Americans Abroad Renounce Citizenship Over Taxes

A report in today’s NYT says that an increasing number of Americans living abroad are renouncing their citizenship to avoid double taxation.

Historically, small numbers of Americans have turned in their passports every year for political and economic reasons, with the numbers reaching a high of about 2,000 during the Vietnam War in the early 1970s. But after Congress sharply raised taxes this year for many Americans living abroad, some international tax lawyers say they detect rising demand from citizens to renounce ties with the United States, the only developed country that taxes it citizens while they live overseas. Americans abroad are also taxed in the countries where they live.

[…]

So far this year, the Internal Revenue Service has tallied 509 Americans who have given up their citizenship, said Anthony Burke, an I.R.S. spokesman in Washington. He said complete figures were still being calculated.

Applications to renounce citizenship are on the rise at the American Embassy in Paris, according to an official who spoke on condition of anonymity. At the embassy in London, the number of applications was reported to be fairly stable over the past two years, though it would be hard to spot a recent surge because applications are taking longer to process there than in past years. Neither embassy would disclose exact figures. A spokeswoman for the American Embassy in London, Karen Maxfield, said Americans living abroad usually took the step “because they do not have strong ties to the United States and do not believe that they will ever live there in the future.”
[…]

Concern about taxes among Americans living abroad has surged since President Bush signed into law a bill that sharply raises tax rates for those with incomes of more than $82,400 a year. The legislation also increases taxes on employer-provided benefits like housing allowances.

[…]

For some Americans abroad, motivations for renunciation are mixed and complex, involving social concerns, political displeasure with their government and other reasons. But it is clear that taxation plays a large role for many, even though few are willing to admit that because of penalties enacted a decade ago. In 1996, Congress tried to address a wave of tax-driven expatriation by the wealthy by requiring former citizens to file tax returns for a decade and forbidding Americans who renounced their passports for tax reasons from visiting the United States.

An interesting phenomenon, especially if the United States is indeed the only country that does this.

It’s hardly a great loss, however, to purge from the citizenship and voting roles those who have no intention of returning to the country.

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

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  2. Ugh says:

    An interesting part you didn’t excerpt (not in any way to criticize):

    But in practice, the government is mainly interested in wealthier ex-citizens with a net worth of more than $2 million — few of whom pay further United States taxes because they generally avoid making American financial investments after giving up citizenship, Mr. Ledvina said. As for the rule barring entry to tax refugees, he said, it has not been enforced by the authorities.

    As to the latter sentence, I thought as much, as to the former, that only makes sense, as the problem with expatriation was primarily among the very wealthy with very large unrealized capital gains who sought to avoid US taxes on those gains by expatriating and realizing the gains while abroad (sometimes, I’m guessing, within a few months of each other). Typically they weren’t giving up a lot as they were still able to spend around 1/3 (or maybe as high as just under 1/2) of their time in the U.S. after expatriation without having to pay any U.S. taxes.

  3. Richard Gardner says:

    On the opposite side of dual citizenship, I remember in the 80s our supposed NATO ally France trying to impress US soldiers and sailors into the French military as draft dodgers (yes, I know the difference between the political and military sides of NATO/OTAN). I know the Navy put folks that could be considered dual nationals into the Pacific Fleet.

  4. steve says:

    “It’s hardly a great loss, however, to purge from the citizenship and voting roles those who have no intention of returning to the country.”

    Nor, I would say, is it a great loss to purge those who would renounce their citizenship because of money.

  5. DC Loser says:

    Richard, quite a few countries require their citizens with dual US citizenship to serve mandatory military service. Turkey comes to mind right away, and quite a few more.

  6. Jay says:

    They must have changed the rules since I took Federal Tax, but that was a long time ago. Back then, IIRC, any tax you paid the foreign government where you lived was offset against what you would owe at US tax rates. That seems sensible. Apparently someone got greedy and/or clueless. Stupid.

  7. Mark says:

    In 2004 (the last year I filed in the UK and the US), I got a US tax credit for any taxes paid to the UK. There is another option to exclude income – the first $86,500 of income isn’t subject to US taxes.

    I don’t think the rules changed that much. There is not really that big a story here.

    Here’s what I found at IRS.GOV

    “If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to $82,400 of your foreign earnings”

    “If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes. Taken as a deduction, foreign income taxes reduce your U.S. taxable income. Taken as a credit, foreign income taxes reduce your U.S. tax liability. In most cases, it is to your advantage to take foreign income taxes as a tax credit.”

  8. MikeT says:

    Expatriation is the canary in the coal mine for the greater direction a nation-state is moving in. About 10% of all Britons now live abroad, that’s about 5 million people, and the number is growing. If America’s upper 20% keeps expatriating, and has to be renewed with immigrants, that’s a sign that something is deeply wrong with this country.

    Meanwhile, America continues to get flooded by immigrants who just want to come here to suck off the social welfare net, which strains the system and causes more of the middle and upper class to move abroad.

  9. James Joyner says:

    Mike: Do you have information suggesting to you that the top 20 percent of our society is expatriating? I sure haven’t seen anything like that.

  10. MikeT says:

    I think the article you link to makes that point pretty clearly. I wasn’t suggesting that the numbers are out of control at this point, but rather that instead of saying “good riddance,” it is better to look at how many people are leaving, what type of people are leaving and why. If you have mostly people with good educations, native born, and with good prospects leaving, that’s… bad. That is the sign of a nation that may be in decline.

    The reason I chose the top 20% is that this is the most productive class in America. It’s where you have most of the white collar technical workers and similar productive positions. My guess is that American expatriates tend to either have a chunk of change to their name or a skill that foreigners want. You’re not likely to see American fast food workers going to Europe looking for better employment, for example. However, an engineer or a doctor might be tempted by Estonia’s liberal government, low taxes or Ireland’s wealth, moderate government and business-friendly environment.

    Also, it is my understanding that the residency requirements in many countries are rather… harsh when it comes to income compared to America. Even Mexico, for example, requires $1,000/month of stable income to reside there from some of the stuff I’ve read up on. Few countries are willing to extend a welfare check to Americans.