The cost of relinquishing U.S. citizenship

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auntblabby
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24 Oct 2016, 4:50 am

mended wrote:
I used to wonder why we never see Americans working here (in the UK). They'd have to pay tax twice. So the US administration gets loads of tax income? - and still hasn't managed to devise a National Health Service. There was a news story last week about how Americans are actually charged to give birth. One new family got a bill which included a charge for holding their own new-born baby. I continue to be baffled by US patriotism. I guess it's fueled by early years brainwashing.

our educational system sucks by design. obedient unquestioning drones or prisoners are the two things our schools produce, by and large. that undeniably is a portion of it.



beneficii
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24 Oct 2016, 5:12 am

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:

Quote:
The law requires non-U.S. (foreign) financial institutions, such as banks, to enter into an agreement with the IRS to search through their customer databases to identify those customers suspected of being U.S. persons, and to disclose the account holders' names, TINs, addresses, and the transactions of most types of accounts.[30] Some types of accounts, notably retirement savings and other tax-favored products, may be excluded from reporting on a country by country basis. U.S. payors making payments to non-compliant foreign financial institutions are required to "deduct and withhold from such payment a tax equal to 30 percent of the amount of such payment".[31][32] Foreign financial institutions which are themselves the beneficial owners of such payments are not permitted a credit or refund on withheld taxes, absent a treaty override.[33] Identification is done by detecting "FATCA indicia". Alternatively, a bank official who has previously gained knowledge of a person's (U.S. person) status by other means, is also required to identify that person for FATCA purposes.[34] After identification, the FFI has the responsibility to further question the individual before allowing the individual to have the identification of suspicion removed.

To facilitate the implementation of the foregoing statutory requirement, the IRS promulgated Form W-8BEN in February 2014. The IRS requires all FFIs to require all foreign account holders to certify their foreign status on Form W-8BEN unless an intergovernmental agreement is in place to authorize an alternative method of certification.[35] In other words, all account holders of FFIs are expected to comply with FATCA reporting requirements.


https://en.wikipedia.org/wiki/Foreign_A ... liance_Act

Reading this, I wonder: How does this not violate the sovereignty of the countries of the whole rest of the world? I think this is a case where the whole rest of the world should push back, declare that U.S. law doesn't apply to their territory, or persons or institutions therein. This would force the U.S. to respond. Of course, if that response depends on Congress and Congress does the usual (gridlock), that would be a stunning demonstration to the rest of the world that the U.S. is beginning to fail as a state. That impression would have adverse consequences for our standing in the world and thereby the people in this country.


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auntblabby
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24 Oct 2016, 5:13 am

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



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24 Oct 2016, 9:02 am

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.


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24 Oct 2016, 11:19 am

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


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beneficii
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24 Oct 2016, 2:27 pm

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


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beneficii
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25 Oct 2016, 1:44 am

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.


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Jacoby
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25 Oct 2016, 7:36 am

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.



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25 Oct 2016, 12:14 pm

Jacoby wrote:
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.


I agree.


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25 Oct 2016, 12:50 pm

From the NYU paper:

Quote:
The Subpart F rules were developed to prevent cross-border profit-shifting by large, multinational enterprises, and the federal government estimates that it takes 15 eight-hour work days for a taxpayer to fill out the relevant form


Jeez! No wonder expats have to get tax accountants!

And more:

Quote:
Among other burdens, nonresident citizens married to noncitizens must obtain for their spouses and dependents Individual Taxpayer Identification Numbers (ITINs), but the application process for ITINs is so burdensome and error-prone that to avoid it nonresident citizens elect to forgo joint filing and personal exemptions, resulting in higher tax burdens. Unlike most resident taxpayers, who have only domestic income, nonresidents usually have foreign-source income, so they must determine how to apply the complicated foreign tax credit regime. And while the foreign-earned-income exclusion represents a tax benefit available only to nonresident Americans, the GAO concluded that it is“unreasonably complex” and prevents many nonresident Americans from calculating their taxes without professional help. Americans abroad who cannot afford to hire professional help may be noncompliant because they
are overwhelmed by the complexity of the foreign tax regime.


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beneficii
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25 Oct 2016, 1:09 pm

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

Quote:
But, notwithstanding the “draconian” penalty regime for failure to file, in 2012, when as many as 7.6 million Americans and green-card holders resided abroad, and an unknown number of resident citizens and resident aliens had offshore accounts, the IRS received only 807,040 FBARs,215 and only 21% of these were filed using foreign addresses. Despite this gap in compliance, the FBAR audit rate remains below 1%.


Considering the massive burdens laid out in my previous post, to include 3 weeks worth of full-time work required to complete a tax form, no wonder. Contrary to the agitprop dished out to stateside citizens, most expats are ordinary middle-class or working-class citizens and can't afford to pay a tax accountant for 3 weeks of full-time work!

Considering that the Democrats want to keep this system in place, and as much as I want a unified government, if expats are angry enough about Democrats scaring those stateside about the boogeyman of the "tax Benedict Arnolds" while stomping all over the ordinary expat, to prevent Democrats from having a unified government, and analysis shows expats made the difference, then I would feel justice has been served, and hope Democrats take note and actually start to care about this issue instead of just dishing out agitprop about "fat cats".


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25 Oct 2016, 1:27 pm

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?



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25 Oct 2016, 4:19 pm

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.


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25 Oct 2016, 4:22 pm

beneficii wrote:
One could also make an argument that imposing such a burden on people without means violates their right to change nationality under the Universal Declaration of Human Rights, Article 15:

Quote:
(2) No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.


http://www.un.org/en/universal-declarat ... an-rights/


Does that have any standing under U.S. law? Has the U.S. made a treaty with any other nation(s) with that right as an article of the treaty. If no, then that provision does not have any standing in the U.S.


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25 Oct 2016, 4:57 pm

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.



beneficii
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25 Oct 2016, 4:57 pm

Jacoby wrote:
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.


There are better ways to prevent avoidance and abuse that are practiced by other developed countries. They are detailed in the Mason article on pages 231 to 236. Here's a rundown of some of the ways:

- Only tax citizens for, say, 3 years after leaving. This is the Finnish policy.

- Tax U.S.-based assets and income.

- Don't cut them loose from U.S. taxes until they establish tax residence in another country.

- Use an exit tax for people moving abroad.

These preposals aren't mutually exclusive and they allow us to lift these excessive burdens off the shoulders of middle-class and working-class Americans who have permanently settled abroad while keeping wealthy high-rollers from abusing the system. Our current system, flat out, does not work and puts many Americans abroad into untenable situations. The sooner we realize and deal with this, the better.


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