“There is something fundamentally wrong with a country where compliance with its laws
forces you to (eventually) renounce your citizenship.”
This post is based on a comment by John Richardson. The comment is a response to
a post by laurainparis on the Thom Hartmann blogsite.
*******
Laura, you conclude your last comment with:
“In asking his question Thom demonstrates the importance of how the United States treates it citizens when they leave the country. He demonstrates that this is an important question not just for Americans who live outside the US, but for ALL Americans, regardless of where they live. Because anyone who thinks they can leave the country, anyone who comforts themselves with this idea – anyone who asks the question “why don’t more Americans leave?” – they are deluding themselves. There is no freedom for Americans. Americans are not free to live normal lives outside the US, unless they are financially and emotionally prepared to STOP BEING AMERICANS (that is, renounce their citizenship). The word “ironic” doesn’t begin to describe the situation. The words “impossible” and “tragic” do.”
A tragic situation indeed.
What’s most interesting and tragic is that:
The ones who try the hardest to comply with the U.S. rules are the ones who ultimately are forced to renounce. I have assisted a very large number of people in renouncing their U.S. citizenship (and thereby ending U.S. jursidction over them). A high percentage of people I have assisted are people who:
1. Have tried for years to comply with the “alphabet soup” series of laws and reguations that govern the lives of Americans abroad; and
2. Realize that compliance is no longer possible.
The only remaining Americans abroad will be “noncompliant” Americans abroad
In the long run, the only Americans abroad who will be able to retain their U.S. citizenship are those who do NOT attempt compliance with these laws. There is something fundamentally wrong with a country where compliance with its laws forces you to (eventually) renounce your citizenship. This is a problem that has escalated over time.
U.S. citizens abroad are living under siege.
A wonderful expression of the evolution of the problem comes from Jackie Bugnion in
her submission
to the House Ways and Means Committee on Tax Reform. Writing in 2013 she said:
“In 1776, the United States declared independence because the mother country on the other side of the ocean was imposing taxes on the colonies for the benefit of England. Resentment started when Britain tried to enforce the Navigation Act after 1763. Resentment increased with the Stamp Act in 1765, a way for Britain to tax the colonies. The British Tea Act of 1773 led to the Tea Party and we all know the outcome – the American Revolution and independence crying out “no taxation without representation”.
Today, the estimated 7 million Americans resident abroad, of whom the majority are long-term overseas residents in high tax OECD countries, face a comparable situation. Their representation in Congress is non-existent in reality. Americans abroad amount to only 1 to 2% of the votes in any particular state; Congressmen and Senators have ignored their tax issues. The unjustified myth that Americans abroad are wealthy and disloyal restricts a rational approach to the problems because of political image issues.
Citizenship-based taxation (CBT) has existed ever since the federal income tax was adopted. Despite CBT being an anomaly involving double taxation, taxation of phantom gains and explicit tax code discrimination, it was grudgingly tolerated by Americans abroad because it was essentially voluntary, most often involved little tax or no U.S. tax liability and basically was not enforced. In particular, the FBAR filing requirement was so obscure that even the big four accounting firms were not aware of the filing obligation dating from 1970 and failed to inform Americans abroad of the need to file the FBAR.
Since 2001, a series of legislative events have radically changed the situation:
- In 2001, the Patriot Act made anything foreign suspect, including Americans residing overseas.
- In 2004, Congress, under the Jobs Act, drastically increased the FBAR civil and criminal penalties to confiscatory levels, creating a disguised form of taxation on assets held overseas.
- In 2006 administration of the FBAR reports was transferred to the IRS for enforcement.
- In 2006 the Tax Increase Prevention and Reconciliation Act (TIPRA) extended the Bush tax cuts and included a compensatory revenue raising provision that reduced the benefit of the foreign earned income exclusion, limited the foreign housing allowance and pushed Americans overseas into higher tax brackets, thereby increasing U.S. tax liabilities for many Americans abroad.
- In 2008 the law relating to renunciation of U.S. citizenship was revised under Section 877A and introduced an Exit Tax on wealthy individuals (defined as “covered”). The law also provided that Americans who inherit from estates of former “covered” U.S. citizens are subject to U.S.
inheritance tax with no exclusion. This outrageous discriminatory provision aims to discourage renunciation of citizenship, but in fact penalizes children of former U.S. citizens for an act they did not commit. In practice, it encourages the children to also renounce their U.S. citizenship.- In 2009 the IRS launched its initiative against tax evasion linked to foreign assets through the Overseas Voluntary Disclosure Programs and a threatening public relations campaign. While it justifiably targeted U.S. resident tax evaders, it simultaneously trapped Americans abroad who necessarily have foreign assets. The IRS’s one size fits all policy and bait and switch tactics led to abuses of Americans abroad which inspired sharp criticism from the National Taxpayer Advocate.
- In 2010 FATCA was slipped into the HIRE bill with no debate in Congress and no cost/benefit
analysis. FATCA aims to provide the door that closes the fiscal trap by requiring foreign financial institutions to report to the IRS on assets held overseas by U.S. persons. It effectively cuts off many Americans from foreign financial institutions which find it too onerous to maintain American clients. FATCA creates a barrier to free movement of capital and people.- In 2012 S.3457 proposed to grant the IRS the authority to have a U.S. passport cancelled or not issued if the IRS determined that the individual owed $50,000 or more U.S. tax.
- In 2012 the Ex-patriot Act, S.3205, proposed to deny any “covered” expatriate re-entry into the United States, with retroactive effect for ten years prior to enactment of the law. The Reed
Amendment of the 1996 Illegal Immigration Reform and Immigrant Responsibility Act already
allows the United States to deny entry of former citizens into the United States.- In 2013, S.268 was introduced; it compounds difficulties created by FATCA.
- In 2013 the Senate Finance Committee included in its tax reform recommendations a provision which would grant the IRS authority to cancel a U.S. passport for tax collection purposes.
This stream of legislation and proposals categorizes Americans abroad as suspected criminals seeking to escape U.S. taxes. Congress has outdone George III and has turned the United States into a fiscal prison, including legislation which is deemed anti-constitutional under the Fifth Amendment1 and is contrary to Articles of the Universal Declaration of Human Rights.2
The foundation of the U.S. fiscal prison is citizenship-based taxation. Americans working and living abroad carry a ball and chain of dual taxation throughout their entire lives up to and including death.Americans abroad already pay taxes in the country where they reside and receive governmental services.
The additional U.S. tax obligation creates inevitable incompatibilities and discrimination and even requires Americans abroad to break foreign exchange control laws to pay U.S. taxes.
A revolution among long-term overseas residents is now underway. Five years ago, Americans abroad never talked about renunciation of citizenship. Today, it is a common topic in the press and among the community abroad. For more and more individuals, renunciation is the only solution to an intolerable situation created by the U.S. imposing its laws beyond its borders. The United States is literally destroying the community of Americans abroad, which plays an essential role in representing U.S. interests and goodwill overseas. The United States is shooting itself in the foot.
While the absolute number of renunciations, currently around 2,000 a year, is insignificant compared to the average annual U.S. citizenship naturalizations of 680,000, renunciations have multiplied seven times over the last four years. So far we have seen only the tip of the iceberg if CBT remains in force.
Today’s situation leads to serious hidden prejudice for the United States. U.S. exports are far below where they should to be because citizenship-based discourages U.S. companies from deploying U.S. citizens overseas to sell U.S. products; the law makes them too expensive. U.S. tax law and FATCA create insurmountable barriers for small and medium-sized companies to establish beachheads abroad to develop exports. The loss represents millions of U.S. jobs, hundreds of billions of dollars of exports, billions of dollars of U.S. tax revenue, and an unsustainable trade and budget deficit. Americans married to a foreign spouse, who represent about a third of the Americans resident abroad, now hesitate to register their children born abroad with the U.S. Embassy. The hot thing among young adults in their twenties is to renounce U.S. citizenship; they are aware of the impossible web of U.S. regulations that restrict job opportunities and personal freedom. Pushing away the young generation of Americans abroad is an immense loss to the United States. In prior generations, many highly educated multi-lingual American children returned to the United States, founded companies and created jobs in the U.S.
Adopting RBT will stop this revolution immediately. RBT law needs to be drafted in the spirit to allow free movement of individuals to leave and return to the United States, to reinforce the competitiveness of Americans and the United States overseas, to provide a simple, non-penalizing transition to RBT for the community of Americans already overseas, to ensure that Americans abroad are not subject to FATCA and FBAR, to adapt existing bilateral tax treaties and enter into new tax treaties so that withholding tax rates on U.S. source income are reasonable and to ensure that Americans abroad who have the majority of their assets in the United States (retirement funds, pension funds, real estate) are not disadvantaged under RBT with regard to either income or estate taxes.
I thank you for the opportunity to comment and hold high hopes that your bi-partisan efforts will lead to the constructive tax reform so necessary for Americans residing abroad.
Sincerely yours,
Jacqueline Bugnion”
Heidi: so you’re stuck with Spain 🙂
Switzerland was hit very hard, indeed I’m grateful I was not impacted all that much by FATCA. Amazing that for all the talk of globalization the world is actually a more difficult place to navigate now than 20-30 years ago.
@Fred(B) It is due to this globalization and technology that people can’t hide anywhere without being tracked by your email, by your ISP, by your phone to your exact location. In ten to twenty years from now we will all have RFID chips installed on us (supposedly for our security ) to track us anywhere in the world without any tech devices. You will just beep beep your location even though if you don’t carry your phone. Babies will be implanted with RFID chips as part of vaccinations. Companies in some countries are making their employees get installed with these chips as mandatory.
“Babies will be implanted with RFID chips as part of vaccinations. Companies in some countries are making their employees get installed with these chips as mandatory.”
Nah, those companies will eventually just give up and buy some robots….much cheaper and reliable in the long run. Plus they don’t have to pay ’em for coffee time or sick days. Technology is all about making our lives better, right?
@fred
Well we have collected pre and post Brexit buddies pretty much all over nice ‘warm’ Europe to visit so Florida is history. 🙂
Who says the US has the best medical facilities? Is there some quantifiable measure that shows this? American love to think they’re best at everything, while they have no clue about the world outside.
@ Jon,
Giving Americans a clue about the world outside, one of the latest comparisons to other countries on medical categories…
https://www.kff.org/peterson-kaiser-health-system-tracker/
It’s good care if you have access to it.
Costs are often high because of the constant threat of litigation, there is a saying among physicians in the US that you must keep one eye on the patient and the other on the lawyer.
Just wanted to add that many of the medical advances actually came from Europe , for example medical CTandMRI were conceived and developed in the UK.
I don’t like the US to lay claim to everything!
Indeed the US probably does not have the “best medical care” overall but it does have the most expensive. And I don’t think that is purely due to defensive medicine; it’s due to the insurance system in my opinion, and the general American propensity to overspend on anything and everything (example: luxurious waiting rooms).
Harrison: there will never be generalized RFID chip implantation, don’t worry!!! Because …
… it won’t be necessary. Face-recognition (and soon gait and behavioral recognition, with variations, perhaps some iris or retina recognition when necessary) will be quite enough to know where we are all the time. Apparently already quite effective in China.
Whenever you go through a public space, and of course in any transport or checkpoint (borders) your whereabouts will be duly noted. In fact, visible checkpoints, border control, etc, may become much like Amazon’s supermarkets, you will just walk in and out, with no apparent hindrance. Yet you will receive notice of your various fees on your phone (tolls, border fees, the bag of chips you picked up). In a special nod to IBS folks, your tax residence will be determined by where you spend the most time, no need to tell “them”, they’ll know. And perhaps, especially for snowbirds, tax residence may be split between the northern and southern residence, proportionally to time spent there.
My wife who is in the IT business has said many times that the technology to follow every penny will be used to control every aspect of our lives and that privacy will soon be completely dead.
She’s also said that this technology will be used to do harm, often by those treading the well known road of good intentions that leads to hell.
After all, what could possibly be wrong in making sure we all pay our fair share of taxes, for example?
Note also how many laws that appear draconian and of dubious morality come down to our governments need to feed itself, or in the case of the U.S. citizens, their owners need to feed themselves?
Mike: “After all, what could possibly be wrong in making sure we all pay our fair share of taxes, for example?”
Wonderful! 😀
As for privacy, I always wonder how the founding fathers in the 18th century managed to write down such sweeping protections of fundamental freedoms, including privacy. And this in a time when it was probably quite easy to pick up and move away, escaping one’s past; when there was not much science to prove crimes; when the government had few practical means of tracking citizens. Seems they really did not trust the government to get it right and preferred to err on the side of some unpunished crimes rather than oppression. How times have changed.
Democracy is not eternal, and I wonder what will happen to us when we put in place strongmen like Putin or Xi… but with access to information that the German Stasi or Stalin could only dream of.
The owners of information that the Stasi could only dream of are not barechested “i yam a strong man” strong men like Putin or Trump but Google, Facebook, Cambridge Analytics and your friendly free email provider. And it’s not the future, it’s today.
@fred
Not purely due to defensive medicine but it is a big contributor.
@mike
Aren’t the Russians going back to typewriters and the old Nokia Sim card mobiles are like gold dust.:-)
“As for privacy,”
Nope.
“I always wonder how the founding fathers in the 18th century managed to write down such sweeping protections of fundamental freedoms,”
Because of their experiences. They knew that history would repeat itself. Jefferson knew that when the US government repeats the abuses that other governments did before, the US would need another revolution. The revolution isn’t going to happen, but the founders knew their history and knew what they needed to try to prevent.
“including privacy.”
Nope. A US Supreme Court (not the current one) invented a right to privacy, but it’s not included in what the founders wrote.
@Norman
“including privacy.”
“Nope. A US Supreme Court (not the current one) invented a right to privacy, but it’s not included in what the founders wrote.”
The founding fathers evidently had some basic concept of privacy because the 4th Amendment states:
“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”
Successive Supreme Courts fleshed out more detail based on (presumably, I’m no expert) that 4th amendment. Of course, technology has changed drastically over the years. Back in the day, one could absolutely ensure privacy by reading a letter containing sensitive information and then burning it so there was zero chance of that info falling into the wrong hands. Doesn’t work with an email or a text; once sent it is out there forever!
A US government official was recently quoted “If I want to guarantee that my communication is private, I send a letter”. Where the hell would one even find a typewriter nowadays?
Well thanks for this incredible article, I left the U.S. a couple decades ago and have visited once in a while, so I was completly in the dark about all of this.
After reading this no wonder I have more more american neighbors who enjoy Freedom of just About everything and have brought their talents to work outside the U.S..
It’s incredible how the U.S. has become such a ” police state” to the point where it harms it’s own citizens.
I do have quite a few neighbors who have moved their assets and Business es over and now enjoy a great life.
@fred
I was just thinking about living in Europe with a European passport, with US birthplace and no cln, apart from Switzerland banks are not so much of a problem to hold accounts in your resident country but try to buy a holiday home somewhere else and they they will show you the door. Staying under the radar has its limitations. Renunciation is really the only real freedom.
@Mike your wife is correct 100%. I am an IT guy too and we in IT always have to upgrade or update ourselves. It’s becoming faster and faster so much these days it is hard to keep up. Facebook is so yesterday’s news now with teenagers and even adults as it’s Snapchat now that rules. We have to constantly adapt and sooner or later all govts are thinking of going crypto as fiat currency is not easy to track and accountable as cryptos are. It’s bound to happen. Regarding RFID it will be mandatory for company jobs soon. We are still way way behind Terminator type robots and it will take at least a century to have robots that perform like human beings. Japan has already invented lady robots for the shortage in women there and men there are marrying female robots. @JapanT might have some inside news about this.
@Maz57. “Where the hell would one even find a typewriter nowadays.”. Yes you can still find those in one of those old pawn shops in USA. In Asia you can still find people typing away on a typewriter and I found it very amusing to see a type writer after two decades.
@Harrison
” Japan has already invented lady robots for the shortage in women there and men there are marrying female robots.”
You’ve got to be kidding. Hmmm….perhaps because Japanese men prefer their total predictability compared to female humans?
I suppose that would be as in: “to love and to cherish both in mechanical malfunction or in the latest software version with upgraded articulation….until obsolescence do us part” ?
Re: Typewriters. Upon reflection, I can answer my own question. Look beyond the counter at any low level Mexican office and you’ll see the clerks clattering away. We in the 1st world may smile smugly at less than state of the art technology but at least the typewriters won’t be hacked.
Heidi: “Staying under the radar has its limitations. Renunciation is really the only real freedom.”
Quite true.
Yet for each individual it boils down to the balance between the trouble US citizenship brings you compared to the benefits, both of which contain immediate and hypothetical elements. I think the only true benefits of retaining the US passport are keeping the door open to going to live there, and perhaps more ease in using the US as a tax haven.
@fred
True
I guess you haven’t arrived at the crunch point yet, good luck.
Heidi: absolutely. And to you, congratulations.
@maz57. I am not kidding about Japanese men marrying female robots or having female robots as ratio of men to women is increasing there. Please google and you will see several news items on this. It was on TV that I saw this news that it is a problem in Japan for men to find female companionship not to mention other needs.
Anyways we are here to talk more about the expats problems with US govt. It is becoming a real nightmare for compliances more and more. Wish I had renounced a long time ago too along with most duals all over the world in line to give up their US passports. It has by far the most oppressive country in the world no doubts about it.
“I am not kidding about Japanese men marrying female robots or having female robots as ratio of men to women is increasing there. Please google ”
I did so, and learned that Google is unaware of any officially-recognized marriages twixt man and machine.
A man in China has pretended to marry a sex doll.
“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”
You’re right, I forgot about that kind of privacy. I was thinking of Roe v. Wade which, despite its service to society, was written in invisible ink in the constitution.