http://www.ctj.org/taxjusticedigest/archive/2013/08/surge_in_tax-wary_us_expats_re.php
In its latest attack on the Foreign Account Tax Compliance Act (FATCA), the Wall Street Journal describes in ominous tones the “record” number of individuals who renounced their U.S. citizenship in the last quarter, supposedly driven by FATCA’s reporting requirements, which are designed to prevent tax evasion.
What scary headlines about a “surge” in expatriations leave out, however, is what a miniscule number it really is. Even the six-fold increase this quarter compared to the second quarter of last year meant that only 1,130 people renounced their citizenship in the second quarter of this year. To give some context, this number represents less than 0.02 percent of the estimated six million Americans that live abroad.
“Surge in Expatriations to Avoid Taxes!” “US expatriates renounce citizenships at record rate!” Pretty alarming headlines. News coverage of what complying with FATCA actually entails has been misleading and would make you think that the rise in renunciations is driven by the “overly burdensome” rules that are financially crippling US citizens living abroad. The fact is, the primary component of FATCA affecting individuals is the requirement that U.S. citizens with $50,000 or more in foreign financial assets (which does not include housing or other basic non-financial assets) simply have to attach a disclosure statement about their accounts in their yearly tax return.
Whatever inconvenience is caused by these requirements is far outweighed by the benefits to the U.S. and its law abiding taxpayers. According to the Congressional Joint Committee on Taxation (JCT), FATCA’s anti-tax evasion measures are estimated to raise $8.7 billion (PDF) over their first decade of implementation (and JCT has a history of underestimating such tax enforcement measures, too.) Considering that the U.S. loses an estimated $100 billion (PDF) annually due to offshore tax abuses, rather than seeking to curtail FATCA, Congress should expand on these efforts through legislation like the Stop Tax Haven Abuse Act in the House or the CUT Unjustified Loopholes Act (PDF) in the Senate.
While the emigration of every single wealthy person abroad is makes big news (see, for example, coverage of Facebook billionaire Eduardo Saverin or singer Tina Turner), the reality is that the number of renunciations is negligible – especially compared to the number of new citizen naturalizations each year. In fact, 503,104 people have been naturalized in the US since the start of Fiscal Year 2013, which means well over 250 people embracing US citizenship for every one person renouncing it over the past several months.Asking the few and largely wealthy Americans with substantial offshore financial assets to do a little extra paperwork is not unreasonable when we know that cracking down on offshore tax evaders will bring in revenues to invest in things like roads, schools, healthcare and a quality of life that make the US so attractive to aspiring U.S. citizens.
I might modify the title of this post later this evening to not specifically refer to Isaac Brock Society which is unmentioned in the article. However, I generally don’t buy the assumption that somehow Citizens for Tax Justice is somehow unaware of the real world impact of FATCA as there were several other article published during the same time as the WSJ article including by Occupy.com. Second CTJ engages in a lot of hyperbole themselves on this issue and has for quite a while and I just assume fight fire with fire.
Yeah, “fight fire with fire”. Those flaming CTJ Fatcanatics don’t want to mess with Brockers or similar minded people who understand the true injustice of citzenship based taxation.
@monalisa, they do not have the resources to look at every minnow filing.
@Wondering, thank you for the clarification that “….US Federal tax dollars mostly support retirees – via Social Security and Medicare – and fund a massive military-industrial-security complex. Most of the US Federal budget goes to Defense, Social Security, and Major Medical Entitlement programs….”
Much as I love my US resident relatives, they do not pay taxes to Canada to support my family here as I do. I see no reason why a Canadian resident with no US economic connection or property or income should be paying to support US residents when I am a citizen and resident of Canada.
The US government is a predator and a parasite as far as its treatment of expats living and earning entirely outside the US. The US is a leech or tick, sucking out the legal local assets of other countries, and leaving us with only injuries in return.
@Tim
As per my previous post – the issue as CTJ sees it is that the US is in dire straits because certain wealthy people (such as Tina Turner) are evading taxes offshore.
My position is that the US is in dire straits because their spending far exceeded their earnings – by many trillions of dollars – especially in the realm of military spending, where fear and paranoia justified a massive transfer of tax revenue and public debt to the benefit of the military-industrial-security complex.
Now the US are facing an economic collapse, most noticeably reported at the Federal level, but actually more pervasively at the State and Municipal level, which is where so much of the untenable debt and entitlement payments have come home to roost. Worryingly, this is the first state in human history to be facing economic collapse while also possessing several thousand nuclear warheads; how that will play out is anyone’s guess, I doubt either Einstein or Oppenheimer could have anticipated the juxtaposition of this vast nuclear arsenal with crushing public debt and economic collapse.
Because we are caught in well-publicized dramas like the XL Pipeline issue, we lose track of how fundamentally more solid and well off (in terms of its balance sheet) Canada is compared to the US. The number of “food stamp” (SNAP) recipients in the US exceeds the entire population of Canada.
The US attractive to immigrants? Let’s put one thing on the table straightaway, most people going to the US come from less well Central and South American countries. People from countries that are as well off if not better (Europe, Japan, Korea, etc) are not queuing up at the US border.
The US continues to shoot itself with FATCA. From the investor’s point of view, gee I want to invest in the US. However I have to worry about 30% withholding tax, FBARs, FATCA forms, John Doe lawsuits, information exchanges, most likely slow IRS refund of 30% withholding tax, being accused of defrauding the United States by the DOJ, sound really attractive.
I’d rather put my money in an investment that performs not as well and avoid all that hassle and potential risk. Investors hate haircuts and that’s what is being threatened by the US if they don’t comply.
It’s going to be interesting what the reaction will be as the 30% withholding gets closer and closer. My prediction people with somewhat less than stella tax affairs with the US are now quietly selling up their positions and after the US pulls the 30% trigger inward foreign capital flows into the US will fall. The Yanks only understand one thing and one thing only loss dollars bills. When US FFIs start to squeal than Congress will spring into action.
Very few foreigners lose there original citizenship when they become citizens of the US or any other country. Neither do they feel any compulsion to renounce it. A few countries, like Cuba, have provisions in their nationality laws (just like the US did until the Supreme Court declared it unconstitutional) that becoming a citizen of another country causes such persons to automatically lose their original citizenship, And just like under US law, persons born outside of Cuba to a Cuban citizen parent are automatically Cuban citizens at birth.
I suppose that means that Senator Ted Cruz, born in Canada to a US citizen mother and a Cuban citizen father, was born with triple citizenship – Cuba, Canada and the US. He was not aware that he was even a Canadian citizen until a Dallas newspaper recently published an article revealing this fact. He is taking action to formally renounce his Canadian citizenship because he considers it a liability rather than an asset. There are others in Congress who, because they were born to a US parent outside of the US, like Congressman Jim Himes (D,CT), who was born in Peru US and therefore has dual citizenship, but find this of no concern whatsoever.
Ted’s father, subsequent to Ted’s birth, became a naturalized US citizen and thus automatically lost his Cuban citizenship. He is now pastor of a Baptist Church in North Dallas, Texas. I presume that since Ted was born a Cuban citizen father outside of Cuba he also acquired US citizenship when he was born as well as with dual citizenship in the US and Canada. He himself did not lose his Cuban citizenship when his father became a US citizen. I doubt that Senator Cruz is even aware that he likely holds Cuban citizenship
But there is one very important fact that comparing the large number of foreign citizens who are becoming naturalized US to the very small number of US citizens who are renouncing their citizenship is totally overlooked. And this we must remember. Drawing simple conclusions from comparing these percentages is truly an “apples and oranges” comparison
Foreigners becoming naturalized US citizens are doing it because they already have permanent residence status in the US and intend to stay here. Undeniably there are indeed benefits of being a citizen of the country you call home. However there is absolutely no reason why they should even think about renouncing their original citizenship because their original country of citizenship, with very few exceptions, imposes no penalties on them if they live, and work in another country, or even if they become a naturalized citizen of that country. Their status living outside of their homeland, either as a foreign resident or as a US citizen, NEVER results in a double tax obligation on their income from sources outside of their other country of citizenship. Other countries, unlike the US, tax on the basis of residence; not on the basis of citizenship. Foreign citizens who are not penalized by their home countries when they become citizens of another country do so with the full support and in harmony with the United Nations Declaration of Universal Human rights which guarantees that every person shall have the right to freely leave and return to their own country.
American citizens living and working abroad are denied this freedom, not by any foreign power, but by or own unique citizenship-based tax laws. That is why today Americans living and working abroad, as Congress enacts more and more legislation to tighten the noose around their necks, are often forced to either come home or renounce their US citizenship in order to survive. It certainly is not an inconsequential act because renunciation of US citizenship is irrevocable. And of Senators Schumer and Reed have their way US citizens who do this could be barred from ever even visiting the US for any purpose for the rest of their lives.
Nobody, as far as I know, ever becomes a naturalized US citizen for the purpose of living and working in a third country. That would be crazy.
On the other hand, those who have US citizens that are living and working in a different country may be forced to renounce it in order to survive. They are literally forced take this drastic step because of the citizenship-based tax laws of the US which literally punish US citizens who, for whatever reason whether deliberate or accidental, are US citizens living outside of the US, by subjecting them simultaneously to the almost-always very different and often totally incompatible tax laws of two different sovereign states on the same income. And no matter what they do to legally minimize their cumulative tax liability this effort is inevitably in vain, because what is not taxed by one country is almost always taxed by the other – and vice-versa. It is a “lowest common denominator” scenario where the US citizen living and working abroad always comes out on the short end of the stick.
So what does this mean? It means that every time anybody points to the fact that there are far more foreigners becoming US citizens than US citizen renouncing US citizenship as proof that all Americans who live and work abroad are nothing less than tax evading traitors that deserve to be punished severely for their “obvious” criminal intentions, they are comparing apples to oranges. This is a totally fallacious conclusion without any basis whatsoever in fact.
We must never forget this and always be prepared to point out, in no uncertain terms that this conclusion has no factual basis. Never remain silent when somebody throws these percentages in your face. Period.
@Roger, I often wonder if the number of people renouncing surges into the hundreds of thousands, will the US introduce a policy by which anyone having regrets would be invited back to restore their citizenship? I could imagine them offering carrot, especially to those of substantial wealth or in indespensible jobs such as doctors or nurses, etc.
I’ve spent too many years in Britain now to even consider it if were offered back to me; plus, I’d be wary of the rules switching yet again…once bitten, twice shy….
@roger conklin
Well stated. Here’s a back of the envelope calculation that might interest you. Factoring in the difference in populations, if US renunciations remain steady US citizens will be renouncing at 4X the rate of Canadians.
Although immigrants and renunciants can be compared to apples and oranges, the reasons why Americans are renouncing may prove to be the same ones why many won’t now want to become American.
Blah77 made some interesting comments at the CNN article:
“Eh, American citizenship is somewhat overrated to begin with. Being the citizen of another country can be just as fruitful and beneficial.
I was naturalized when I was a teenager so I wasn’t exactly knowledgeable of the implications and complications behind citizenship at the time. However if I were to make a choice now, I would probably just retain my Green Card instead. Most citizenship benefits are simply of little consequence to me. I’m not going to petition to move any family members to here. I’ve had no trouble with the law other than traffic tickets so no risk of deportation. I would also have far less hassle shedding the complicated tax burdens if I were to go work overseas (a distinct possibility). Of course I would lose the right to vote but choosing between the politicians of today is like picking between Nosferatu or Dracula. Having the honor to select the lesser of the two evils is not exactly an enticing lure for citizenship.
There was also a time when being an American citizen had its advantage when traveling abroad. However after many plane rides across the Pacific and Atlantic, I have discovered a new truth. As long as you are cautious, relatively low-key, avoid trouble spots and do some research on the destination beforehand, chances are you will never find yourself at the doorsteps of the U.S. consulate. In fact, being an American can actually become a disadvantage when traveling to certain parts of the world and i’m not just talking about those ‘enemy nations’. Higher VISA fees and scam targetting are just two of the more common examples.
With all of that said, I could very much understand the reasons why some people would feel compelled to mail in their passport. It could indeed make a whole lot of sense without much of a downside depending on their circumstances. Patriotism and all that jazz are just cliche slogans that shouldn’t be taken seriosuly in these type of situations where logical analysis is requried.”
fhsyrd386 responded with:
“Obviously, you have no love for America. Given your lack of patriotism, I would prefer you just go somewhere else.”
Blah77:
“Do tell me where in the world did I mention that I don’t like America? I only pointed out some reasons behind why losing citizenship would not be such a terrible thing for me. And yet you feel like you are qualified to judge my ‘patriotism’ and tell me to go elsewhere? I have put in 8 years in the U.S. Air Force. I have been stuck in the 25% (or above) marginal tax rate for the past decade meaning I pay more than 90% of ALL taxpayers. I have volunteered for community services such as habitat for humanity. I also know more about U.S. history than most college history majors. What is your greatest accomplishment as a citizen? Just happened to be be born in an U.S. hospital? Chug some beer at a football tailgate? Shot an AR-15 in your backyard? Maybe I’m being too presumptuous here but I get the feeling that even my toenail clippings are more American than you.
In essence, you can just take your “get out of America if you don’t like it” attitude and shove it up where the sun don’t shine.”
http://money.cnn.com/2013/09/04/news/citizenship-us-tax
BRAVO, blah77!!!
@Roger, I often wonder if the number of people renouncing surges into the hundreds of thousands, will the US introduce a policy by which anyone having regrets would be invited back to restore their citizenship? I could imagine them offering carrot, especially to those of substantial wealth or in indespensible jobs such as doctors or nurses, etc.
As for me, in spite it having been a heart-breaking decision, I now realise that I’ve spent too many years in Britain now to even consider it if were offered back to me, plus I’d be wary of the rules switching yet again…once bitten, twice shy….
@Monalisa, the US never uses a carrot except as a secondary weapon with which to beat you around the head when it has broken or worn out the stick. And should such an unlikely event come to pass, who would take up such an offer to again be a citizen anyway? Clearly not you. And not, I suspect, any other renunciant either. Put your head into the lion’s mouth having successfully extracted it previously? No thanks.
Wonderful logic. Let’s try that same argument in some other contexts which more clearly demonstrate the ethical standards of Citizens for “Tax Justice”:
“While the robbery of every single bank is big news, the reality is that the number of banks I have robbed is negligible – especially compared to the number of new depositors whom I haven’t robbed yet.”
“While the beating of every single bratty child is big news, the reality is that the number of children I have beaten is negligible – especially compared to the number of orphans I could adopt whom I haven’t beaten yet.”
I hope that ACA learns from this—-if ACA proposals were to start gaining ground—the attacks upon their proposals and their organization will come up out of this network and they will spread it over to organizations such as MOVE.on and others. The “people” movements are pretty dangerous.