Everybody has their own personal reasons for expatriating, but here are some of the benefits:
1) Freedom from the global US tax net. Taxing you no matter where you breathe on this earth is wanton American exceptionalism. What other nations don’t dare do to their citizens, the US government doesn’t think twice about. Once you renounce, it’s your choice either to live the rest of your life free of any tax net, or to pick a place you want to be year-round and opt into the tax system (assuming it’s not a tax- free jurisdiction). If you do, you’ll at least know you have the freedom to walk away from it by simply moving elsewhere.
Taxes in the US are already high, and rates are set to increase across the board. To gain some perspective, it’s clarifying to calculate the number of months per year you work for the government. How many months did it take to pay all the federal, state, and local income taxes, capital gains taxes, FICA taxes, property taxes, and AMT – plus the raft of permitting, licensing and accounting costs you incur over the course of a year? Add corporate taxes if you’re a business owner. And don’t forget the new 3.8% health care surcharge tax on all investment income, including dividends. Be honest and add it all up. You’ll then have a decent idea of how much it costs you in time and money to be a US citizen every year. That cost will rise dramatically going forward.
Here’s the take-away: The biggest guaranteed return on your capital that you’ll ever have is investing your money free of taxes. Do some long-run compounding calculations with and without taxes to see what I mean. I’ll wager John Templeton did.
2) Freedom from the death tax. Its political label is the “estate tax,” but the fact is the tax is based solely on your demise. I used to think the death tax only applied to gains on assets that had not been taxed already. How naïve I was! It grabs half of all your assets, regardless of the fact that you’ve paid taxes on them.
If you have over a few million dollars net worth, your heirs will be writing a heart-stopping check to the IRS. They also may be forced to liquidate your assets to raise cash. This has happened to countless small businesses and family farms. And if you’re a young, talented entrepreneur who goes on to earn substantial wealth over the course of your life, the death tax has you in its crosshairs too.
The death tax is 45% now and is scheduled to jump to 55% in 2011. Either way, the amount is staggering. Expatriation lifts the death tax burden from your children and other heirs.
3) Freedom from the US government’s War on Solvency. Washington’s crazed debt addiction is uncontrollable and endemic. US politicians have strapped an inconceivably large debt burden on the backs of their subjects. It pays to spend some time on www.usdebtclock.org. The multi- trillion dollar debt avalanche roars on, headed straight towards economic hell. After “Debt Per Taxpayer” and “Liability Per Citizen,” check out “US Unfunded Liabilities” to see a number that’s suited to astronomical calculations – not economics.
Don’t be tricked into thinking this is a partisan issue. It’s sobering to review the debt records of both Democratic and Republican administrations…to behold what politicians do when given trillions of dollars of other people’s money. They spend it all – and then borrow trillions more! Of course, the burden of servicing that debt is on you, not them. Their six-figure salaries are guaranteed, along with their uber-perks and fully funded pension plans.
While often described as “the richest nation in the world,” the reality is that the US is the most indebted nation, by a country mile. No other government comes close to matching the debt burden that has been dumped onto every taxpayer. The US government is rampantly incurring debt in your name, and you have no way to stop it or slow it down. Standing in free speech zones with protest signs didn’t work when it came to war and crony bailouts, and it won’t work for the debt burden either.
The one truly meaningful act you can take as an individual is to opt out. Unload the government’s debt burden off your back. Don’t let yourself or your family be a casualty of the government’s War on Solvency.
4) Freedom from being treated like a “toxic citizen.” When traveling abroad, being a US passport holder used to be a positive thing. Now it’s an albatross. The New York Times article I cited earlier explains it plainly: Americans abroad are being treated like “toxic citizens.” They’re cut off from banking and other business and investing opportunities solely because of their US citizenship.
Typical currency controls don’t permit you to take money out of a country. The US doesn’t have that (yet). Instead, and this is quite clever, the government enacts laws and regulations that function as indirect currency controls. There are so many Patriot Act and other costly impositions forced on foreign banks that handle US customers that they’re simply refusing to put up with the harassment. Here’s the upshot: Your money isn’t fenced in; it’s fenced out.
If you seek firsthand evidence, visit a major banking center outside the US and try to open a bank account. Odds are you’ll be turned away when the bank finds out you’re a US citizen. Reports abound of US citizens’ long-held accounts at foreign banks being summarily terminated. The US government has made its subjects, along with their money, persona non grata.
I’ve read that some foreign banks are now setting up, in essence, holding pens designed to handle US citizens who want to bank offshore. But, really, what’s the point? You’re burdened with having to file extra IRS paperwork, along with FBAR forms to the Treasury Department. And even if you don’t file all the extra papers (not a smart move), new laws force foreign banks who accept US customers to report on you anyway. They are pressured to sign “information reporting agreements” to have US citizens as customers. Google “FATCA” and “qualified intermediary agreements” if you want details.
Now for the most extreme instance of liability. Being a US passport holder can mean life or death in the context of a terrorist attack. The US government’s never-ending War on Terror makes the world more dangerous for Americans. After so many years of bombing and military occupation in the Middle East, how can the hundreds of thousands of civilians who’ve been maimed and killed by the US government NOT be the source of enduring resentment and blowback? Needless to say, the US passport is on the short list of ones you least want to have if somebody sticks a gun in your face and says, “Passport.” Unfortunately, this has happened on more than one occasion, and it would be unreasonable to assume it won’t happen in the future.
5) Freedom from the paperwork prison. Millions of Americans are plagued every year by days, sometimes weeks, of preparing tax documents and paying thousands of dollars to accountants to decipher the IRS tax code. There are, literally, hundreds of different IRS forms. The tornado of rules and regulations in the tax code fills roughly 70,000 pages. And then you have to save boxes and boxes of papers for years in fear of someday being audited and not being able to produce the demanded documents. If you’re unfamiliar with audits, here’s how they work: You’re guilty of whatever the IRS claims, unless you prove yourself innocent. If that sounds preposterous, I encourage you to ask a tax lawyer. “Innocent until proven guilty” does not apply. Freedom from spending days of tedium on mind-numbing paperwork and thousands on accounting fees has been an absolute joy.
The Casey Research Team
for Markets and Money