Americans Renouncing Their Citizenship in Record Numbers
Who really owns the product of your labor?
As I went through some old notes, I found an interview from 2012, when I spoke with Neil Cavuto on Fox Business about Eduardo Saverin, one of the Facebook founders, renouncing his U.S. citizenship before Facebook’s IPO. The interview can be watched here. After 12 years, the topic is even more relevant.
First, the back story on Saverin (from the interview) is that he moved to the U.S. in 1992 and became a citizen in 1998. According to Tom Goodman, a spokesman for Saverin, in an emailed statement to Bloomberg, “Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time.” It is worth noting that Singapore does not have a capital gains tax, and most of the talk about this concerns the assumption that Saverin is doing this to reduce his tax bill meaningfully.
As I mentioned in the interview, 1,780 people renounced their citizenship in 2011 compared to 235 in 2008, a trend that has accelerated. According to Statista and Forbes, between 2008 and 2020, the number of Americans giving up their citizenship rose from 235 to 6,707 - a factor of 28.5x.
What I find so infuriating is not so much that more people are looking to leave the U.S. (with homes in Italy, Ireland, and the U.S., I am friends with many Americans who have chosen to live overseas), but rather the implied ownership within the U.S. tax code.
The sad reality is that the United States one of the best nations on earth for non-Americans to hide their wealth while at the same time is the single most draconian nation with respect to tracking all financial activities of its own citizens.
For example, some are renouncing their U.S. citizenship because of the Foreign Account Tax Compliance Act (FATCA) which is in essence a ‘snitching program’ that the requires banks in foreign jurisdictions to report on bank balances of their U.S. citizens clients. No other country on the planet does this, nor can they do it. The U.S. is able to force this on the banking insitutions of other nations because of its control over the SWIFT banking system.
Failure to report such accounts can result in a loss of access to the U.S. banking system which has led many banks to refuse to service those holding an American passport. There are also penalties for not reporting income taxes to U.S. officials and any U.S. citizen who holds more than $ 10,000 abroad in an account must file a Foreign Bank Account Report (FBAR) yearly to avoid penalties.
The United States is the only major nation that taxes its citizens (and green card holders) regardless of where they live.
If you hold a U.S. passport or green card, the Internal Revenue Service wants its cut of your profits and capital gains, regardless of where you live and where they may be earned. Even if you never again step foot inside the United States, if you have a U.S. passport, you will have to file taxes every year in the U.S.. The complexity of these tax returns means the process alone is extremely expensive, and you may owe even more taxes to the U.S. government in addition to the taxes you’ve already paid.
Having an American passport can mean you will be paying taxes to the U.S. government even if you never step foot in or earn a single penny in the country again.
No other developed nation does this.
Even worse, if, for whatever reason, you decide you want to give up your citizenship, the U.S. government may charge you a breakup fee, taking a meaningful portion of your net worth away from you. Again, no other nation does this.
So, who really owns the products of your labor, you or the government?
Like I told Neil, under the IRS rules, it is you.