When a slave owner allows a slave to buy back his freedom, he must consider the economic loss to himself. Thus, he may consider the price of manumission to equal the future potential profit that he could make from the labour that the slave provides to him. In this way of thinking, it is clear that $2350 renunciation fee is still pretty cheap. Since the US federal government profits from the US citizen–because in the Internal Revenue Code a US citizen is by definition a taxpayer. It is therefore only right that the US government should try to recover its real costs in losing a taxpayer citizen.
The average taxpayer pays every year about $11,000 in federal taxes, and over the course of 50 year working career that would be a total of $550,000. Of course, if you take the US State Department at its word, the actual cost of processing a US renunciation is $2350, so the true cost of full manumision/renunciation really should be $552,350–but in that light $2350 is merely a rounding error. It may be of interest to know that the citizenship application fees are much less than the renunciation fee (see Why It Costs Immigrants $680 to Apply for Naturalization: Critics argue that the fee is too high, discouraging green card-holders from becoming full-fledged citizens). So I don’t actually believe John Kerry’s State Department when it says that the $2350 fee actually reflects the true cost. Logically, it should cost more bureaucratically to investigate a citizenship application thoroughly than to rubber stamp a citizenship renunciation.
The true cost of renunciation is the staff overhead for the five minutes that it takes for a Consular Official to receive the renunciant’s oath of renunciation and about ten minutes of paperwork (filling out the CLN, putting the Consular stamp on it, and handing it to the renunciant). All of the other processes involved in renunciation are the makings of the State Department’s own C.Y.A., and I don’t see why a renunciant should have to cover Kerry’s endlessly waffling bureaucracy. Being very jaded, I believe that the State Department is lying about the costs. I believe their reason for charging $2350 is that they can. US Consulates are booked up for months at a time for renunciation appointments. The $2350 fee hasn’t seemed to cause unhappy citizens to cancel their appointments. This kind of price setting is called in economics, the “Law of Supply and Demand”. The State Department has a complete monopoly on the supply of the product, Certificate of Nationality (CLN), and there is great demand for it, thanks to citizenship-based taxation and FATCA. So essentially, they can keep raising the price until people stop calling for appointments. It is when there are no more bookings for renunciation that the State Department will have set the price of manumission too high for the remaining US citizens, who will prefer remaining in slavery rather than paying for their freedom. Or perhaps, disgruntled citizens will no longer be able to cover the cost of manumission–already some are complaining that they cannot afford $2350.
Now everyone needs to remember that if they commit a relinquishing act, quite outside the purview of the State Department, they can just simply obtain a CLN by informing the Consulate that they are no longer a US citizen (at least for now there is no fee). However, if you are unable claim a relinquishing act, think of the $2350 as a small price to pay for your freedom. In essence, the United States sees a renunciation as an act of freeing yourself from perpetual tax slavery. It greatly angers the US government–the same as slave owners become angry with runaway slaves. Therefore, this trend of increasing the fee for renunciation has only just started. Before 2011, the fee for renunciation was zero. Then the State Department started charging $450. Now, in 2014 it is $2350. But I say that $2350 is a small price, when some of the cross-border accounts charge over $2000 to do simple US tax returns. At the current rate of fee increase (522% every 3 years), we can expect that by the year 2017, the cost of renunciation will be $12,275. So get your freedom now while it is still well below cost. If you want an investor’s explanation of this, consider Benjamin Graham, The Intelligent Investor. If manumission costs $2350 while it is worth $550,000, it is a value investment.
Ah Petros … another lovely analysis … though you forget to discount the future cash flows at the cost of capital …. though it is true that the US Treasury has the ability and the will to manipulate interest rates.
Nervousinvestor: In your view, would the DCF increase or decrease the real investment value of the CLN? Could you explain?
@ Petros – LOL. I guess that to the person who is renouncing the estimated future cash outflows (in the form of taxation and any other anticipated costs) need to be discounted for expected interest rates plus (in cases where the interest rate is being artificially depressed by a Government) an estimate of future inflation to arrive at the net present value (to the rennunciant) of the future cash outflow. If this exceeds the US$2,350 then the fee is clearly worth the simple financial cost. Of course the matter is more complex as there is the question of economic opportunities (tax deferred pension funds, promotion by employers to levels requiring the exercise of signing authority on employer bank accounts and even partnership in businesses) that the US Person will be denied should they remain a US Person. Then there is the matter of the days lost trying to comply with this maze of regulations. LOL what a fun exercise (Horror) this would be to estimate for someone as a purely academic exercise.
Will check back latter.
@Petros
You should also consider the value of NOT being a U.S. citizen to the renouncer.
Put it this way:
“Not being a U.S. citizen is priceless. For everything else there is Mastercard.”
USCitizenAbroad, so what you are saying is that the CLN may actually be worth considerably more than $550,000?
And if one can use Mastercard, are you in favor of taking a leveraged long position on a CLN?
@Nervousinvestor, $2000-5000 tax preparation per year x 50 years = $100,000-$250,000. But that’s just in terms of fees paid to folks like Nightingale. Also, opportunity cost in time personally spent preparing taxes–let’s say modestly 1 week per year = $2000 at modest rate of labour (about $24 per hour)–2000*50=$100,000.
The savings in US taxes is difficult to assess. The lost investment opportunities in tax defered could be worth a million or more over the course of a lifetime. The lost capital gains on primary dwelling, can be in the tens or hundreds of thousands.
If you borrowed $2350= $94 per year at 4% interest. It seems better to leverage up than to continue paying Nightingale.
If you are a US citizen about to become sworn in as a Canadian citizen: When you go, get sworn in as a Canadian, and then go directly to the U.S. consulate to renew your U.S. passport even if it has 9 years left on it. Be sure to tell them you got sworn in as a Canadian citizen this morning. They will ask you if you INTENDED to relinquish your US citizenship, so say YES. When they refuse to issue the U.S. Passport, get it in writing: They won’t issue the passport because you are no longer a U.S. citizen. You have also notified the U.S. State Department of your loss of nationality. (You can even complete the passport application and sign it before you take the oath.) If you became a Canadian citizen years ago or performed an expatriating act such as taking a Canadian government job requiring a loyalty oath, bring your Canadian passport to the U.S. consulate to apply for a visa of some type. When they ask why you want a visa instead of using a U.S. passport, tell them you lost U.S. citizenship by being sworn in as a Canadian. –Now, I’m not sure they do the same process here, somebody check me on this– They ask if you intended to lose U.S. citizenship, and you answer in the affirmative. Especially if they stamp a U.S. visa in your passport, they are going on record as acknowledging your loss of U.S. citizenship as of the date of the expatriating act years ago. And this, unlike applying for a U.S. passport, does not involve the dishonourable act of posing as a U.S. citizen even to complete an application (which is not so dishonourable if you only became a Canadian citizen this morning.) If they do not issue the visa for some other reason, at least you are on record saying you intended to lose U.S. citizenship as of the date of the expatriating act. Put it all in writing so your executor can go by it.
@Petros – LOL …. there is no question that it is best to to bite the bullet and pay the fee. What price Freedom !?! Gosh would it not have been sad if in the 1800s the Government of Canada had chosen to send escaped slaves back to the US ! Harper seems to be the sort who would do that. Young Trudeau doesn’t seem to even understand that there is an issue.
@Petros – and notwithstanding the evidence before their faces, the US continues these obnoxious policies which serve to make Americans more and more disliked in the world. How does one define insanity ?
@Tom Alciere, such measures actually might work. I don’t think you need to have an appointment to apply for a passport. Still you will have to pay the passport application fee in order to get them to make an official ruling that you don’t deserve the passport. That can be risky: what if they decide that the mere act of applying for a passport actually shows the intention of keeping US citizenship? When they issue you the passport your screwed.
It’s best to get an appointment to tell them that you’ve relinquished. It is less ambiguous that way.
@TomAlciere
Asking for a new US passport is evidence that one DID NOT want to relinquish US nationality.
While I get your point that the cost of retaining U.S. citizenship is so high over a lifetime, I resent that the U.S. has made it that high, and after the IGA deadline, made the cost of renunciation several times more exorbitant. It reinforces my opinion that FATCA is an extortion racket on the same level as the bank bailouts on the backs of working-class Americans that resulted in making the six biggest banks far richer and far more arrogant, as Elizabeth Warren explains:
http://www.huffingtonpost.com/2013/11/12/elizabeth-warren-too-big-to-fail_n_4260871.html
I firmly believe the only way to keep this whole FATCA and renunciation racket from getting worse and worse is through the ADCS path to a Supreme Court ruling (and Bopp’s American equivalent).
My DH and I finally obtained our Cdn. citizenship back in 2005, but 2 years ago, we panicked and renewed our U.S. passports in order to attend my dad’s memorial service, because of the U.S. ruling about U.S. passports for U.S.-born people. So we forfeited our get-out-of-jail-free card out of U.S. citizenship just to make sure we could cross the border when we needed to. To be honest, we also have misgivings about acquiring CLNs if it meant we couldn’t visit our remaining parents and siblings.
Surprisingly, the U.S. has not bothered us after our passport renewal, so we are still able to live in the shadows (which we have to do in order to make ends meet and to get our kids through the local university.) Evidently, the U.S. is counting on the IGA with Canada to catch anyone with U.S. indicia.
P.S. About Elizabeth’s comment on the biggest banks getting bigger, even the Politifact.com site marked her comment as “mostly true”:
http://www.politifact.com/truth-o-meter/statements/2014/may/22/elizabeth-warren/elizabeth-warren-says-top-five-banks-are-38-percen/
Thanks, Petros… Give the DOS ideas, why don’t you? 😛
Now there is this from Simon Black:
Of course, I can’t think of anyone else that taxes you upon manumission. Oh, wait.
Even with a CLN, I’ll always have the scourge of birthplace and forever have to provide proof that I’m not a USC. This is insanity.
Looks like Slavery never ended in 1865. It is alive and well in the USA making “slaves” out of everyone who was born there. This sounds like a sick joke to many people who won’t take the time to understand fatca. For many, this is no joke. The USA is telling the whole world that slavery is justifiable!
@Tom Alciere
Your clever ideas will be flummoxed by the fact that it may be impossible to obtain an in-person interview for a passport renewal. US CITIZENS SERVICES LONDON: “You must renew your passport by mail”, and send us $110.00, and a postage paid Special Delivery return envelope. Perhaps if you have lost your current passport you might get an interview. If you do, make sure you don’t make the mistake of carrying your phone with you. These highly suspicious devices (often made by Apple) are not allowed in a US consulate.
@bubblebustin
The optimistic side in me says that this insanity cannot last forever. At some point basic human decency and common sense have to win out. However the skeptical side of me worries that this could get worse before it gets better – we are dealing with a powerful nation in serious financial difficulty. After squandering hundreds of billions in Iraq over the past decade, how is the US going to pay for Obama’s new war against the Islamic State? With the “official” US national debt over
$17 trillion?
@Mr A – not official US debt … just official, on the books, Federal only, US debt …. the States, Counties and Cities owe additional funds and many are in severe financial circumstances themselves (vide Detroit as an example). The off the books debt like unfunded commitments to future pensions, welfare, medicare etc take the total Federal obligations above $50 Trillion I understand … way above as I hear it ….. maybe 50% more.
@Mr A – the US seems to me to be essential bankrupt and survives primarily on receiving the savings of the world as a result of it’s currency’s role as World Reserve Currency. Without that inflow of savings cash I suspect that the shelves at Walmart would empty in a couple weeks.
@Mr. A.
The IRS warning that there’s people out posing as the IRS says nothing of the fact there exists some bank employees who will find American bank customers too irresistible not to fleece.
Michael Young made these predictions almost two years ago:
…”The American government is effectively asking foreign institutions to prepare detailed data bases of American citizens, with no guidelines explaining how this information must be protected. For a country obsessed with the security of its citizens in the aftermath of the 9/11 attacks, such behavior is paradoxical, indeed astonishing.”…
More:
https://now.mmedia.me/lb/en/commentaryanalysis/fatcas_security_problem
I’d like to hear Treasury official Robert Stack’s response to the IRS’s bulletin – is it a “myth”? The US Treasury has already proven with its illegal IGA’s that it’s willing to go to any extent to make sure FATCA flies. We’re just collateral damage in the greater war against offshore tax evasion they’ve set in motion. Unfortunately Churchill will probably be right on this one too:
“You can always count on Americans to do the right thing – after they’ve tried everything else.”
Could I suggest that Brockers make comments at the following link. http://www.regulations.gov/#!documentDetail;D=DOS_FRDOC_0001-2956 Comments on the fee-hikes for consular services are being accepted until Oct. 21.
I am unable to do so (still Muzzled in some regards) but if I could, my comment would be as follows:
“It is every American’s constitutional right to renounce his citizenship. As a right, renunciation of citizenship should be free of charge or, at worst, available at an extremely nominal fee, certainly no higher than the “user-pay” fee one would be charged for a passport. A $450 fee was bad enough. For many citizens, the new fee of $2350.00 has priced renunciation beyond their ability to pay. The $2350.00 fee effectively denies them their constitutional right to renounce.
“Renunciation of citizenship is a right guaranteed to all, not a privilege reserved for a few. As such, the US government *must* provide the necessary service at no or low cost. If a renunciation application actually costs the State Department $2350.00 then it is its responsibility to simplify its procedure thereby reducing those costs.
“Perhaps a lesson can be taken from the German government’s renunciation procedure. The application form is available online. The applicant fills out the form and mails it in with certified copies of a couple of documents. No fee. No in-person interviews. No fancy ceremonies. The renunciation is considered in effect when a certificate is received by the applicant. Simple. Efficient. Cost-effective. There is no need for the complexity with which the US State Department’s process is currently burdened.”
If anybody wants to submit that comment under their own moniker I’d be delighted!
@MuzzledNoMore
At the site you mention one can submit a comment with complete anonymity. There is no requirement to give any name. I mention this in case anyone else has been put off from commenting by thinking it is necessary to give real identification. Take you chance.
I am inclined to feel trusting. I do not think they will be recording IP addresses and hunting down people whose comments they don’t like.
It surprises me that they are only showing 34 comments received.