Why I gave up my US passport
bbc.co.uk
bbc.co.uk
As I've matured and times have changed it's been impossible to miss other parts of America grade schools don't teach -- increasing division between rich and poor, decreasing social mobility, corporate control of the government, entrenched racism, sexism, jingoism, needless wars based on lies, ... I could go on. Anyone could.
I haven't lost faith in my country -- such vague words could mean so much in this context -- but I don't like how the powerful are influencing the processes that led to it flourishing so long, even taking into account its colossal mistakes (Prohibition?), nor how those without power aren't taking responsibility to gain power like they (we) could. I'm impressed with the love many foreigners have for much of our freedom, which I share.
I tell myself living in Manhattan is like living outside any country. Legally New York City may be part of the United States, but culturally it's its own world.
Still, I find it valuable to look at where you live sometimes with rose-colored glasses because life feels better when you love your home, but regularly to evaluate it warts and all. How else can you change it if you feel you can, or escape before the need becomes desperate, should the need arise?
(Here is where people often ask where it's better or point out places it's worse. I don't argue against asking those questions, but we don't have to jump to comparisons with others, which distracts from evaluating it from what it could be. Or once professed or aspired to be.)
http://en.wikipedia.org/wiki/File:2008_Top1percentUSA.png
http://en.wikipedia.org/wiki/Income_inequality_in_the_United...
http://www.motherjones.com/politics/2011/02/income-inequalit...
If you want to look further back, you can probably find the data somewhere here:
There is a system of tax exemptions and credits within the code to offset the double taxation this would imply when living in a jurisdiction which imposes its own income taxes, as most countries in fact do. The difficulties arise in reconciling the US tax liabilities with those owed to the foreign country, calculating the applicable credits, etc. In practice this requires expensive tax professionals in most cases - and they get really expensive if you're an entrepreneur with an overseas corporation, which is pretty much a nightmare to deal with on several levels - different accounting standards, controlled foreign corporation tax reporting, paying estimated taxes when having no clue what the result of a complex tax calculation process will be, etc.
Besides income taxes, there are also bank account reporting requirements (TDF 90-22.1 form) which have made many people's lives difficult. The penalties for not reporting any foreign bank account are draconian even if you live overseas and need an account where you live (you will). Even worse, foreign banks are reluctant to deal with US citizens because of the reporting they in turn are required to do on their behalf, resulting in frequent difficulties opening and maintaining bank accounts overseas if you are a US citizen.
Finally, as a US citizen overseas you are still entitled to social security payments from the US government, but get no benefit from your contributions to Medicare, which only covers you within the USA proper. For that matter you also get no benefit from most of the residual income taxes you pay to the USA that you can't offset with tax exemptions/credits. It's not like those taxes will be used for any of the infrastructure etc. you use overseas.
My situation was pretty complicated on the US side, so I enlisted the help of a professional to get everything kosher on my US return. I have never seen such a complex tax return in my life. In the end, it was 40 pages long, and that is not including the FATCA I did seperately. And all that just to show that I owe $0 for US taxes.
However, we are considering moving back to the US, if even for just a year, so I keep my US citizenship for now.
Just about every other country I can think of does not tax citizens abroad who do not earn money on their native soil. What makes you think the US system is right and all the others are wrong?
Remember how much arbitrary and non-appealable power U.S. border guards have over visitors.
I get nothing else from my U.S. passport, because the only country I use that passport for is…the U.S.
I hold dual citizenship but would expect not to pay taxes in nation B when I live and work in nation A. If I were to start working in B and stop working in A, I'd expect to pay tax in B as per B's tax laws, and cease paying taxes in A. If I earn an income in both, I expect to pay taxes on the portion of income in each nation, as per the tax laws of each nation.
Similarly, because I live and work in A, I do not get the social services that B offers - for example, if I were to become unemployed, I'd expect to only utilise nation A's unemployment benefits. If I fall ill, I don't expect to be able to (and cannot) pin the cost on nation B's national healthcare services.
The reason I don't choose to give up my dual citizenship is that I enjoy the ease-of-access to both nations, if and when I choose to move between them. That access does not cost the nation anything to retain.
Why does the US effectively charge a membership fee for the kinds of basic privileges every other country simply offers for free? As I said in my original post, it's unbelievably arrogant.
If the US were an apartment, it would be a very strange apartment with numerous people entering and exiting it everyday.
You'll be unable to come up with a reasonable explanation for this, but feel free to insult me again by ascribing my desire to live elsewhere unmolested to a sense of 'entitlement' or some other garbage.
The relevant portion is: "A person born in the United States to a foreign diplomatic officer accredited to the United States, as a matter of international law, is not subject to the jurisdiction of the United States. That person is not a United States citizen under the Fourteenth Amendment to the Constitution. Such a person may be considered a lawful permanent resident at birth."
[1] I know that the US does not have conscription at the present time
At best, this helps the child's future opportunities, which may help the family. It in no way gives the parents a pass. A cursory review of sponsorship laws would reveal this. Yet for some reason, people parrot this silly saying as if it was somehow true.
Interesting to learn
http://en.wikipedia.org/wiki/Birthright_citizenship_in_the_U...
"Sane" will continue until we have a critical mass of people like Senator Schumer in the Senate.
Disclaimer: I am a lawyer. And I do lots and lots of expatriation cases.
Under the current laws, intent is irrelevant. If you meet certain criteria (net worth above $2 million, for most people) you pay tax. Our friends in Congress want to define people as meeting these criteria as having evil tax-avoidance motives. It ain't so, at the moment.
And of course NO ONE ever tells the Embassy official that the primary motive for renouncing citizenship is tax-driven. :-)
Seriously, though. I would say that at least half of the people I work with end up living in high income tax countries (Canada, various countries in Europe, Australia, New Zealand). They aren't leaving to cut their income tax bills. The tax-drive motivations are primarily (1) the craptastic paperwork and horrific penalties that Americans abroad face, and (2) the estate tax.
( Specially if they are already covered by their host country healthcare system. )
https://www.healthcare.gov/am-i-eligible-for-coverage-in-the...
Absent insurance, that privilege is paid for by the higher prices charged to people unlucky enough to need healthcare.
Now, if you can't get plans that consider the fact that you are only in the US for < 100 days a year, then yes it's harsh.
It shouldn't matter how many days you are in the US or not, it should matter where you declare your tax home.
So if they make an exemption for travelers insurance, it will be hard for them to verify that it meets the criteria of the exemption.
That means the most for those whose coverage in their host country wouldn't have met the HIPAA requirements for creditable coverage, of course. However, even those whose coverage would have satisfied the HIPAA requirements do get to avoid at least one round of confusing paperwork.
This really sucks for people who leave the US long durations (8 months in my case) at a time, but return occasionally. Have to either get insurance for the 8 months that isn't usable, or pay the fine.
http://travel.state.gov/law/citizenship/citizenship_776.html
The tax rules for giving up citizenship have specific provisions fully expecting people to give up citizenship twice. :-)
Disclaimer: I am a lawyer, and I do lots and lots of expatriation cases.
I'd be inclined to say "well if you left, then fine", but with the dual taxation and the inability of Congress to pay their bills (it is not just Democrat money, by a long shot)...what exactly are we paying for and why should everyone be responsible for it?
The United States have been around for centuries, and each elected governments and congresses have their own idea about how the tax code should look like. Probably that's why now we have very complicated system, because it's the aggregation of centuries' worth of ideas.
The logical step is to simplify it, but I don't think it's really possible with the current US political system. Each part of the complexity benefits some group, and every group will influence the lawmakers to keep their benefit/loophole.
1/ A willingness to accept loophole losses. I have almost nothing I can really claim on as a salaried employee - childcare and charitable donations are about it. There used to be more. I certainly can't claim deductions for "having a mortgage", for example. If I was a lot poorer or had a lot more children (7+) I could get a tax redution for that, but nothing like as generous as the US rates are.
Most of the loophole reduction went hand-in-hand with tax cuts, but we're talking dropping from a top rate of >60% by the end of the Muldoon government down to the 30s for the top tier.
2/ Much of the compliance burden and risk falls on employers, so business groups tend to support simplification, because it mitigates risk and reduces costs for them.
3/ There's more a perception of getting value out of taxes paid in New Zealand than the US. Mainstream political dialogue tends to be around fixing perceived problems in government, not nuking it to a smoking hole, pissing in the hole, and sowing the ground with salt.
Many US progressives/lefties I've spoken with seem to react with suspicion and horror at the idea of being able to have the IRS estimate your taxes on your behalf in case they swindle them out of their tax breaks, which is both a nice combination of 1) and 3), and illustrates the gulf operating. Mainstream left/progressive voters in New Zealand are not commonly of the opinion that accepting the IRD's estimate on owed taxes is going to stiff them out of thousands of dollars in loopholes.
>>Many US progressives/lefties I've spoken with seem to react with suspicion and horror at the idea of being able to have the IRS estimate your taxes on your behalf
I felt the opposite when I first heard that US tax system was too complicated. What I know before about filing tax was simply 1) approve my employer's filing about my salary 2) declare child and donation. How complicated could that be?
I'm so much happier here in Paraguay (even with all the cultural differences), instead of the US. I also can't say I feel happy about how things have progressed in the US over the last few years - regarding politics and economics. I really expect that Paraguay is the country where I will build my family and my future.
(Disclaimer: lawyer; handle lots of these cases).
She had to divest some interests when she took up residence here, if we decide to go back over there (likely in the next 3-5 years), we will look carefully at whether or not staying in vested in the US makes sense. The US feels like it is trying to turn every benefit into something akin to a 401k -- HSA accounts, etc. Which isn't ideal, but they still aren't separating things from the employer based healthcare model...so in a sense many are getting the worst of both worlds.
Healthcare may actually be the motivating issue for us.
https://www.youtube.com/watch?feature=player_embedded&v=DKFE...
What I'm saying is that it is practical and pragmatic for the US to have this law. It's not for Germany. Why? Because the number of immigrants in the US is extremely high.
Was US to implement the same law Germany has then 60% of New Yorkers would be able to avoid paying income tax in the US. Not that all of them would do that, but just saying. US has this special circumstance of having a big chunk of their population with 2 passports. Not 10% like in Germany, but 60% like in New York. Then you have to enact a law to discourage people from taking advantage of their 2nd citizenship in terms of taxes, or nobody would pay, they would just stay over 6 months in their mother countries whenever that's convienenient (i.e. reaching retirement age).
It is as though your 'home state' continued to tax you (or make you file paperwork) long after you've moved to California. Nobody else (worldwide) does this. It doesn't make any sense.
This is a primary motivation people have for renouncing U.S. citizenship.
This is an imperfect analogy (since there is not really a concept of "citizenship" for individual US states), but note that claiming residency in one state while living in another will often require you to pay taxes in both.
> Nobody else (worldwide) does this. It doesn't make any sense.
I think it is pretty clear its purpose is to prevent US citizens from deciding to live abroad in order to pay less income tax. The legislation that requires US citizens to report foreign bank accounts (which some of the people in the BBC article mention) is called the "Foreign Account Tax Compliance Act" [1] is supposed to prevent all citizens from committing tax evasion by hiding funds in foreign bank accounts.
I think there are multiple reasons why you or others could argue that these rules are counterproductive [2] or otherwise detrimental to the interests of the United States, but I do not think they can be dismissed out of hand.
[1]: http://www.irs.gov/Businesses/Corporations/Foreign-Account-T...
[2]: https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance...
In that case, they can claim a "Foreign Earned Income Exclusion" [1] which reduces or eliminates their American tax liability for up to $97,600 of income that they are "paying full taxes" on.
> A place you're not living has no business collecting further taxes from you.
As other comments have noted, just because you are not living in the United States does not mean that you are not materially benefiting from citizenship. Despite living abroad, you can still vote, travel to and from the United States, and take advantage of US diplomatic representation in case of arrest.
[1]: http://www.irs.gov/Individuals/International-Taxpayers/Forei...
Basically, the US government's attitude toward Americans living outside the US, much like the US attitude toward non-Americans wherever they live, is "F* You."
Perhaps you think that this attitude is somehow justified. As a US citizen myself, I think that it is detrimental to long-term US interests.
I think it is a complex issue, and should not be dismissed as "not making any sense" or the government wanting to screw citizens living abroad over. As I have already stated, it is clear that the purpose behind the legislation is to prevent unreported income from being stored in foreign bank accounts.
Like with many complex issues, I think the current solution is imperfect and could be improved. Stating that it is stupid is not constructive.
The reality is that the truly rich (like Mitt Romney) have plenty of legal ways to shield their income, offshore or otherwise. So these regulations screw (the vast majority of) Americans aboard with relatively modest incomes, while they are ineffectual against the rich few with tax accountants on their permanent staff.
tl;dr - these rules create more harm than benefit.
Yes there is. The Fourteenth Amendment clearly states:
All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.
Canada will tax non-resident citizens if they have certain ties to Canada (http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/rsdncy-eng.html), but only on income generated in Canada.
"survivor" bias? Maybe those are the only kind of people who want to give up their U.S. citizenship?
You can't just do it in Turbotax for 50 bucks, you need a qualified tax professional to help you. Good luck finding one familiar with the latest US regulation when you're abroad. The fees will be in the thousands, every year, for the rest of your life.
The financial toll and mental stress all adds up and I guess at some point people just give up. It's a shame that the burden of paperwork results in people giving up their citizenship.
No, the real key to keeping your paperwork simple is to keep the balance in all of your non-U.S. bank accounts below USD 10,000 at all times. The form is TD F 90-22.1.
Your U.S. tax return should be vastly more complicated than a resident's return if you want to avoid double taxation of your income. You will either be attaching Form 2555 (to exclude income from U.S. taxation) or Form 1116 (to claim credit for the taxes you pay in Poland) or both.
If you have a little investment account with some savings in it and you buy mutual funds, you will be filing Form 8621 for each mutual fund you buy.
If you are a startup entrepreneur and you own stock in your company, you will be filing Form 5471.
Seriously, it's a pain factory. I'm glad you have found a simple way of doing things, but for most people the annual cost of doing this paperwork is staggering.
That means using local bank accounts / credit cards, getting a mortgage, etc.
Being resident and working probably means the state will automatically open social security and pensions in your name.
Also, expats still have to do the tax return for their adopted country, and the tax year may not be based on a calendar year so they can't just re-use the same figures!
Trust me. In Poland. It won't. Why? Because I'm a native here and nobody knows that I have US citizenship too. It's like saying that in your US bank branch you will be asked if you have no Polish connections. No, they won't. They want their business. And on top of that there is no way for them to know.
I just can't take seriously anyone claiming that somehow US taxation is worse than that of the EU and the same goes with dealing with burocracy in general. It is MUCH worse in the EU. Just had to pay 1,000 EUR of fine on a border for 'smuggling' a MacBook I bought on a trip to the US. And that's on top of the VAT and other taxes. So, not really sure what all that BS is all about. Because when you compare EU to the US, EU leaves its population just with enough money to pay for day-2-day living expenses and not much more. HORRIBLE!
The US system seems to guarantee you need an accountant.
In the UK I do my taxes in 0 minutes most years, maybe in 10 minutes if I get a small return through the post.
Fwiw (I didn't use turbotax but some other online software) when I did my last US tax return; it was wrong and I had letters come through adjusting the calculations.