A fugitive people within a nation is tyranny.

Posts tagged ‘passport’

The Brilliant Idea From Europe That Could Revolutionize Child Support

by Bryce Covert

Scott-police-fatal-shootingWalter Scott, a father to four children, was shot dead by a police officer later charged with first-degree murder while running away from him. One of the many questions some asked after the news of the shooting broke in the national press was why he might flee such an encounter. His family said it was because he owed so much in unpaid child support. “I believe he didn’t want to go to jail again. He just ran away,” Walter Scott Sr. told the press.

If this is why Scott ran, his fear wasn’t necessarily unfounded. At least one in eight incarcerated South Carolinians were jailed over the last decade after failing to pay child support, and across the country as many as 50,000 parents may end up behind bars for the same reason. This punishment is perhaps the most extreme end of the aggressive measures states use to go after noncustodial parents who don’t pay up, which also include wage garnishment, revoking driver’s and professional licenses, and taking away passports.

captiveBut this strategy doesn’t necessarily help the parents who need child support, usually single mothers, and does little to help the fathers get jobs that pay enough to allow them to send money to their kids. A jailed father can’t earn any income, but his child support debts often keep accruing. Many states don’t allow people to reduce or suspend their child support obligations while they’re in jail, so they end up leaving with $15,000 to $30,000 in debt. They also face a more difficult time finding employment when they get out.

Yet child support is a vital source of income for custodial parents, and single mothers are particularly likely to be poor, with more than 40 percent of them living in poverty. Among poor parents who actually receive child support, it makes up four-tenths of their income. But just 43.4 percent got the full amount they were owed in 2011; on average, parents are owed an unpaid $2,281.

So what could be done to better ensure single mothers get the money they need to help them raise their children while reforming a system that penalizes poor fathers who can’t pay?

black-dadThe best model is likely to be found in Europe. As of 2010, all European countries except the Netherlands guaranteed child support payments to custodial parents even if the noncustodial parent couldn’t pay or could only pay part. Sweden goes even further and has a guaranteed assistance program in which all custodial parents get a child support payment from the government no matter what, and the government then collects what it can from the noncustodial ones. Such a system seems to work — 95 percent of these parents get child support payments. This system “gets you a guaranteed minimum benefit whatever the nonresident father can pay,” explained Irwin Garfinkel, a professor of social work at Columbia University.

He thinks this model could significantly improve the system if the United States were to take the same tactic. “From the perspective of the children, I would say that’s the single most important thing that could be done,” Garfinkel said.

equal justice fraudAny such reform, however, would also have to be paired with changes to how we calculate what noncustodial parents owe. American fathers have the highest obligations among 14 of the richest countries, even if they are poor or unemployed (in eight countries, an unemployed father doesn’t owe anything). The U.S. is one of four that doesn’t exempt some portion of the noncustodial parent’s income for basic living expenses. Only five countries are so extreme as to jail fathers who don’t pay.

Garfinkel proposes making sure the obligation is always a percentage of the noncustodial parent’s income. “That would protect the fathers,” he said. “If you express the obligations as a percent of income, it would automatically reduce the amount of harassment possible.” If a father has no income coming in, then he wouldn’t be obligated to pay and wouldn’t keep racking up debts as many do now. Mothers would also benefit in the long run, given that even a poor father’s income is likely to eventually increase down the road.

stressed single motherA guaranteed payment program, particularly one that doesn’t always try to recoup the costs from low-income fathers who can’t pay, would not come for free. But Garfinkel thinks the amount would be negligible compared to the benefits reaped. Even if custodial parents were guaranteed a payment as high as $3,000 a year, he estimated it would cost the government about $10 billion. Compared to the overall federal budget, “it’s not a big number and it would make a massive difference,” he argued. Poor mothers would not just have more income to invest in their children, but the stability of steady payments could be even more beneficial for children’s development.

Strangely, part of the American system was meant to act somewhat akin to Sweden’s for the very poorest, but today ends up being counterproductive. When welfare was reformed in the 1990s, one change enacted ensured that if a custodial parent gets benefits from Temporary Assistance for Need Families (TANF), any child support payments from the noncustodial parent are taken by the state, not doled out to the parent. “That was the basic concept of welfare,” explained Joan Entmacher, vice president for family economic security at the National Women’s Law Center, “that the state would pay public assistance and then collect child support and keep the child support to reimburse itself.”

stingy state 2Today, however, TANF payments are nearly all worth less than they were in 1996 and only reach a quarter of eligible families. Meanwhile, the system usually serves to discourage poor fathers from paying their obligations, given that they know their money isn’t going to actually make it to their children and the families aren’t usually getting an adequate amount of help from the state. As Elizabeth Lower-Basch, policy coordinator at CLASP, a policy organization for low-income people, put it, “Why on earth would you pay money to go to the state?”

One state, Wisconsin, experimented with changing its program from one where it withholds all child support payments for welfare recipients to now being the only one that directly gives custodial parents most of the support the noncustodial parent pays. In 2006, it evaluated this change and found that it ended up increasing how much noncustodial parents paid and how many custodial parents got support. More states could consider doing the same, but they aren’t incentivized to: they would have to make up for the money they no longer took from child support payments.

rich guyThere are also some efforts across the country to change the way that noncustodial parents’ support obligations are calculated. Currently, when courts hear from a father that he doesn’t have a job or enough money to pay support, some states still calculate the child support payment on his supposed earning capacity or deem that he voluntarily lowered his earnings by taking a lower paying job or even getting fired. And, of course, there is the fact that if a father ends up going to jail over unpaid support, he can still keep accruing debt while he’s there. The Office of Child Support Enforcement proposed changes at the end of last year that would base child support orders on actual earnings and income, not imputed income, and allow incarcerated people to modify their orders rather than treating it as voluntary unemployment.

Some states have also experimented with incarceration diversion programs that would allow noncustodial parents to enter into employment services rather than go to jail. Texas has one of the longest-standing programs, which has increased child support payments and made them more consistent, even after participants leave the program. The challenge, however, is that there isn’t any dedicated funding available to states to create these programs beyond diverting money from the TANF block grant they receive.

Some advocates are aiming higher, however. Jacquelyn Boggess, co-director of the Center for Family Policy and Practice, wants to get rid of the system for the poorest parents altogether. As a paper Irwin Garfinkel co-authored in 2010 notes, “A serious problem with the public child support system is that at its inception, the federal Office of Child Support Enforcement viewed itself exclusively as a law enforcement agency. As a result, fathers have been viewed as lawbreakers rather than clients.” The paper recommends shifting it to more of a social welfare agency than simply about the law.

Boggess’ group is pushing a recommendation to fundamentally change this dynamic: “Taking the poorest families out of the child support system and making sure their children get taken care of,” she said. She noted that the way the system works for these families now, both the custodial and noncustodial parents are assumed to be shirking. “Women are shirking [because they] need to get a job, and men are shirking so we put them in jail,” she said. Instead, she wants the system to “stop taking that perspective and take the perspective that they’re like the rest of us, they want to take care of their children.” That would mean instead creating programs for these families that would focus more on giving them a leg up: housing, income support, employment services.

overthrow

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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