U.S. Expatriates giving up their Citizenship to escape the Long Reach of the IRS

Posted by PITHOCRATES - August 11th, 2013

Week in Review

Once an American always an American.  As far as the IRS is concerned, that is (see Americans Giving Up Passports Jump Sixfold as Tougher Rules Loom by Dylan Griffiths, Bloomberg, posted 8/9/2013 on Yahoo! Finance).

Americans renouncing U.S. citizenship surged sixfold in the second quarter from a year earlier as the government prepares to introduce tougher asset-disclosure rules.

Expatriates giving up their nationality at U.S. embassies climbed to 1,131 in the three months through June from 189 in the year-earlier period, according to Federal Register figures published today. That brought the first-half total to 1,810 compared with 235 for the whole of 2008.

The U.S., the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside, is searching for tax cheats in offshore centers, including Switzerland, as the government tries to curb the budget deficit. Shunned by Swiss and German banks and facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act, more of the estimated 6 million Americans living overseas are weighing the cost of holding a U.S. passport.

Just to clarify what this means, these are people who no longer live in the United States.  They earn their money outside of the United States.  And they pay taxes to the countries they live in on the income they earn while living there.  But they still hold onto their U.S. citizenship.  In case they want to return to the United States one day.  Where they may resume earning income there.  And paying taxes there.

Taxes are supposed to pay for the cost of government that is providing for you.  The military that protects the United States.  Social Security.  Etc.  Things these expatriates may in all likelihood never use.  True, they may benefit from the U.S. military keeping the peace in the world.  But no more than the people living in these other countries.  So this is not about financing the cost of benefits they are consuming.  It’s all about funding out of control government spending that they do not benefit from in the least.  Green energy subsidies.  The Obama stimulus.  Obamacare.  Food stamps.  And other federal assistance programs.  Benefits that are in most cases an ocean away from these people.  Yet the U.S. government wants to track these people down.  And make them pay taxes for stuff they’ll never use.  Unlike every other nation in the Organization for Economic Cooperation and Development.

The additional compliance costs for companies to ensure that Americans they hire are filing the correct U.S. tax returns and asset-declaration forms are at least $5,000 per person, said Ledvina.

For individuals, the costs are also rising. Getting a mortgage or acquiring life insurance is becoming almost impossible for American citizens living overseas, Ledvina said.

“With increased U.S. tax reporting, U.S. accounting costs alone are around $2,000 per year for a U.S. citizen residing abroad,” the tax lawyer said. “Adding factors, such as difficulty in finding a bank to accept a U.S. citizen as a client, it is difficult to justify keeping the U.S. citizenship for those who reside permanently abroad.”

So these people are not giving up their U.S. citizenship because they are greedy.  They’re doing it because it is too difficult and too costly for them and their employer if they hold onto their U.S. citizenship.  Of course, once they give up their citizenship the government loses all access to their money.  So what’s next?  Preventing people from ever leaving the United States?  Turning the U.S. into a police state?  Or would it be simpler just for the government to stop spending so much?

I think most people would prefer a government that spends less than living in a police state.

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