The cost of relinquishing U.S. citizenship

Post Reply New Topic

I'm looking at the Foreign Account Tax Compliance Act (or FATCA, the abbreviation making it obvious this act is meant to reassure Americans they're going after "fat cats"), and I found this little gem:

that can't happen soon enough. America is in a slow-motion train wreck.

I've met quite a few Americans living and working in Europe who had to deal with double taxation. No fat cats. Those who started a family here and gained citizenship ended up giving up their American citizenship as they just couldn't afford it. They weren't happy about it but they had to make a choice.

It's like that scary story that goes "Now that you're here, you can never leave, ever."

With the Republicans favoring abolishing citizenship-based taxation, reading this article from the Democrat side gives me faith that abolition might end up receiving bipartisan support:

http://www.slate.com/articles/technolog ... taxes.html

Here's something interesting, according to this scholarly source, from 2010 to 2015 Americans living abroad increased by 50%:

http://www.law.nyu.edu/sites/default/fi ... 0Mason.pdf

^ This is a very good source speaking out against citizenship based taxation.

And indeed this election the 8 million Americans living abroad may have an impact:

http://www.usatoday.com/story/news/worl ... /89779420/

Americans living abroad are very concerned with the taxes imposed on them and the increasingly heavy-handed tactics of the U.S. government to collect taxes from them, what with the onerous annual reporting requirements for expats with severe penalties if you screw up, not really being able to benefit from retirement accounts opened in the countries where they live, and now revocation of passport (but not citizenship) if they fall behind on their taxes. Considering that the Republicans say they want to abolish the system entirely and the Democrats say they only want to tweak the system, I wonder if expats will support Republican candidates this year. According to the article, they actually tipped the 2000 presidential election in Florida from Gore to Bush. Though they will not likely make a difference in this year's presidential election, they could affect down-ballot races, and I say if they're unhappy with Democrats wanting to keep this taxation system going they may tip the election to a divided government, preventing Democrats from sweeping the White House and both houses of Congress.

Were that to happen, I think we, Americans at home, deserve it.

EDIT: Reading that NYU paper, the author makes a good argument that we should not just consider Americans emigrating out, but also foreigners immigrating in. The author says that highly skilled or wealthy migrants might not want to come to the U.S. if they might face such burdens were they to decide to leave. After all, I say, there are many other highly developed countries with more equitable tax systems--contrary to Americans' narcissistic fantasies, the U.S. is no longer the lone shining city on the hill--and they may decide to go to one of those other countries instead.

EDIT 2: The author also mentions that most Americans living abroad live in countries with high levels of taxation, so tax evasion is obviously not their motivation.

Now personally I'd rather fund our government off tariffs and excise taxes but the cat is out of the bag as far as the 16th Amendment goes. I don't really believe in dual citizenry either, I think the US should make those born with 2 to choose in between US and whoever else's citizenry after age 18 or whatever as many in the world would do. That is what Japan does who is very strict in this regard, there shouldn't be accidental citizens.

Just because a country has a high tax rate does not mean there isn't a lot of people evading taxes, as some would know the US had a much higher tax rate than it does now but the reality was that nobody actually paid that amount due to loopholes and deductions.

As for this double tax, it's an issue with the foreign employer who should be paying the difference I think.(probably not a lot of mom and pop organizations) If you were able to simply travel abroad and make a bunch of money that wouldn't be taxed in this country then it would be a recipe for corruption and would obviously be used to evade.

$2300 isn't that bad to relinquish citizenship, I don't believe there are many people surrendering their US citizenship that can't afford that fee and to be honest I think it should be a lot higher for those with lots of assets. Perhaps you could put different fees for different income brackets, I dunno. I really doubt their are very many lower-middle class ex-pats, I think $2300 isn't enough for the real fat cats.

From the NYU paper:

The government is struggling to enforce taxation of worldwide income by non-resident citizens, and compliance is very low, despite the draconian penalties:

1) Are you telling me that Americans have to pay American tax on money earned and spent/kept abroad? How on earth could the U.S. gov't have any valid claim to that money?

2) If someone moves to another country lives out their life there, how do the feds make them pay taxes? Do they extradite people? What if the person doesn't keep a bank account in their own name?

What I cited was a draft, but the article was published in February 2016 in Southern California Law Review and is open access:

https://papers.ssrn.com/sol3/papers.cfm ... wnload=yes

I will cite this article using the author's name, Ruth Mason.

Though I quote the draft above, reading the final version allows me to assure that the article still supports my points above.

My understanding has always been that if I applied to be a citizen of my husband's country, then I would automatically lose my American citizenship. An American cannot actively (as opposed to by birth, for example) become a citizen of a foreign country and still retain American citizenship. America doesn't allow that type of dual nationality.
That's what I've read on various government websites, unless I misinterpreted something.