In the United States, we hear all the time about the millions and millions who risk everything to try and become Americans. Immigration and border control have been hot-button political issues for years.
The topic of migrant control has introduced talks of walls, mass deportations and recently, outright banishments of certain groups. American citizenship is immensely valuable, and the debate surrounding who can and cannot obtain it is controversial and widely discussed.
There is another side of the conversation, though, that I feel that most Americans are missing.
Data shows that in 2015, a record number of expatriate Americans (that is to say, Americans who are living overseas) renounced their citizenship.
Sounds strange, doesn’t it? After all, the United States is the quintessential immigrant’s utopia, the country assembled by immigrants, the pertinacious champion of capitalism, individualism and, in theory, equal opportunity to all. It is the world’s strongest nation, the world’s most developed nation, and for those reasons, over 700,000 become naturalized U.S. citizens every year.
American citizenship is coveted by most—why on earth would anybody renounce it?
It is because the United States is one of only two nations (alongside the tiny East African country of Eritrea) that enforces a citizenship-based taxation. In other words, Americans that are living and working in, say, France, pay a tax to the French government and the American government on what they earn.
This is actually nothing new. According to the BBC, the United States has been practicing this citizenship-based taxation policy since the Civil War era. However, for the majority of that hundred and fifty year stretch, it only affected the well-off. Double taxation isn’t supposed to be enacted unless an expat American earns more than $106,000.
Sounds pretty reasonable then, right? I mean, Americans living and working abroad are in the clear up until their first $106,000—what is there to complain about? If you are making that much, you really shouldn’t have a problem giving some of it back to the USA.
And for years, that wasn’t a problem. Though it is unorthodox to tax people based on citizenship in the first place, taxing those that make six digits is hardly unfair. But a new problem has been thrown into the mix in recent years. Ever since the government passed a law called FATCA (the Foreign Account Tax Compliance Act) in 2012, it has become so difficult for some expat Americans to work overseas and maintain U.S. citizens that some, lamentably, have resolved to renounce their citizenship.
The FATCA law was enacted in 2012 in order to prevent wealthy business owners from evading taxation by stashing their earnings in offshore bank accounts—a viable concern. FATCA mandates that foreign banks now alert the U.S. government of its American clientele, thus ensuring that no U.S. citizens can evade taxation through foreign banking.
Its complicated, but I think that FATCA is a well-intended law. Society’s richest people should not be able to find loopholes in tax laws by concealing their wealth in overseas banks.
But we have seen some pretty serious adverse outcomes of this new policy. Because there is now an increased hassle that comes with financing Americans, foreign banks would rather avoid working with U.S. citizens living abroad altogether. This means that expat American entrepreneurs cannot find a feasible method of banking and drawing funding for their business endeavors, regardless of their income.
So, in essence, expat Americans who are law-abiding and middle-class have seen life get a whole lot tougher. In 2015, over 4,000 Americans gave up their passports—a decision that is no doubt incredibly painful.
The ultra-wealthy should not be able to hide from tax laws by storing their money in foreign banks. But, at the same time, the United States not make it impossible for Americans to bank overseas. And above all, the government should not make living abroad so difficult that people are choosing to renounce their citizenship. Like I said earlier, having an American passport is a great luxury—a luxury that loyal expats should not have to abandon.