Expatriation and Taxes

Income redistribution is a major reason why more people are leaving the U.S.

James Shott · Mar. 28, 2017

It is frequently said and generally true that America is a land of immigrants. That is, of course, due to the huge numbers of people that flocked to the United States since the early 1600s when the Pilgrims successfully began the process, crossing the Atlantic Ocean in a long and perilous journey seeking religious freedom. A major wave of immigrants arrived during the colonial era, during which the United States of America was born, and another wave occurred from 1880 to 1920, when many more arrived seeking greater economic opportunity.

While these periods saw immigrants voluntarily traveling to America, thousands of African slaves reached our shores from the 17th century well into the 19th century, brought against their will.

Four hundred years after the Pilgrims sought freedom of religion, America is still a favored destination for people from many other nations. Many or most come from highly troubled circumstances in their home countries to seek a better life. Unfortunately, as we have seen more recently, many sneak across the borders, and some come specifically to cause trouble and pain.

Curiously, there’s now a growing trend in the other direction, as thousands of Americans voluntarily give up their U.S. citizenship for that of other countries.

According to data from the U.S. Treasury Department, looking back to 1998, some 398 Americans gave up their citizenship that year, and over the ensuing decade, the number of American expats ranged from a high of 762 in 2005, which was the end of a slow but steady seven-year increase in expatriate activity, to a low of 231 in 2008. After that 2008 low, the numbers skyrocketed, with 1,534 Americans giving up citizenship in 2010 and more than 5,400 by 2016.

Interestingly, more than one-third of those expats in 2016 took this step in the last quarter of the year when the presidential campaign ended and the election was held. This raises the question of whether many did so in the last three months of the year because they feared Hillary Clinton would win the election, or whether they decided to split after Donald Trump defeated her.

During the run-up to the election a long list of recognizable names threatened to leave the country if Trump won, including one Associate Justice of the Supreme Court, Ruth Bader Ginsberg. It is worth noting that Ginsberg and many, or perhaps all, of the others threatening to leave are still here.

As these personalities were advertising what turned out to be idle threats, countries like Canada and New Zealand promoted themselves as desirable destinations for Americans ready to abandon ship. As it turns out, New Zealand is the third most popular destination for American expatriates after Malta and Costa Rica, and followed by Mexico.

Why are people who are citizens of perhaps the most sought-after destination for people leaving other countries willing to give up U.S. citizenship to live somewhere else?

There are several reasons, such as that some of them fell in love with the culture and history of another country while on a trip abroad. Or perhaps some may be immigrants who came here, became citizens, and then decided to return to their native land.

But there’s also another reason: The escalation of offshore penalties over the last 20 years, in the judgment of tax attorneys who track expatriate data on their International Tax Blog. US News adds, “The U.S. is one of a very small number of countries that tax based on nationality, not residency, leaving Americans living abroad to face double taxation.”

The U.S. tax code once again rears its ugly head. Its irrational design not only encourages businesses to move to other countries, but encourages individuals with earnings in other countries to abandon their citizenship, as well. However, President Donald Trump has pledged to overhaul the tax code, reducing tax rates on businesses and individuals, among other changes, and that may make a difference for these people.

Inside the tunnel where leftists live, peering out on the world with their narrow view of things, everyone, other than they, who makes a lot of money and every large company is an evil thing that threatens survival. Obviously, then, tax breaks that help the wealthy and big corporations are a bad thing.

But let’s move past leftist tunnel vision. Removing tax provisions and regulations that punish businesses in favor of creating an environment that invites businesses will encourage those who left to return. It will also help domestic businesses to expand and produce the jobs the country so badly needs.

Lowering personal tax rates and raising the standard deduction will leave more hard-earned income in the hands of regular people, who will then spend and/or invest it, both of which help the economy grow. And doing away with taxing foreign income will remove a factor encouraging people and their money to seek greener pastures elsewhere.

It’s a pretty simple formula, really. Which is probably why our leaders haven’t put it in place.

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