The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

Investor Class Going Galt: Giving up U.S. Citizenship and Voting With Their Feet.

Posted by iusbvision on April 18, 2010

Read this carefully…

Wall Street Journal:

The number of American citizens and green-card holders severing their ties with the U.S. soared in the latter part of 2009, amid looming U.S. tax increases and a more aggressive posture by the Internal Revenue Service toward Americans living overseas.

According to public records, just over 500 people world-wide renounced U.S. citizenship or permanent residency in the fourth quarter of 2009, the most recent period for which data are available. That is more people than have cut ties with the U.S. during all of 2007, and more than double the total expatriations in 2008.

An Ohio-born entrepreneur, now based in Switzerland, told Dow Jones he is considering turning in his U.S. passport. Mounting U.S. tax and reporting requirements are making potential business partners hesitate to do business with him, he said.

“I still do dearly love the U.S., and renouncing my citizenship is not something I take lightly. But more and more it is seeming like being part of a dysfunctional family,” said the businessman, who asked that his name not be used for fear of retribution.

“The tax itself is only a small part of the issue,” the Swiss-based entrepreneur said. “It’s the overall regulatory environment.”

A minority of the recent expatriates are U.S. natives who have started a new life overseas. Most are people with family ties outside the U.S.: foreign professionals who acquired a green card while working in the U.S., or people who have received higher education in the U.S.

“Fifteen or 20 years ago there was a big rush to make sure your kids became U.S. citizens, for access to U.S. schools for example,” said Timothy Burns, a tax lawyer at Withers law firm in Hong Kong. “Now we’re seeing just the opposite.”

Last month, the Treasury Department announced more rigorous requirements for Americans living abroad to report information on foreign bank accounts. The reporting requirement has been in place for years, but only in the most recent couple of years has the IRS gotten tough about enforcing penalties.

The information return must be filed by any U.S. citizen or resident whose balance in all foreign accounts combined exceeds $10,000 at any time during the year. Stiff penalties, up to 50% of the annual account balance, punish failure to file.

Others are giving up their U.S. nationality to avoid tax increases in the U.S., as the government struggles under huge budget deficits. The top marginal tax rate is set to rise to 39.6% from 35% at the end of this year. A proposal to tax fund manager pay at ordinary income rates, instead of the 15% capital gains rate, is gaining currency in Congress.

“Everybody sees the tax rates are going up. At a certain point, it gets beyond people’s pain threshold,” said Anthony Tong, a tax partner at accounting firm PricewaterhouseCoopers in Hong Kong.

Unlike most jurisdictions, the U.S. taxes the income of citizens and green-card holders no matter where in the world it is earned.

 

Dan Mitchell from the CATO Institute comments:

Perhaps the key sentence in this excerpt is the final one about the United States having a very misguided policy of what is known as “worldwide taxation.” This is the policy of taxing income earned in other nations, even though that income already is subject to all applicable taxes imposed by the governments of those other nations. This policy is a huge competitive disadvantage for American companies trying to compete in world markets (and Obama, not surprisingly, wants to make it more burdensome), but the impact on individual taxpayers is a key factor in the decision by so many U.S. taxpayers to escape the clutches of the IRS. Indeed, it may also be one of the reasons why some highly-talented foreigners – the kind of people who helped make Silicon Valley an engine of prosperity for the entire nation – no longer want American residency.

One Response to “Investor Class Going Galt: Giving up U.S. Citizenship and Voting With Their Feet.”

  1. Paul Geer said

    Wow! Never thought I see the day come when people would no longer want American citizenship. What a proud moment! One more for the IRS.

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