A record number of United States citizens are still renouncing their citizenship, and it isn’t because Donald Trump was elected president. It’s actually due to a new tax law.
In the third quarter of 2016, 1,380 Americans ditched their passport, which is the second-highest in history, according to new data from the Treasury Department. But it wasn’t the likes of Amy Schumer, Barbara Streisand or Al Sharpton who renounced their citizenship and moved to Canada, Australia or New Zealand.
Instead, it was likely those who may have been impacted by the Foreign Account Tax Compliance Act, otherwise known as FATCA, which was enacted in 2010.
FATCA was implemented in order to nab individuals who have unreported offshore bank accounts and other assets in order to avoid paying taxes. The law mandates banks to provide Americans’ account information to the U.S. government if it’s worth more than $50,000.
“FATCA has been painstakingly implemented worldwide by President Obama’s Treasury Department. It now spans the globe with an unparalleled network of reporting. America requires foreign banks and governments to hand over secret bank data about depositors. Non-U.S. banks and financial institutions around the world must reveal American account details or risk big penalties,” Forbes wrote.
“America’s global income tax compliance and disclosure laws can be a burden, especially for U.S. persons living abroad. Like pariahs, they may be shunned because of their American status by banks abroad. Foreign banks are sufficiently worried about keeping the IRS happy that many do not want American account holders. Americans living and working in foreign countries must generally report and pay tax where they live. But they must also continue to file taxes in the U.S., where reporting is based on their worldwide income.”
Many oppose the law with 86 percent of Americans abroad feeling it needs to be reformed. Until then, a growing number of Americans are giving up. In fact, today, there are 18 times more renouncers than in 2008. In 2015, the number of Americans who renounced their citizenship spiked 20 percent.
The U.S. government earns a pretty penny from Americans renouncing their citizenship. The federal government charges $2,350 to give up your passport, and this has generated nearly $13 million in revenues since 2014.
The US has built a virtual Financial Berlin Wall to keep US persons in by punishing harshly those who have left – even those gone decades. FATCA is part of this new Berlin Wall.
JFK famously said in Berlin ‘we don’t need to build walls to keep our people in.’ Fast forward to the present day, and the US has done precisely that with its compliance and tax laws assuming all US persons live in the US (even the ~9 million who live overseas), with extra penalties restrictions and disincentives for money, accounts, and investments in countries other than the US, even if you live permanently overseas and this money, earned income, accounts, and investments, are local to you.
In an increasingly global and mobile world the US should not punish US persons living, working overseas, and expanding US influence and trade overseas. This is in complete contrast to all other OECD nations, thus disadvantaging those with US Citizenship.
The situation of US persons tax resident abroad:
Double Taxation (county of residence plus US tax via tax treaty gaps)
Without Representation (would never have agreed to it all) (without representation hopefully starting to change with passage of H.R. 5935 and successful lawsuit by fatcalegalaction dot com )
Without US Government Services (that US resident US persons may receive)
Without a Care By The US Government For One’s Well Being (only about stick and compliance)
With Unfathomable Compliance (obligation to overlay the 74,000+ page US tax code on top of the tax code of one’s country of residence – with inevitable tax treaty gaps through which double taxation flows through).
With Excessive Compliance Cost (see above – it all requires highly specialized assistance and can’t be done with TurboTax, and you don’t use that because of the potentially bankrupting penalties (that US residents do not face for their everyday accounts in the US if not done right).
With Excessive Compliance Penalties (The U.S. tax rules punish accounts and investments that are foreign to the USA. The compliance penalties for not reporting accounts right could be bankrupting even if no US taxes are owed)
It is all UnAmerican, has nothing to do with ‘liberty and justice for all”, it is unfair and wrong!
Any US persons living overseas caught up in this must visit the message boards of The Isaac Brock Society , Facebook Citizenship Based Taxation and American Expatriates Groups, and FixTheTaxTreaty dot org; and consider supporting the Canadian FATCA IGA Lawsuit and contribute to the legal efforts of citizenshiptaxation dot ca. Republican Overseas is supporting a lawsuit (via fatcalegalaction dot com ) that FATCA and FBAR violate the US Constitution on 8 claims.
US citizenship should be about the greatest liberty in the world. Yet the truth is US persons living overseas are tremendously disadvantaged by the US government compared to nationals from all other OECD countries. The US should join the OECD and adopt Residence Based Taxation.