The New York Times ran an article this week about an increasing number of Americans living and working abroad who are considering taking the drastic step of giving up their American citizenship. Most of these expats would ideally like to maintain their citzenship but are being pressured to relinquish it by America’s complicated tax code and system of double taxation:
Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship…
…Anecdotally, frustrations over tax and banking questions, not political considerations, appear to be the main drivers of the surge. Expat advocates say that as it becomes more difficult for Americans to live and work abroad, it will become harder for American companies to compete.
American expats have long complained that the United States is the only industrialized country to tax citizens on income earned abroad, even when they are taxed in their country of residence, though they are allowed to exclude their first $91,400 in foreign-earned income.
The following anecdote of a former Marine turned Swiss banking executive is especially telling:
One Swiss-based business executive, who spoke on the condition of anonymity because of sensitive family issues, said she weighed the decision for 10 years. She had lived abroad for years but had pleasant memories of service in the U.S. Marine Corps.
Yet the notion of double taxation — and of future tax obligations for her children, who will receive few U.S. services — finally pushed her to renounce, she said.
“I loved my time in the Marines, and the U.S. is still a great country,” she said. “But having lived here 20 years and having to pay and file while seeing other countries’ nationals not having to do that, I just think it’s grossly unfair.”
“It’s taxation without representation,” she added.
Furthermore, well meaning but poorly constructed and misguided banking regulations are fueling the problem:
Stringent new banking regulations — aimed both at curbing tax evasion and, under the Patriot Act, preventing money from flowing to terrorist groups — have inadvertently made it harder for some expats to keep bank accounts in the United States and in some cases abroad.
Some U.S.-based banks have closed expats’ accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision.
“It seems the new anti-terrorist rules are having unintended effects,” Daniel Flynn, who lives in Belgium, wrote in a letter quoted by the Americans Abroad Caucus in the U.S. Congress in correspondence with the Treasury Department.
“I was born in San Francisco in 1939, served my country as an army officer from 1961 to 1963, have been paying U.S. income taxes for 57 years, since 1952, have continually maintained federal voting residence, and hold a valid American passport.”
Mr. Flynn had held an account with a U.S. bank for 44 years. Still, he wrote, “they said that the new anti-terrorism rules required them to close our account because of our address outside the U.S.”
Kathleen Rittenhouse, who lives in Canada, wrote that until she encountered a similar problem, “I did not know that the Patriot Act placed me in the same category as terrorists, arms dealers and money launderers.” http://www.nytimes.com/2010/04/26/us/26expat.html
