In the News: If You View This Molehill From Exactly the Right Angle…

Record number renouncing American citizenship

From this headline alone, one could imagine the story going any one of a couple different ways:

  1. Fed up liberals moving to Norway or an equivalent and burning their passports in disgust (unlikely);
  2. Rich people picking up their marbles to play someplace nicer to rich people (we might wish this to be true, for it confirms all some of us suspect about the world);
  3. Pouty, fed up right-wingers moving to….? Nope, doesn’t fly at all;
  4. Some combination.

Or ‘Other’ I suppose, but, there’s that ‘record number’, so there must be a *reason* people are renouncing their citizenship in record droves.

So how many people are we talking about here?

That record number is: 3,415.

Oooo-kay. Out of a population of 319 million, slightly more than .001% renounced their citizenship last year. Renouncing American citizenship isn’t quite as rare as dying in a shark attack, but it’s slightly less likely than drowning. It is even a tiny percentage of the 7.6 million American expats, from whom these renunciations are assumed (below) to be coming. On the other hand, 654,949 people became naturalized citizens – nearly 200 to 1 in favor of getting citizenship rather than renouncing it.

So, we’re talking about a tiny trickle of people renouncing their citizenship. Who might these people be? It would seem like #2 is the front-runner. CBS Newswatch tells us:

Avoiding Uncle Sam appeared to be a prime motivator, after a new U.S. tax law was enacted that makes it harder to hide assets from authorities. A survey from deVere last year found that almost four out of five of its clients, who are primarily American expatriates, said they would consider handing in their passports because of the law, which is called the Foreign Account Tax Compliance Act, or FACTA.

“Treasury Department data show that a steadily growing number of individuals have been giving up their U.S. citizenship over the last few years,” said deVere Group (1) founder Nigel Green in a statement. “It can be reasonably assumed that this trend is in direct response to complying with the onerous, expensive and privacy-infringing FATCA, which finally came into effect on July 1 last year.”

While the numbers picked up sharply last year, the trend for Americans handing in their passports has been rising since 2010, the group noted, when FACTA was originally enacted by Congress. The law, which went into full effect last year, requires foreign financial institutions to report the financial holdings of U.S. clients, or else face a 30 percent withholding tax on a range of payments from the U.S.

Note the phrase “harder to hide assets”. You know, these days it’s harder to hide who you’ve been talking to on the phone, where you’ve searched on the web, and what goods and services you’ve legally purchased. Because those things, too, are the business of the government, just as your assets are. Therefore, only criminals and people with bad intent would ever make a fuss over such things. Calling it an intrusion and overreach is merely a dodge.  Without commenting on the merits myself, here CBS does give a hint here where their sympathies lie.

How about the Wall Street Journal, whose sympathies perhaps lie elsewhere? They say:

“Many Americans abroad are finding that retaining their ties is not worth the cost and hassle of complying with the U.S. tax laws,” says Andrew Mitchel, a lawyer in Centerbrook, Conn., who tallies the lists of names released quarterly by the Treasury Department.

He links the growing number of renunciations by U.S. citizens and permanent residents to a five-year enforcement campaign against U.S. taxpayers who have undeclared offshore accounts.

Jumped from almost nobody to a very few people.

The campaign began after Swiss banking giant UBS admitted in 2009 that it had systematically encouraged U.S. taxpayers to hide assets in secret Swiss accounts. Since then, more than 45,000 U.S. taxpayers have confessed to hiding money abroad and paid more than $6.5 billion in taxes, interest, and penalties.

But the campaign also complicated the financial lives of an estimated 7.6 million American citizens living abroad, leading growing numbers of them to give up their U.S. ties. By contrast, over the five years through 2008, fewer than 500 individuals a year on average renounced their citizenship or long-term residency.

Unlike many nations, the U.S. taxes nonresident citizens on income earned anywhere in the world, and U.S. tax liabilities can also apply to children born to Americans abroad. There are only partial offsets for double taxation for people who owe taxes both to the U.S. and a foreign country, and the reporting rules are onerous, experts say.

So, as is so often the case, it’s a little complicated. Swiss banks, which have been involved in a remarkable number of unsavory things for centuries, are involved – no surprise. The kind of people who keep their money in secret Swiss bank accounts – which I’m supposing usually aren’t the kind of people working overseas teaching English, for example – maybe really were doing something illegal and perhaps even wrong objectively apart from the law. But how much sense does it make to have to pay taxes for the privilege of being an American citizen even on money you make – and pay taxes on – in another country? And the government’s insensitivity to and underestimation of the work involved in filling out forms is pretty legendary.

It looks like (hard to be sure) this law did nab some of the people intended. It also looks like a huge number of other people had their lives grossly complicated and made more expensive to no productive end. Renouncing citizenship isn’t even a dodge, since, according to the article, it doesn’t let them off the hook for activities prior to such renunciation.

Tax law tends to be a shotgun, when a target rifle is required. The blast has an annoying tendency to destroy the entire target in order to hit the bull’s eye.

1. The deVere Group is interesting. It started out as a brewery, became a hotel chain, and is now largely a money management firm serving international clientele.

Author: Joseph Moore

Enough with the smarty-pants Dante quote. Just some opinionated blogger dude.

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