• money_loo@1337lemmy.com
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    1 year ago

    You can just Google it or ask AI, y’know. Number 2 really stands out, if you’re curious.

    The United States is one of the few countries that has a system of taxing its citizens and residents on their worldwide income, including income earned abroad. This practice is known as "citizenship-based taxation." There are a few reasons why the U.S. follows this approach:

    1. Historical Reasons: The United States has had a system of citizenship-based taxation in place for a long time. It dates back to the Civil War era when it was implemented to fund the war effort.

    2. Desire to Prevent Tax Evasion: Citizenship-based taxation is intended to prevent U.S. citizens and residents from avoiding taxes by moving their assets or income abroad. Without it, individuals might seek tax havens to reduce their tax liability.

    3. Complex Tax Code: The U.S. tax code is complex, and changing to a different system, such as residence-based taxation (taxing only income earned within the country), would require a significant overhaul of tax laws.

    4. Revenue Generation: Taxing foreign income allows the U.S. government to generate revenue from its citizens and residents, regardless of where they earn their income.

    It's worth noting that while the U.S. taxes its citizens and residents on foreign income, there are mechanisms in place, such as the Foreign Earned Income Exclusion and foreign tax credits, to mitigate double taxation and reduce the tax burden on income earned in other countries. However, compliance with U.S. tax laws related to foreign income can be complex and may require professional assistance for those living abroad.