which they did not have lawyers. They included three veterans — one who had paid $75,000 in child support but fell behind when he lost his civilian job because of combat-related stress and family deaths; a second who was mentally ill and had a letter from a Veterans Affairs doctor saying he was unable to work; and a third who was incarcerated despite having paid $3,796 toward his debt by working odd jobs.

But the Georgia Supreme Court ruled against them, saying they did not have a categorical right to a lawyer.

Walter Scott

Walter Scott

Walter Scott had four children, two in the early 1990s outside of marriage, and two in the late 1990s with a woman to whom he was married. The marriage crumbled when one of the children was still a toddler, and Lisa Scott, his estranged wife, began writing letters to family court asking for help.

“My husband bears no responsibility for his family,” she wrote in 2000.

In an article about a parenting program published in The Post and Courier of Charleston in 2003, Mr. Scott said that he had fallen behind when the checks he sent to a state agency for his ex-wife were mistakenly directed to the mother of his first children. (The South Carolina Department of Social Services, citing privacy laws, said it could not verify his account.)

Mr. Scott eventually spent two weeks in jail — a stint that cost him a $35,000-a-year job at a filmmaking company and sent him into isolation and alcohol abuse, he told The Post and Courier.

“I got mad at everybody in the whole world because I just lost the best job I ever had,” he said. “I just stopped doing everything.”

In 2002, Mr. Scott, further behind on his payments, agreed to participate in a parenting program called Father to Father and pay $350 a month. Mr. Scott reunited with his family, turned himself in for the unpaid child support and served another five months in jail.

burning the constitutionStill, Charleston County Family Court records show that he remained in a cycle of unpaid child support debt, stints in jail and more threats of time behind bars. The records also show that when Mr. Scott was working in 2011, $125.76 was deducted from his check each week. He paid $11,411 that year, which included a lump-sum payment. But he was behind again in July 2012, and he paid $3,500, his last recorded payment, to avoid jail. The money came from his parents, Mr. Scott’s brother Rodney said.

Rodney Scott said his brother resented that his ex-wife was not required to work and that the pressure was always on him to pay support. Critics of the child support system say this imbalance is reflected in rules that say that if a mother receives public assistance, the father must pay it back, even if he is also poor. In many cases, though not in Mr. Scott’s, child support actions are brought by state officials seeking welfare reimbursement.

Lisa Scott could not be reached at addresses or phone numbers listed in her name. Samantha Scott, a daughter from Mr. Scott’s first relationship, said she had never heard her own mother complain about a lack of support. “If he had money, he would give it to us,” she said.

Ms. Turetsky, the head of the federal child support office, said the system should be based on the expectation that both parents would contribute toward their children’s needs. “It’s nuts,” she said of the policy of making destitute fathers repay welfare. “She gets the assistance; he gets charged with the bill.”

image of dadJahmal Holmes, 28, is a current participant in the Father to Father program in North Charleston. He has two children, 4 and 8, and said he had agreed to court-ordered child support because he had been told that it was a requirement for their mother to receive Medicaid. The two have since broken up and share custody of the younger child, but he is still required to pay support for both.

Mr. Holmes said he did not realize that if he fell behind on payments, he would face jail. “I am behind now, and they are threatening to suspend my driver’s license — and I’m a truck driver,” he said. “When I saw that Walter Scott died, and he was in this program, that touched me emotionally. I see myself trying to get out of that situation.”

Scott-happier-timesRodney Scott said that he sometimes thought his brother did not do everything he could to catch up, but that Walter seemed to consider it a hopeless cause. He recalled seeing his brother plead to a judge that he just did not make enough money.

“He asked the judge, ‘How am I supposed to live?’ ” Mr. Scott said. “And the judge said something like, ‘That’s your problem. You figure it out.’ ”

overthrow

The Practice of Indentured Servitude & Why It Matters

indentured servitude contractThe practice of indentured servitude is based on common law, the original basis of this empire.

Reba McIntire found out that one of her ancestors in 1600’s was as 10-year old shipped to America as indentured servant. His mother died and his father had a hard time taking care of him by himself, so he “sold him off” This contract would pay the kid’s ticket from England to America, and would only last at most until the kid became an adult at 21 years. This well demonstrates that under common law, children were considered PROPERTY of their parents until they became adults, and the State had NO AUTHORITY to interfere with the rights of a father.

This wasn’t slavery in a formal sense, since the boy wasn’t sold, just the right to his work was. This shows that under common law, people are considered sovereign and the State has no authority to tell them what to do, unless there is an actual INJURED party, which includes a violation of one’s unalienable rights. Only in a “corporate democracy” that the United States has operated under since 1933, the government doesn’t recognize your natural rights, and can dictate what we can and can’t do, as if we were THEIR property. This is in clear evidence, throughout all property rights.

Here’s Wikipedia about indentured servitude.

“Indentured servitude refers to the historical practice of contracting to work for a fixed period of time, typically three to seven years, in exchange for transportation, food, clothing, lodging and other necessities during the term of indenture. Usually the father made the arrangements and signed the paperwork. They included men and women; most were under the age of 21, and most became helpers on farms or house servants. They were not paid cash. It was a system that provided jobs and—most important—transportation for poor young people from the overcrowded labor markets of Europe who wanted to come to labor-short America but had no money to pay for it. The great majority became farmers and farm wives.

In colonial North America, farmers, planters, and shopkeepers found it very difficult to hire free workers, primarily because cash was short and it was so easy for those workers to set up their own farm. Consequently, the more common solution was to pay the passage of a young worker from England or Germany, who would work for several years to pay off the travel costs debt. During that indenture period the servants were not paid wages, but they were provided food, room, clothing, and training. Most white immigrants arrived in Colonial America as indentured servants, usually as young men and women from Britain or Germany, under the age of 21.

Typically, the father of a teenager would sign the legal papers, and work out an arrangement with a ship captain, who would not charge the father any money. The captain would transport the indentured servants to the American colonies, and sell their legal papers to someone who needed workers. At the end of the indenture, the young person was given a new suit of clothes and was free to leave. Many immediately set out to begin their own farms, while others used their newly acquired skills to pursue a trade.

The American Expatriot Primer

indigent in AmericaA growing number of Americans are frustrated with the way in which their economy has been managed and are becoming increasingly concerned about future measures the government may take to keep its coffers full.

A question that is arising with increasing frequency is: does expatraition offer a viable protection to those concerned about a more financially-intrusive US system?

The answer is ‘yes’, it does offer a completely legal solution for ending your obligation to pay US income, capital gains, and gift taxes on your worldwide income. But it is certainly not for everyone and should only be pursued after lengthy and diligent consideration.

And before you begin dreaming of a tax-free future, you should realize that the United States imposes taxes on a broader basis than any other country. The United States is one of two countries, and is the only major country, that imposes significant income, capital gains, gift, and estate taxes on its non-resident citizens.

In virtually all other countries, individuals end their liability to pay income tax after a sustained period of non-residence, generally one year or longer. But to legally and permanently end U.S. tax liability on their worldwide income, U.S. citizens must also give up their U.S. citizenship and passport. This process is called “expatriation.”

Yes, it’s a radical step. However, if you’re a U.S. citizen, you can make nearly all of the preparations for a possible future expatriation without permanently leaving the United States. This is a four-step process:

Phase 1. Relocate your assets from the United States to other jurisdictions, preferably where the assets won’t be taxed.
Phase 2. Identify foreign countries where you would consider living,
Phase 3. Obtain a suitable second passport
Phase 4. Expatriate – give up your U.S. citizenship and passport

Once you’ve accomplished the first three phases, summarized here in Part I of this report, the final step – expatriation – is much easier than if you’re starting from scratch. Part II of this report describes the expatriation process.

Are you a good candidate for expatriation? You are, if:

You are comfortable living outside the United States, or are already doing so-
Your spouse and children are comfortable living outside the United States, or are already doing so; and
You have already or are capable of shifting the majority of your income and assets outside the United States.

Phase 1: Relocate Your Assets Outside the United States

decisions about wealth and lifestyleWith a few exceptions, the IRC imposes taxes on both U.S. source income and foreign source income of U.S. citizens. Non-resident, non-U.S. citizens (also known as “non-resident aliens”) pay tax only on U.S. source income, although some U.S. sources of income (e.g., most capital gains) are tax-free.

To prepare for this more favorable tax treatment in anticipation of expatriation, begin moving liquid assets outside the United States to more tax-friendly jurisdictions. Begin selling assets that can’t be relocated (e.g., real estate) so that you may reinvest the proceeds overseas.

Invest only in countries and investments with which you are comfortable. If you are accustomed to buying and selling U.S. securities, consider using offshore bank or brokerage accounts to target non-U.S. securities. If you are an experienced real estate investor, investigate real estate purchases outside the United States. Keep in mind that a targeted investment or real estate purchase may also qualify you for legal residence in some countries (Phase 2) or even a second passport (Phase 3). If you have substantial domestic investments in precious metals, consider moving the metals offshore.

The vast majority of foreign banks and brokerages now refuse to accept new U.S. citizen clients, especially U.S. citizens resident in the United States. However, banks and brokerages in a handful of countries still accept new U.S. citizen and resident clients and allow them to purchase non-U.S. securities. A few banks in Austria, the Bahamas, Hong Kong, Liechtenstein, Singapore, and Switzerland are suitable for this purpose. The minimum deposits in these banks start at $100,000. Minimum deposits in offshore brokerages start around $5,000. Fees are much higher for banking services and securities trading than in the United States.

Both the accounts you hold offshore and the income derived from them must be reported to U.S. authorities. The penalties for failing to make these disclosures are draconian. Consult with an expert familiar with the tax and reporting rules for international investments when you file your annual tax return.

Offshore real estate is a non-reportable asset for U.S. investors if owned individually or jointly with your spouse or other individuals. Income or gain from foreign real estate investment is reportable and taxable. Countries offering first-world infrastructure and where real estate is relatively affordable include Argentina, Australia, Canada, Chile, Ireland, Mexico, New Zealand, Panama, Spain, and Uruguay.

Numerous potential “land mines” exist in offshore real estate investments. Among them are the lack of a multiple listing service in many countries, difficulty in establishing good title, and legal provisions giving squatters the right to live on your property. Retain a knowledgeable real estate attorney in the country in which you purchase real estate to avoid problems.

You may transport precious metals you own in the United States to another country and store the metals in a safety deposit box, bank vault, or private vault. One option for doing so is to use a secure shipping service. Make certain the service not only promises secure transport but also assists with completing non-U.S. customs and tax declarations. Another option to transport precious metals out of the United States is a like-kind exchange under Sec. 1031 of the IRC. If you move the metals yourself, the best option can be to hire an import agent in the country to which you’re taking them to handle the import formalities. You will generally post a bond through the agent covering taxes due (if any) plus the agent’s fee.

Phase 2: Identify Foreign Countries Where You Would Consider Living

big life decisionsOnce you give up U.S. citizenship and passport, you no longer have the right to live in the United States. You may generally make brief visits, but in most cases, you won’t be able to stay more than approximately four months annually without becoming subject to U.S. tax on your worldwide income based on the IRC’s “deemed residence” rules discussed in Part II of this report. Finding another country to live in is therefore an essential part of any expatriation exit strategy.

Even if you have no plan currently to leave the United States permanently, finding a country that you may wish to relocate to in the future is a prudent safeguard. If economic or political conditions deteriorate in the United States and reach your personal breaking point, having legal residence in a suitable offshore jurisdiction provides a valuable “insurance policy.”

If you merely want the right to live in another country in the form of a residence permit, but don’t necessary want to be physically resident there, a number of countries can accommodate your needs. These include Belize, Costa Rica, Malta, Mexico, the Dutch Caribbean territories, and Panama. In most cases, you can qualify for residence (although not the right to work in the country) by either making an investment or demonstrating a minimum guaranteed pension payment. Residence rights may be purchased in some countries by making an investment of $80,000 or more in real estate or other assets. A guaranteed pension payment of $1,000 or more may also qualify you for residence. In other countries, you may need to qualify on a points system. Some countries have multiple programs to consider.

Phase 3: Obtain a Suitable Second Passport

To end your responsibility to comply with U.S. tax and reporting obligations, you must give up your U.S. citizenship and passport. Without a second nationality in place and passport in hand, however, giving up your U.S. passport would render you a “stateless person.” Avoid this status, as it makes it difficult or impossible to legally live or travel internationally.

A second passport also conveys numerous other benefits:

It gives you the right to reside in the country that issued the passport, and possibly other countries. For instance, a passport from a member of the European Union conveys the right to live and work in any other EU country.
It gives you a way to travel internationally if your primary passport is lost or stolen, or if the issuing government confiscates or refuses to renew it.
It provides you with the opportunity to travel to countries blacklisted by the government that issued your primary passport. For U.S. citizens, this includes countries such as Cuba, North Korea, etc.
It avoids disclosing your primary nationality, should you ever need to keep that a secret. This can be useful if you’re ever confronted by militants who oppose the government that issued your primary passport.

You may qualify for a second citizenship and passport by ancestry, marriage, religion, or extended residence in another country. If not, a handful of countries offer “instant” citizenship in return for an investment or contribution. The Commonwealth of Dominica and the Federation of St. Kitts & Nevis are the only countries with an official, legally mandated, economic citizenship. (Note: Dominica and the Dominican Republic are different countries.)

Dominica is the least expensive option. The nationality law of Dominica authorizes the government to waive the normal requirement of seven years of legal residence to acquire citizenship in exchange for a cash contribution. Total costs including all fees for a single applicant come to about $105,000. Add $25,000 for your spouse and up to two children under 18. The Dominican passport holders can travel without a visa, or obtain a visa upon entry, to nearly 90 countries and territories.

The Federation of St. Kitts & Nevis offers two options to obtain economic citizenship. One option is to make a direct contribution to a charitable foundation set up to support displaced sugar workers: the Sugar Industry Diversification Foundation (SIDF). Total costs including all fees for a single applicant under this option come to about $285,000 or $335,000 for an applicant with up to three dependents.

The second option is to purchase “qualifying property” with a minimum investment of $400,000. Fees and closing costs add a minimum of $100,000. Total costs for a single applicant come to at least $500,000 and close to $600,000 for a family of four. The St. Kitts & Nevis passport provides visa-free entry, or visa upon entry, to more than 120 countries, including nearly all of the 27 member countries of the European Union.

In all cases, applicants must pass a strict vetting process that includes a comprehensive criminal background check.

Bogus second citizenship offerings abound. In recent years, I have received offers to purchase passports from Costa Rica, Nicaragua, the Dominican Republic, Ireland, and Lithuania, among other countries. Some of these offers are outright scams. Others involve illegally purchased or stolen documents. Even if you succeed in obtaining a passport on this basis, it may be revoked at any time and you could be subject to arrest and/or deportation.

Conclusion

Once you’ve completed Phases 1, 2, and 3 of your four-step plan to disconnect from the United States, you’re ready for Phase 4: expatriation. While you may never take the final step of giving up your U.S. citizenship and passport, taking the preparations summarized so far at least gives you that option.

Mark Nestmann is a journalist with more than 20 years of investigative experience and is a charter member of The Sovereign Society’s Council of Experts. He has authored over a dozen books and many additional reports on wealth preservation, privacy and offshore investing. Mark serves as president of his own international consulting firm, The Nestmann Group, Ltd. The Nestmann Group provides international wealth preservation services for high-net worth individuals. Mark is an Associate Member of the American Bar Association (member of subcommittee on Foreign Activities of U.S. Taxpayers, Committee on Taxation) and member of the Society of Professional Journalists. In 2005, he was awarded a Masters of Laws (LL.M) degree in international tax law at the Vienna (Austria) University of Economics and Business Administration.

Copyright © 2012 Chris Martenson

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