How the #IRS has become one of America's leading exports http://t.co/XMfei38Vvm – #FATCA anyone. Maybe US should produce exports of value.
— U.S. Citizen Abroad (@USCitizenAbroad) August 7, 2013
Attention Senator Baucus, Representative Camp and the Ways and Means Committee:
In 1996 James Dale Davidson writing in “The Sovereign Individual” noted on page 287 that:
Unless there is an astonishing and most radical change in policies, the successful investor or entrepreneur in the Information age will pay a lifetime penalty of tens of millions, hundreds of millions, or even billions of dollars to reside in countries with the fiscal policies like those that have enjoyed the highest living standards during the twentieth century.
Absent, a radical change the penalty will be the highest for Americans. The United States is one of just three jurisdictions on the planet that impose taxes based on nationality rather than residence. The other two are the Philippines, a former U.S. colony, and Eritrea, one of whose exiled leaders fell under the spell of the IRS during its long rebellion against Ethiopian rule. Eritrea now imposes a nationality tax of 3 percent. While this is a pale imitation of U.S. rates, even that burden makes Eritrean citizenship a burden during the information age. Current law makes U.S. citizenship even a larger liability. The IRS has become one of America’s leading exports. More than any other country, the United States reaches to the corners of the earth to extract income from its nationals.
If a 747 jetliner filled with one investor from each jurisdiction on earth touched down in a newly independent country, and each investor risked $1000 in a start-up venture, in the new economy, the American would face a far higher tax than anybody else on any gains. Special, penal taxation of foreign investment, exemplified by the so-called PFIC taxation, plus the U.S. nationality tax, can result in tax liabilities of 200 per cent or more on long term assets held outside the United States. A successful American could reduce his total lifetime tax burden as a citizen of any of more than 280 other jurisdictions on the globe.
The United States has the globe’s most predatory, soak-the-rich tax system. Americans living in the United States or abroad, are treated more like assets and less like customers than citizens or any other country.
…
Holding a U.S. passport is destined to become a major drawback to realizing the opportunities for individual autonomy made possible by the information revolution. Being born an American during the industrial revolution was a lucky accident. Even in the early stages of the Information Age, it has become a multi-million dollar liability.
To see how great a liability, consider this comparison. Under reasonable assumptions, a New Zealander with with the same pre-tax performance as the average of the top 1% of American taxpayers would pay so much less in taxes that the compounding of his tax savings alone would make him richer than the American ever would ever be. At the end of a lifetime, the New Zealander would have $73 million more to leave to his children or grandchildren. And New Zealand is not even a tax haven.
I am a great fan of Mr. Davidson’s work. Note that this book was published in 1997 (and presumably written in 1996). If anybody noticed this comment, I expect they would not have believed him. Note this comment that:
“Special, penal taxation of foreign investment, exemplified by the so-called PFIC taxation, plus the U.S. nationality tax, can result in tax liabilities of 200 per cent or more on long term assets held outside the United States.”
Those countries contemplating FATCA IGAs need to understand how the application of the PFIC rules will steal from their treasuries.
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I also am quickly becoming of fan of Mr. Davidson. Have just finished his new book “Brazil is the New America – How Brazil Offers Upward Mobility in a Collapsing World.” (2012) Fascinating insights and info on how Brazil is set to become incredibly successful.
He also speaks to the issues of expatriation, the exit tax and renunciation.
Some tidbits from Chapter 7, “Rome” Falls, Again: Economic Closure and Financial Repression as the United States Faces Bankruptcy (pp 168-69)
“Many more people than you may have already begun to believe in the coming bankruptcy of the United States. This is reflected in something I heard from an American living in Geneva. He had just been visiting with some consular official who works in the American Embassy in Bern. The woman from the embassy told him something astonishing-that the wait for the exit interviews required to renounce U.S. citizenship now exceeds three years. This statistic reflects a swelling recognition by successful Americans that U.S. citizenship is a major liability.”
Section-“The New Berlin Wall” (pp 170-172)
“While it may seem obvious to you that the U.S. government is hopelessly insolvent, it is my opinion that the United States will become a full-fledged police state before it collapses, destined to be the Argentina of the twenty-first century. It won’t be pretty.”
“The growth of predatory taxation and the multiplication of legal restrictions on emigration have made it costly and complicated to join the 742 Americans leaving the United States each hour.”
“The passage of President Obama’s highway bill will give the IRS the power to prevent any American from travelling abroad. It will become even more compliccated to escape.”
Section- “Americans as the New Illegal Emigrants” (pp 172-74)
“The State Department suggests that about 1.34 million Americans have become “illegal emigrants,” which is to say, they have gone abroad and fallen off the radar.”
“According to the Center for Immigration Studies, a think tank that agitates for tighter border controls, the number of illegal immigrants living in the United States declined to 11 million in 2008 from 12.5 million in 2007. For the first time since the depths of the Great Depression in the early 1930’s, more persons appear to have left the United States than moved in.”
While he appears to focus more on successful Americans leaving the US, he does cover many issues that we have discussed. He believes that most Americans who have left will prefer to simply disappear. Further, “The Obama administration sweems to think so, too. That is why they are increasing financial repression, using heavy-handed tactics to make it difficult for Americans to open bank accounts outside the United States, even if they live abroad.”
He goes on to mention Form 8938 and that “for those who are not multimillionaires, and therefore unlikely to be pursued by the IRS, the drastic stop of renouncing citizenship might seem unwarranted.” However, he puts this in perspective by pointing out that “Falling relative income is associated with large out-migration.” Apparently in the UK, since 1901, more people emigrated from the UK than immigrated, with 15,600,000 having left by 1997. He thinks a similar exodus will occur in the US and may have already begun.
“You may not think of yourself this way, but if you are a U.S. citizen you are one of the “assets” of the fisc. You are not yet a complete slave as the Roman urban middle class became, but you face ruin nonetheless, as the dollar collapses and the inevitable bankruptcy of the United States looms.”
All things considered, it may be a blessing in disguise that many of us are already out and others are on the way.
Starting “The Sovereign Individual” tonight!
I know a wealthy US citizen living in India. He is a billionaire and all his assets are outside of the USA. I believe, his children are not US persons. How could IRS impose inheritance tax, when his children inherit the assets?
Sounds like an interesting book, but statements like this are surely incorrect. From what’s been reported at IBS, renouncing at Bern is just about as quick and painless as it can get, i.e. just a few weeks turnaround time.
“He had just been visiting with some consular official who works in the American Embassy in Bern. The woman from the embassy told him something astonishing-that the wait for the exit interviews required to renounce U.S. citizenship now exceeds three years. “
@notamused
I would imagine that info was given at least a year before the book was published. I remember hearing such stories in 2011. I just found it interesting to note there were others we weren’t necessarily aware of at the time, who were paying some attention to this.
@notamused, someone here reported that they tripled their staff at Bern to handle the load of relinquishments. That would have reduced the waiting time considerably.
@ An Asian Expat
The IRS would simply impose a 45% inheritance tax on the money going to his non-US person children. There may be ways to delay the tax through estate planning, but a maximum 45% is levied on estates going to non-US persons.
@ Wellington says,
My question is how IRS could collect that tax from a dead person in a foreign country. The kids are not US-persons but citizens of foreign country, so can’t take legal action against them. That money was made in foreign country, which may have strict currency controls. The country in which the money is located has first claim on the wealth.
Just curious, I am sure the billionaire or his hires can hire best lawyers for tax planning. Also I am sure any billionaire in most Asian countries is well connected and politically very powerful (of course, unless willing to go to war for collecting taxes from non-US hires on the money earned in the foreign country).
Has anyone had a problem with going into this website? Every time I try to go into “isaacbrocksociety.ca” (I have it bookmarked, it goes to a site called “Webnames.ca”. Is there something wrong with the sitename? I now end up having to go through Google Search to try to get to the site.
Animal,
I have had the same problem, but not in a long time. I rebooted and refreshed the isaacbrocksociety.ca page — with Petros’ advice. I did get on eventually.
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Deekras (dears), we left USA after 20 years of toil and drudgery for Singapore. We were lucky, we only had green cards and just let them expire. But I meet many newcomers to Singapore, Americanos in particular, who need to stay here and first get Singaporean citizenship AND THEN they can renounce. And renouncing, I have been told many times is NOT east and NOT automatic.
I pity these people but at least they were able to leave. Too many Americanos are not able to leave or have been brainwashed into thinking that USA is the best place on earth. Stupid people.
Anyway, my advice to you is that if you are physically able to leave, then leave. Forget all that nonsense that USA is the land of opportunity and freedom. In many ways you are freer in other parts of the world and have better opportunities than there.
It’s all about the confiscation of assets.
I have had that problem often. I then use facebook to get in successfully until somehow it corrects itself.