Expats mostly immune from U.S. fiscal cuts, expert says


Although expats here can be involved spectators of the financial hijinks in Washington, D.C., few will actually be affected directly by the so-called fiscal cliff.

At least that is the view of David G. Housman, a lawyer and certified public accountant in Cuidad Cariari.

“I believe that if the budget cuts are enacted, it would have almost no effect on us expats, primarily because while we are taxpayers, we receive disproportionately few benefits, a continuing complaint among the U.S. community here,” he said.

The fiscal cliff is a term that refers to the combined economic shock of deep spending cuts and automatic tax hikes starting Jan, 1. Without a compromise on ways to reduce the nation’s $16 trillion dollar debt, experts say a U.S. recession is likely.

The situation got even worse Thursday when the speaker of the U.S. House, John Boehner, suffered a major setback in his showdown over taxes and spending with President Barack Obama. The speaker unexpectedly failed to get the votes he needed from his own Republican lawmakers to hold a vote on a tax bill he had proposed as an alternative to the tax and spending bill put forward by Obama. Thursday’s developments have thrown efforts to avoid the so-called fiscal cliff even more into chaos.

Housman notes that the most important U.S. government benefit for expats here is Social Security, and that is not likely to be touched. The same goes for Medicare, he added.

Social Security is a sacred cow despite all the innuendoes to the contrary, he said, noting that the huge voting bloc of beneficiaries and close-to-being-beneficiaries will not allow cuts to happen. As for Medicare, another prime and legitimate gripe for expats here, there is no effect, he said.

As most U.S. expats know, even if they pay for Medicare, they cannot receive benefits outside the United States.

“From an income tax standpoint, the number of U.S. taxpayers in Costa Rica with a reportable income over $250,000, would surprise me to be over 100. And almost everyone in that small group has sufficient income to absorb the tax increase,” said Housman.

U.S. Senate Democrats have already passed a bill that would raise taxes on incomes higher than $250,000, and they say that is the bill they want from Boehner. The House speaker is holding out for a $1 million threshold.

“As of now, there has been no selling stampede in the stock market which would happen if any major changes on capital gain taxation would be in the offing,” said Housman. “This is a very strong indication that the capital gains and dividend taxation will not be changed.” Nor would the current law that exempts from capital gains the first $250,000 on a principal residence or the first $500,000 for married taxpayers, he said. No change to that has been considered, he noted.

There was high drama on Capitol Hill Thursday night, as Boehner tried to push through his own alternative tax cut and spending cuts bill. Boehner’s spending cuts bill passed by a narrow majority, but he suddenly withdrew plans for a vote on his tax cut bill, citing a lack of support. His tax bill would have raised taxes only on the annual incomes of those earning more than $1 million a year. Boehner left the Capitol without talking to reporters,

Analysts say the tax cut bill would have been symbolic anyway, because Senate Democrats had made clear they would not even bring the measure up for debate. Earlier in the day, Senate Majority Leader Harry Reid said Boehner’s bills are going nowhere.

Negotiations between Boehner and the president have been suspended for several days. Republican Majority Leader Eric Cantor indicated late Thursday that there will be no more votes in the House until after the Christmas holiday.

Before Thursday’s developments, President Obama had rejected Boehner’s bills and called on him to come back to the negotiating table before time runs out.

Throughout the long debate on taxes and spending, Democrats have insisted on raising taxes on the wealthiest Americans, and Republicans have insisted on significant cuts to social programs that Democrats hold dear. Now, with the Christmas holiday and the end of the year approaching, there is no clear path forward for a compromise.

Economists have said the combination of massive tax increases and spending cuts could throw the U.S. economy back into recession.

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