It’s an old maxim of economic and also political theory: people vote with their feet.
Throughout American history, millions of immigrants have done this by coming to this country. But now, under the looming pressure of a new law on the taxation of offshore accounts, more and more U.S. taxpayers are doing something surprising. They are giving up their passports.
As we discussed in our August 21 post, the spike in citizenship renunciation and the giving up of green cards is due at least in part to the impending provisions of the Foreign Account Tax Compliance Act (FATCA). FATCA seeks to impose unprecedented new reporting provisions for foreign financial institutions on assets held by U.S. taxpayers.
But it would be overly simplistic to suggest that FATCA’s new disclosure requirements are the only reason for the uptick in taxpayers giving up their U.S. passports. There is also the fact that, regardless of whether or how much tax is owed, offshore account compliance is becoming an increasingly complicated burden.
Moreover, the U.S. is something of an international outlier in the stance it takes on the taxation of all income, irrespective of where it was earned or where a taxpayer lives. Expatriate Americans, in particular, are growing weary of having to pay taxes to two different countries: both the U.S. and the country where they are residing.
The result of this weariness is reflected in the passport renunciation numbers. The number has now reportedly reached at least 1,800. It includes those who have renounced U.S. citizenship or given up green cards.
Most of these people are not so-called “fat cats.” Many are merely people with ties to more than one country in an increasingly globalized world who have found it more and more difficult to keep up with constant changes in the U.S. tax code. And more and more of them are voting with their feet to simplify their lives by giving up their U.S. passports.
Source: CNN Money, “Americans turn in passports as new tax law hits,” Sophia Yan, September 5, 2013