As Deutsche Welle noted, earlier this week the United Nations Population Division released their report on international migrant stocks for 2015, based on a hodgepodge of sometimes-reliable national-level statistics on either the citizenship of local residents (thus undercounting dual citizens) or their birthplace (thus undercounting Americans born in other countries). Most countries’ figures were based on birthplace.
These statistics put the size of the American diaspora at about 2.8 million, an increase of 320 thousand since five years ago. The State Department, whose estimates attempt to capture children of American emigrants as well as naturalised immigrants who returned to their place of birth or moved to other countries, claimed in 2014 that about 7.6 million Americans live outside of the Homeland, whereas in 2006 they stated that the number was 4 million.
Why are all these hundreds of thousands or millions leaving? Well, a recent article from the Homeland (thanks to Tom Alciere for posting it) made a rather audacious claim, probably because the author is confused about the difference between leaving the country and renouncing citizenship.
Tax laws main reason for US citizens’ decision to move abroad …
When it comes to tax rates, the US is no safe haven. It’s 22.7 percent tax rates makes it the eighth (!) highest in the world. Mexico’s tax rate is 9.5 percent. Few countries can compete with the US when it comes to the notion that the last person entitled to your hard earned money is you. The IRS has it down to a science …
Why would anyone in their right mind willingly leave the US? The most common reasons are tax laws.
In reality, aside from Mexico and Ecuador, all of the countries reporting the largest increases in their U.S.-born/U.S. citizen population in the last five years have larger governments relative to the size of their economies and higher tax burdens than the United States. (As it turns out, most of the people moving to Mexico are kids, who don’t have much choice in the matter.)
This has obvious implications for U.S. diaspora tax policy: even if Washington eliminates the Foreign Earned Income Exclusion, they are obligated by treaty to provide foreign tax credits to emigrants who are paying taxes in treaty countries, and most emigrants who actually have income are also likely to have plenty of FTCs. Thus, the only way Washington can get money out of the diaspora is by fining them, by inventing “income” out of thin air, or by deliberately making their tax system incompatible with that of other countries. And that’s exactly what they’ve been doing.
Table of contents
The U.N. collected statistics from 220 non-U.S. states and territories, and made estimates for six. Among those, 70 (mostly in Africa and the Pacific) either had no U.S.-connected people living there or didn’t provide data; a few of these are known to be major destinations for American expats (e.g. Malaysia, Saudi Arabia), though none are likely to be places of permanent emigration.
Another 30 adopted the citizenship-based reporting standard, and said that they had 250,302 U.S. citizens living there, up by 23,181 from 2010; nearly four-fifths of those were located in just five countries (South Korea, Japan, China, the Philippines, and the UAE). The remaining 126 territories adopted the place-of-birth standard, and said that they had 2,569,074 U.S.-born people living there, up by 299,439 during the same period. No country besides Jordan reported a decrease of more than a few percent in their American population.
The countries for which the U.N. made estimates rather than using actual reported data look extremely dubious (I’m quite curious about the 94 U.S.-born people who allegedly moved to North Korea), but fortunately they comprise only a small amount of the total. Americans in some countries, particularly in Southeast Asia and the Middle East, may have been undercounted; I discuss that possibility below.
Using Heritage Foundation data on different countries’ tax burdens as a percentage of GDP, I divided the world up into countries with a higher tax burden than the U.S.’ 25.1% of GDP, and countries with a lower tax burden, and looked at the number of migrants to countries in each group. I separated out Mexico — by far the most common destination — for reasons discussed below.
|Count||% of U.S. migrant stock||Count||% of U.S. migrant flow||% growth since 2010|
|No tax rate data||25,763||0.9%||609||0.2%||2.4%|
Below is a more detailed table with the top 10 destinations having higher tax burdens than the U.S., and those having lower tax burdens than the U.S., ranked by the number of U.S.-born people or U.S. citizens who moved there in the last five years (countries which used citizenship rather than place of birth as their reporting standard are indicated in italics). Note also that even among the lower-tax destinations, only three (Guatemala, Panama, Singapore) have territorial tax systems; the rest have residential tax systems in which residents pay tax on all their income whatever its source. And according to Wikipedia, none of these countries have a top statutory individual tax rate lower than 20%, aside perhaps from Libya.
|Top 10 higher-tax destinations||Top 10 lower-tax destinations|
|Country||U.S. migrant population||Tax burden (% of GDP)||Country||U.S. migrant population||Tax burden (% of GDP)|
Also worth noting in relation to taxes: among the ten countries reporting the largest increases in their U.S. populations (all birthplace-based, except South Korea), four did not have U.S. Social Security totalisation agreements, including the top destination, Mexico. Every single one of the most popular lower-tax destinations also lack totalisation agreements with the U.S. In total, 138,011 U.S.-born people or U.S. citizens moved to countries with totalisation agreements, 134,610 moved to Mexico, and 50,999 moved to other countries without totalisation agreements.
It looks like some destination countries have severely underreported their foreign populations. For example, here’s South Korea’s Ministry of Foreign Affairs statistics on South Korean citizens abroad for 2015 compared to the UN data, for 10 major destination countries which reported migrants based on citizenship rather than place of birth (meaning their data should be directly comparable to the South Korean MOFA data, aside from time mismatches). In my experience, the South Korean MOFA data is generally pretty good given the South Korean government’s need to track citizen migration in order to implement the conscription laws, and it shows that some countries may have missed hundreds of thousands of South Korean citizens (and probably hundreds of thousands of Americans as well, particularly in the Philippines):
|Country||South Korean MOFA stats.||U.N. stats.||Understatement|
|Saudi Arabia||5,157||pg. 41||N/A||5,157||100.0%|
|United Arab Emirates||10,356||pg. 41||N/A||10,356||100.0%|
In addition, the report does not include UN non-member states. Most — e.g. South Ossetia and Transnistria — aren’t likely to be major destinations for U.S. emigrants. However, the most economically-developed non-member — the Republic of China, which controls Taiwan and a few other islands — does have quite a few U.S.-connected people living there.
The statistics of Taiwan’s Ministry of the Interior — which count only foreigners who got residence visas on their U.S. passports — showed 12,742 Americans with valid residence permits in June 2010, and 12,647 in June 2015, a decrease of 95. There are also believed to be tens or even hundreds of thousands of dual citizens and green card holders living there as well (though unlike in South Korea, the government doesn’t keep very good track of them). For an example of the higher estimate, see this Apple Daily article — which at least has the courtesy to call them “Taiwanese people with U.S. citizenship or green cards” (擁有美國籍及綠卡的台灣人) rather than “American citizens abiding in Taiwan”.
Homelanders of all political stripes share the perverse fantasy that U.S. natives who move abroad are “fleeing taxes” — the Republicans because they imagine it as vindication of their desire to lower taxes on Homeland corporations, the Democrats because they think the emigrants are moving to tax havens and so will have few Section 901 foreign tax credits to protect them from the IRS, and both sides because they think America is the World’s Greatest Country and the only reason anyone could possibly want to leave is for tax reasons.
In reality, as Amanda Klekowski von Koppenfels discussed, most emigrants are moving to places where they or their spouses have relatives and/or employment prospects. Those destinations will tend to be upper-income ones — employment prospects aren’t likely to be good in poor countries, and if your relatives are in a poor country, you’ll often find it better to bring them to the U.S., or to support them by working in the U.S. and sending money. And most upper-income countries have higher tax burdens than the U.S., meaning that emigrants should have plenty of foreign tax credits available to offset U.S. tax.
Many of those who do move to a lower-income countries (the majority of the popular lower-tax destinations) are children of non-citizens, and not earning any income at all. Even those who are adults often earn less than when they lived in the U.S. (either because they’re retiring or because their new job pays lower wages), almost always leaving them below the FEIE threshold and sometimes leaving them with too little income to have to file a U.S. tax return at all. This is particularly true of Mexico, one of only two lower-tax countries among the top ten destinations for American emigrants: the majority of U.S.-born people moving there are children, accompanying Mexican parents who are returning to the country (sometimes voluntarily, sometimes due to deportation). A 2015 study by the Pew Hispanic Center found that among the 1 million people who left the U.S. for Mexico from 2009 to 2014, 100,000 were U.S.-born children under the age of five. I suspect that something similar may be true for Ecuador, though I have not found any sources stating so explicitly.
As a result, the tiny minority in the U.S. government who know the actual situation of the American diaspora — some Treasury officials and Senate Finance Committee members — understand that the only way they can extract more money from us is by creating fictitious types of “income” on which no tax credits will be available, by breaking into foreign government-subsidised savings plans to pilfer their contents, by refusing to ameliorate double social insurance taxation, and by imposing obscene fines for paperwork errors. Different parties have emphasised different parts of this formula when in office, but all four of these trends were seen as early as the 1980s, and have expanded greatly since the 1990s.
Contrary to Homelander myths that people “flee America because of taxes”, taxes are not what drive people to leave the country. However, taxes certainly are what drive emigrants to despair once they’ve arrived in their (mostly higher-tax) destinations and settled down, leaving them with only three options: paying thousands of dollars for tickets back to the U.S. for the whole family, paying thousands of dollars to get all their IRS paperwork in order, or paying thousands of dollars to give up citizenship.