Thursday, February 16, 2017
Last year, the number of US citizens renouncing their citizenship hit a new record high. As alarming as that sounds, it was still only 5,411 individuals, and for most of them, the reason they did so was very ordinary: Money.
The United States is one of only two countries in the world that taxes the incomes of citizens living outside the country (the other is Eritrea). The problem has become worse since 2010 when Congress passed the Foreign Account Tax Compliance Act (Fatca). It was intended to catch tax evasion by the rich, but instead caught up ordinary people just living their lives.
The problem is that foreign banks (that is, based in another country) have to report accounts held customers who are US citizens, or withhold a 30% tax. Some non-US banks are reluctant to do business with US citizens, and in some cases US expats have had trouble opening accounts, and there have been reports of some loans being called-in by the non-US banks, all because they don’t want the compliance costs and red tape involved with having US citizens as customers.
Ordinary American expats, meanwhile, get stung because things that may not be taxed in the country they live in are taxed by the USA, and the exemptions and deductions that US citizens enjoy aren’t available to Americans living overseas. Put another way, American expats face being victimised as they just try and live ordinary lives.
The only way for expat Americans to end the onerous task of filing US income tax returns every year, even though they likely don’t owe anything to the USA but do pay taxes to the country where they live, and also the only wat to end problems caused by Fatca, is for Americans to choose to end their US citizenship.
And while 5,411 individuals may not sound like much, it’s up 26% over 2015, and the trend is definitely strongly upward (see chart above). So, unless the US Congress repeals or fixes this law, that trend will only continue to grow.
It is a last-resort thing to do, obviously, and it doesn’t get one off the hook for any taxes owed (the USA will still pursue people who they say owe money in taxes), but it will prevent any new problems. But it also creates travel problems for the newly ex-Americans, since their name is apparently flagged if they later enter the USA for a visit, including sometimes involving intensive interrogation.
What I find interesting about this is that it’s a prime example of unintended consequences of laws, and of what happens when legislation is poorly thought out when drafted. It’s also interesting how everyone assumes it’s Fatca that’s caused the huge jump in renunciations. Yes, there does seem to be a correlation, but that’s not proof. Nevertheless, based on the evidence we have, politics doesn’t seem to be a motivating factor for most Americans who renounce their citizenship.
Each year the Department of the Treasury publicly releases the names of all Americans who renounced their citizenship or long-term residence (which is treated the same as citizenship for this purpose) that year. In these times, there are all kinds of reasons why this is a very bad idea, and no good reasons for it. Instead, it seems like a sort of last dig at the departing American.
It would be nice to have some evidence as to why, exactly, people renounce their citizenship, but that data isn’t collected and would be hard to come by. If we knew why, precisely, the number is rising so fast, we could make sure that no one who didn’t want to renounce would ever feel that it was their only option. Because one’s citizenship is a birthright that no one should ever be forcibly separated from, it’s difficult to accept that any government would tolerate a situation in which someone would feel they had no other option.
Congress should fix this—but I doubt they will. And that’s perfectly ordinary, too.