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Comment by planetguy | Hacker News Reader

US citizenship is a nasty trap from which it is extremely difficult to escape. The US is one of a very small number of countries which will happily tax its citizens on income earned overseas, thus causing them to pay double taxes on everything they earn.

This has seriously bad consequences for US competitiveness, in particular:

1. It discourages competent foreign citizens from seeking US citizenship (a greencard is so much better!)

2. It discourages US workers from spending some of their careers overseas, thus reinforcing US cultural insularity and giving competitive disadvantages. Go to any interntional company's office in Singapore, Shanghai, Kuala Lumpur and note that it's filled with Brits, Australians, New Zealanders with very few Americans; this is why.

3. And of course, things like this.

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A green card has similar problems, similar exit taxes and so on. Get a green card, move back to your home country, you still have that tax burden as long as you have that green card.

The USA is only one of two (other being Eritrea) countries that taxes non-resident citizens. On top of that Eritrea's expat tax is only a flat ~%2 and is a remote african dictatorship. The USA is the only country which exposes it's non-resident citizens to a full tax load and system.

>2. It discourages US workers from spending some of their careers overseas, thus reinforcing US cultural insularity and giving competitive disadvantages. Go to any interntional company's office in Singapore, Shanghai, Kuala Lumpur and note that it's filled with Brits, Australians, New Zealanders with very few Americans; this is why.

It's worth pointing out that Singapore and Malaysia are both British Commonwealth countries, which does make it much easier for the Brits, Aussies, and New Zealanders to move to and work at those locations. Shanghai was also one of the major trading ports(along with Hong Kong) for the British with China, so they also have a very long history with the British Empire.

You're missing a key aspect here:

Social Security.

While the US does indeed have tax treaties with many countries, it doesn't have treaties with everyone regarding social security.

I live in Israel, which does have an income tax treaty with the US. Still, for many types of employment and contracting scenarios, I must pay social security "twice"—once for each country. That's a hefty amount of double taxation.

Regardless, the cost of compliance is a real burden. I'm still filing my 2010 taxes. I have accountants on both sides. Figuring out how to correctly pay my taxes, how much to pay, and how to operate in order to minimize my tax profile is a gigantic pain in the ass.

FYI.

Social Security is not taxation. You get money back directly to you correlated with what you paid.

As for as the "double" part, can you not then collect from both countries when you retire?

That's not accurate. SS returns don't scale directly with payments. The more money you make the less you get back from SS (percentage-wise). There are also some other rules regarding marriage. It's redistribution of wealth and is not simply money back in direct relation to what you pay. (I am not taking any ethical or political stance on wealth redistribution. I am just noting that the previous description of SS is not accurate.)

Note that I said "correlated with" and not "proportional to".

While technically true, I wouldn't really call it a redistribution of "wealth", when income is capped at ~110k for the SS calculation. Wealthy people are hardly affected.

You're wrong about double-taxation. Most countries have an agreement with US to avoid double-taxation, so in practice you pay the larger of the two - US tax or the tax in the country of residence.

Another thing to note is that if you give up your citizenship you only pay taxes for all gains up to that point, so you actually have a choice - stick the American passport and pay US taxes, or give it up and don't pay US taxes.

I don't like the system either, but it's not THAT bad. Certainly did not deter me from coming here :) and will not deter me if I want to go somewhere else.

"And of course, things like this."

Things like this? I'm a little confused. Are you referring to the US government taxing capital gains income that an extremely rich US citizen earned in the US? Or are you referring to the laws that allow the government to collect those taxes, even when the individual has tried to avoid paying by fleeing the country?

One key thing to note is that he's giving up citizenship before the IPO because he's going to be richer after the IPO and the US levies a tax on all your worldwide assets (not just your income) when you give up citizenship.

So if he ever wanted to move overseas to begin with (and avoid being taxed on the US while he lives overseas - a rather obnoxious system from all I hear), now's exactly the time to do it.

Your assumption on #2 is not correct. Americans living abroad get a tax credit (almost $100k currently), so in practice average-income US professionals living abroad are US tax-exempt. Above that, there are many rules designed to prevent double-taxation.

Also, US citizenship is not a "trap" in Eduardo's case. It was his choice to become an American citizen in the first place.

We're exempt on tax on "Earned Income" up until a certain level (and yes, there is a highly technical definition for the type of income that qualifies for this). As one of the other commenters mentioned, we still have to pay full on Social Security, Medicare, Self-Employment taxes

If you live in one of the 24 countries with a social-security totalization treaty (which is most of Europe, plus Japan and a few other countries), that's not true. I don't pay any U.S. payroll taxes as an American expatriate.

What does any of this have to do with the linked article? Savarin clearly wasn't trapped, he "escaped". He wasn't paying significant tax on overseas income, his wealth was generated inside the USA.

Point #1 seems to be belied by simple observation. My US-based career has been filled with international professionals, virtually all of whom planned on spending their careers here, and almost all of whom have/had or were planning to get US citizenship.

I guess #2 makes sense, though honestly the biggest barrier to US professionals leaving for career opportunities elsewhere is the fact that (almost without exception) the same jobs pay much better here.

If you read the article he still has to pay the exit tax.

I read the article. You mean the exit tax that "trapped" him in the USA, from which he just expatriated? I must have missed that part.

You seem to have interpreted "trapped" more literally than I. My take was that it meant he was "trapped" into paying taxes, not physically trapped in the US.

It does not discourage US workers from spending some of their careers overseas. Most workers, even if working overseas, don't make enough that they have to pay taxes on foreign earned income. --Between the deduction for money earned overseas, deductions for housing, and other standard deductions, if you earn enough that you're going to get taxed by the US, you earn enough that you might as well pay an accountant to help further reduce your tax burden.

I don't buy #1 either, since most people don't get citizenship in a country unless they plan on settling there.

It looks like you have to make over $150k/year to have to pay worldwide taxes:

http://www.irs.gov/businesses/small/international/article/0,...

It's not cool on principle, I suppose, but most people find it hard to sympathize with the problems you face when you make more than $150k/year.

Just to clarify, your link refers to the income limits that qualify someone for the exit tax (i.e. the tax that you have to pay the IRS upon giving up your citizenship).

If you remain a U.S. citizen but choose to live abroad (i.e. pay taxes in another country), you also have to pay income tax to the IRS, but you can exclude the first $95,100 of your income from being taxed.

Source: www.irs.gov/businesses/small/international/article/0,,id=97130,00.html

The cutoff is, if I recall correctly, $80K. So it doesn't apply to most workers, only the competent ones.

The foreign income exclusion is currently $92k, but even above that, in any country which has a bilateral tax treaty with the U.S. (almost all developed countries), you can deduct the foreign tax paid from U.S. tax obligations. I'm an American expat in Denmark, and from what I've back-of-the-envelope calculated, there is almost no possible circumstance in which I would owe U.S. taxes, because I get a credit for Danish taxes on my U.S. taxes, and Danish taxes are always higher, which zeroes out the U.S. taxes. So even if I made $150k I would not owe U.S. taxes.

In fact I typically don't take the $92k foreign income exclusion, because excluded income isn't eligible for IRA contributions, and I'd like to keep contributing to an American IRA. So I report my full Danish income on the 1040, then subtract the Danish taxes, and end up owing $0 without even using the exclusion at all.

You still owe social security and other taxes - just not federal income tax.

I don't, because there's a bilateral US-Denmark "totalization agreement" on social security, which ensures no double-taxation. There's a rubric determining which country you owe taxes to, depending on where you reside, what your nationality is, and who your employer is (but it's never "both"). It also takes a small step towards allowing you to shift years accumulated in one country's program to the other.

Such treaties exist with 24 countries, so of course you'd be right if I didn't live/work in one of those 24: http://www.ssa.gov/international/agreements_overview.html

I stand corrected. The country I lived in is indeed not on that list which is evidently why I still had to pay SS taxes.

I'm not sure if your greencard comment is ironic, but permanent residents (green card holders) are subject to the same "exit tax" described in the article.

And if ever trade with Cuba of many of the countries the US is at war with, you will face criminal charges even long after you have given up your green card.

Hong Kong, Singapore, Switzerland. Get yourself a permanent residency in at least one of those three.

Singapore permanent residents are required to do 24 months of military service, and in addition, show up for annual refresher training every year until they turn 40. I'm currently an American expat who has to file a 1040 once a year, and I would gladly continue doing that rather than spend a bunch of my time in the Singaporean military...

I thought that was only for the children of PRs. First generation immigrant citizens and PR do not have to do military service if their over a certain age. And countries with military service requirements have many ways to get out of it.

Kind of casts Michelle Bachmann's recent headlines in a different light.

It's my understanding that there are no "double taxes", only that you still have to go through the tax process for both countries and you deduct your non-US taxes from your US taxes, then pay the difference if the US taxes are greater.

re: Point 1, "If you are a resident alien, you must follow the same tax laws as U.S. citizens. You are taxed on income from all sources, both within and outside the United States"

From http://www.irs.gov/taxtopics/tc851.html

Go to any interntional company's office in Singapore, Shanghai, Kuala Lumpur and note that it's filled with Brits, Australians, New Zealanders with very few Americans; this is why.

Americans are exempt from the double-tax up to $91,400. Since I imagine most expat workers are earning under this level, I don't imagine that taxation is what's keeping Americans at home. Personally, I've found it difficult to even be considered for work abroad, usually due to visa issues. Other countries seem to have reciprocal working holiday visas for young people, and I imagine that this allows people to develop the specialized skills that justify the visa sponsorship or permanent resident status necessary to continue working abroad.

Just wanted to provide a bit of additional information on the US foreign income tax exclusion: You only qualify if you are outside of the US for 330 days of 365. Otherwise you're responsible for your full tax load. http://www.irs.gov/newsroom/article/0,,id=108276,00.html

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