United States legislation contains a great many references to what it terms “aliens”, by which is meant anybody who is not a U.S. citizen. When the first visitors from outer space arrive in the U.S. they will presumably also be called “aliens”, and a certain amount of confusion will be caused, but in the meantime an alien is somebody who does not share in all the benefits offered to the citizen. He does, however, share most of the burdens, including the burden of taxation. A “resident alien” is treated for tax purposes just like a citizen and is entitled to the same allowances and deductions. The only difference that comes to mind is that a resident alien cannot mark his return form to show that $1 of his taxes should be allocated to the President’s election expenses. That is fair enough, because only a natural-born U.S. citizen can become President.

The situation of the non-resident alien, i.e. the bulk of mankind, does, however, cause some difficulties for the U.S. Internal Revenue Service. The basic law is clear enough: U.S. citizens and resident aliens must pay tax on their world-wide income, and non-resident aliens must pay only if they have U.S. source income. This simple rule, however, causes complications, especially since there are some countries that enjoy very modest levels of taxation. It is likely that business decisions are made on the basis of tax advantages and not on purely commercial grounds, and all U.S. Governments hold that world-wide trade based on free market forces is a fun damental need. The U.S. has thus made over the years a number of international treaties that modify the basic rule, and exempt from U.S. taxation income which would otherwise be taxed. For example, under the current U.S.-United Kingdom treaty, interest paid by a U.S. source to a U.K. resident is not taxed in the U.S.

Tax concessions tend to be abused, or, at least that is what the Internal Revenue Service believes. Constant efforts are made to withdraw or limit concessions in responses to over-enthusiastic use of the provision, and 1982 seems to have been an especially prolific period for second thoughts. Thus, the generous incentives given in 1981 by way of the Accelerated Cost Recovery System have been slightly trimmed back, and the popular leasing provisions have been severely curtailed. The 1982 legislation does not actually modify any treaty concessions for foreigners, but does contain a provision that will lead to difficulties in the future. This is s. 342 of the Tax Equity and Fiscal Responsibility Act of 1982, which says that