My recent blog entry describing how easy it is to expatriate really hit a chord. Most responses were very positive. But a few were downright hostile.
“How can you in good conscience encourage someone to revoke all ties to the United States,?” one reader wrote. “Don’t you have any patriotism?” Another reader wrote a one-word response which spoke volumes: "Traitor." A third predicted, “I have no doubt that some people who take your advice to expatriate may come to regret it later.”
That may well be true. But if these readers—or anyone else who thinks that expatriation is unpatriotic, unnecessary, or could lead to “buyer’s remorse it—really want to end expatriation, there’s something Congress to do, immediately, to shut it down.
I’m not talking about more stringent anti-expatriation laws, such as the “exit tax” Congress enacted last year. Nor am I speaking of enforcement of the possibly unconstitutional “Reed Amendment,” which purports to exclude persons who renounce their U.S. citizenship for “tax motivated” from ever returning to the United States. (Fortunately, this law, enacted in 1996, has rarely, if ever, been enforced.)
No, I’m proposing something radically different: for Congress to stop taxing the approximately six million U.S. citizens and green card holders living outside the United States. And it’s really not that radical, because the United States is one of only two countries that impose tax based on citizenship, rather than residence. Millions of U.S. citizens, some of whom have never set foot in the United States, are subject to U.S. tax on their worldwide income. These U.S. citizens not only must pay U.S. taxes, but also comply with U.S. offshore financial disclosure requirements. If they’re wealthy, they must retain tax experts to avoid paying U.S. estate tax.
America’s current tax policy also places its non-resident citizens at a disadvantage in the international marketplace. A Canadian, British, or Japanese passport holder working in, say, Hong Kong, is only subject to Hong Kong tax on local income. But the U.S. citizen competing for the same job must deal with U.S. tax as well.
Congress could end this discrimination simply by amending the U.S. Tax Code. For instance, it could stipulate that any U.S. citizen or green card holder who leaves the United States for at least one full year is no longer subject to tax on their non-U.S. income. After a longer period—let’s say five years—they would no longer be subject to U.S. tax on capital gains. And, should they establish a new domicile outside the United States, they would no longer be subject to U.S. gift and estate taxes.
Enacting these common sense reforms would eliminate the tax incentives for U.S. citizens to expatriate. It would, quite literally, end expatriation overnight. They would also make the put U.S. tax policy back in the international mainstream. Of course, when non-resident Americans returned to the United States under this plan, they’d have to start paying U.S. tax again on their worldwide income.
President Obama campaigned on the promise of “Hope” and “Change.” This simple change in U.S. tax policy would give hope to the more than six million Americans who live overseas.
Obama, do you hear me?
Copyright © 2009 by Mark Nestmann
(An earlier version of this post was published by The Sovereign Society, https://banyanhill.com/)
