Wednesday, May 2, 2012

American expats pay tribute to America

Note: I have no intention or desire to give up my US citizenship but, repeatedly, when I bring up the fact that other American expats do so because of how badly the US government treats its expats, people assume that I am planning on "jumping ship". Stop doing that. Freedom of dissent is supposed to be part and parcel of what it means to be an American. We don't have to agree on our views, but we also don't need idiotic cries of "traitor" just because someone doesn't understand what "Freedom of Speech" means.

Business Week has an interesting article entitled Wealthy Americans Queue to Give Up Their Passports. Of course, they failed in two areas:
  • They didn't define "wealthy"
  • They didn't provide evidence that it was "wealthy" Americans giving up their citizenship
I get awfully tired of seeing crap like this. Americans living in the US think we expats are all champagne-sipping Americans sitting on yachts planning to avoid taxes. Instead, we have a bunch of champagne-sipping Congressmen sitting on yachts planning to avoid their own taxes who are painting American expats as a bunch of wealthy tax dodgers.

I pay taxes. I live in France, so of course I pay lots of taxes. My taxes pay for French policemen, French firemen, French health care, French roads, and so on. I have no problem paying French taxes because there's a clear benefit from them. It's not that I don't want to pay US taxes, but I want to have those taxes to be proportional the benefits that I receive.

Historically, paying tribute often meant that you had been subjugated by a foreign power and you paid money to them, not for services rendered, but to stop them from invading you again. If you pay them for services rendered, that's taxation. If you pay them by compulsion and get nothing in return, that's paying a tribute. American expats are forced to pay tribute to the US government.

Imagine yourself as the typical middle-class US expat: you don't have a huge amount of spare cash on hand (particularly now) and you probably won't owe the US government much, if any, money in taxes due to the Earned Income Exemption. Except that you have to file anyway. You now have to file Form 8938 along with your tax return and possibly a Form TD F 90-22.1. Form 8938 and Form TD F 90-22.1 contain roughly the same information, but it's collected in different ways, at different times, and is sent to different organizations. If you make a mistake on one of them, you could be viewed as a tax avoiding felon, even if wading through this mess is naturally complicated.

Of course, there's also the prospect of OVDI, but many Americans find themselves facing their life savings being wiped out by OVDI, despite the US government having previously done very little to publicize these laws. Walk into a consulate on a routine matter and you don't get handed a list of what forms you need to fill out, to whom you have to send them and when they must be sent. Calling the IRS back in the states results in a "let me get back to you" but you never hear from them again.

You're supposed to just magically "know" this information (and God have mercy on your soul if you didn't know you were required to file a required Form TD F 90-22.1 because the IRS will show no mercy whatsoever). And while you're at it, just try finding US tax experts outside the US. Just filing a minimal "I don't owe any tax" return can easily cost you $2,000. If you have to go the OVDI route, you could easily face up to $16,000 in filing costs without owing any money!

Of course, if any income isn't "earned income", then you can't claim the standard exclusion. Only a third of the world's nations have tax treaties with the US, so many people don't even have those to fall back on. I know one American lady whose lived in France for 20 years, bought a French house with her French husband, paid for it with a French income and then sold it — only to face capital gains taxes in both France and the US. And it also cost her a bundle to find a tax advisor for her paperwork.

So yeah, many US expats are giving up their US citizenship over punitive tax measures. It's hell to deal with. It's wonderful living over here, but the US is turning our taxes into a nightmare.

Unfortunately, the Bloomberg article cited above perpetuates the myth that Americans living abroad are swimming in wealth and are just trying to screw Uncle Sam. We receive virtually no benefits from the US government and benefits we should get are either eliminated (such as the Medicare we've already paid for) or drastically reduced (such as Social Security). We are required to jump through hoops for Uncle Sam while millionaire tax dodgers in Congress strip us of our rights while telling people that we're the ones abusing the system.

So can someone please tell me specifically what concrete benefits we Americans abroad are getting from the US government? And don't give me any flag-waving nonsense. I can wave plenty of flags all day long, but they don't take care of my daughter when she's sick, my French taxes do that.


  1. That egregious misrepresentation by Bloomberg is a good example of why people like me want to live outside of the U.S. I'm sorry you've gotten flack from some of our fellow Americans about it, but then that is yet another reason this country is becoming hard to put up with. It's not just the heartless lies in the press, but all the foolish people who still, after all these decades, fall for it over and over again.

    So, wanted to express by sympathy for the dose of clueless you got from some in comments, but I'm also posting with a question.

    I understand that if I retire overseas I lose Medicare, but you also mentioned that Social Security payments are reduced. Could you please explain that? Do you mean the double taxation reduces them? Or is it something else?

    Thanks for this website. It's one of the best expat sites I've found and I've bookmarked it to check daily.


    1. Thanks for the kind words and I'm glad you're enjoying the site. I do try to provide useful information.

      If you move abroad and retire, your Social Security is only reduced (sometimes by as much as 50%!) if you claim a foreign pension. Congress passed a Windfall Elimination Provision’s (WEP) act in the 1980s which reduces your SS benefits on the theory that you would be "double-dipping" by claiming two pensions. There are numerous problems with this, not the least of which is that you should have the right to claim the benefits you paid for.

      Sadly, this is part of Congress's program of WOE (War On Expats — a term I just made up). We're easy political targets, so Congress likes to go after us to win votes.

  2. Curtis

    Just discovered you, so thought I would comment here also, if you don't mind. This Bloomberg article was repeated at the Seattle Times.

    If you will indulge, I would post here, what I put there. Just for your information...

    "Well, not sure I buy that this is a story just about the wealthy. I know editors think that "Wealthy" in a Headline attracts readers, and they are not wrong.

    There certainly are some wealthy that hand in their passports, but everything I read and know tells me the story is much broader and more mainstream than many Americans living in the Homeland (Seattle) like to believe or know. I personally know of many examples of average middle class Americans living in Canada (that other tax haven, not!) going exactly the same route.

    Fact is, there have been millions of Americans living fairly normal average lives in many countries around the world for many years. Then, 3 years ago, on the heels of the USB tax evasion schemes for homeland Americans tax cheats, along comes the IRS jihad against offshore accounts enforcing FBAR regulations against Expats. These requirements have never been enforced before and few knew about and many still do not. I know, as I was one of them.

    Rather than make it easy for Americans abroad to become compliant with these administrative reporting requirements, the IRS has imposed some pretty draconian penalties in a "one size fits all" voluntary disclosure regime. The administration of those programs, with serious criticism by the National Tax Advocacy Service, has soured the atmosphere for many pretty average Americans abroad.

    Then comes FATCA buried in the 2010 Hire Act which the Seattle Times has not reported on heretofore. It contains all the new requirements on Financial Institutions the world over to report on U.S. persons' (greencard holders too) accounts back to the IRS . The cost and cumbersome nature of those rules is causing banks to shed Americans and shutting them out of normal banking services where they live.

    Then you layer on top the new duplicative IRS form 8938 (with a lot of the same information as the FBAR, only sent to a different government address) where you now have to report for all your offshore assets in the countries where you live with serious penalty threats if you fail to comply, ... well enough is ENOUGH! If this was happening to Americans in the Homeland, the uprising would make the current Tea party protest look like an afternoon picnic.

    Americans, many who have lived over seas for many years are faced with some harsh choices, Complain, comply, ignore, or renounce. I understand why they renounce.

    Bottomline, it is not evasion or avoidance of taxes as much as it is of shedding the uncertainty about what stupidity the U.S. Congress will come up with next to make its Citizen's lives overseas miserable.

    It is the Tax Complexity, Stupid! Not the taxes!

    End U.S. Citizenship taxation, practiced only by America amongst the 192 countries in the world, and all of this explosion of Citizens renouncing and handing in their passports would stop, be it the wealthy and not so wealthy.

    When you think about it, this can't just be a wealthy story, as America makes it citizens pay a hefty "Exit tax" and why would the wealthy want to do that to live in countries where they are already taxed more than what American's effectively pay? That alone should help you look beyond the headline for understanding."

    1. Just me: Excellent response. I have one tiny comment: the US is not alone in taxing expats. The Eritrean dictatorship tries to force their expats to pay income tax. It's interesting that the Canadian courts have ruled this Eritrean expat tax illegal, but from what I understand, this ruling will likely have any effect on US tax of expats due to the basis of the ruling.

    2. Curtis...

      Thanks for the minor correction.

      I do know about Eritrean diaspora tax, and there is a technical dispute as to whether or not it is actually an income tax in the same vein as the US income tax. So for brevity I often leave it out. I know that most Seattle Times readers have no idea what I am talking about anyway.

      You could also say that North Korea imposes an income tax on it Expats, if they allow any!!! (Actually there are some and they pay most of their income back to North Korea) Again, no sense muddling the message.

      The point that matters is that no OECD country in the world practices citizenship taxation, as you and I know, but sadly all the "Real Americans' I talk to back in the Homeland have no idea that the US taxes differently than the rest of the civilized world.

      You have to draw an example of how the 50 U.S. States exercise territorial taxation for them to get it. Just because you are born in California, and then move to Iowa, California doesn't chase you down for an income tax because you were born back there. They do not have a birthright claim on you, like the US thinks it does.

      With the State example, it begins to dawn on them, if they are open minded enough, and not caught up in the US Expectionalism myth about how valuable the U.S. Passport is. At one time that was true, but given the past 3 years of the Congressional and IRS offshore jihad, the value has been greatly diminished. It has tipped from benefit to burden.

      Sometimes I think I should stress the new income tax "Axis of Evil", as a tongue in cheek way of playing off that old Bush slogan. That would be the US, Eritrea and North Korea! We are in great company, eh? LOL

      Oh, by the way.. The US has condemned the Eritrea tax too. How hypocritical is that?

      PS... I like you, am not renouncing my citizenship yet. I am in the "Complain by Comply" mode for now. I very active in doing my part to warn new immigrants about what they are signing up for if they want to be US Persons. Just gave another warning this morning over breakfast with an acquaintance in Sydney!

    3. Just Me: I've heard rumors that North Korea taxes its expats, but I have never found hard information on that. Do you have any?

  3. Curtis,

    Nice piece and nice website. It would be nice if you posted some of your stuff over at Isaac Brock Society as well. Your views are shared by many.

    1. Hi Anonymous,

      I requested to join, but haven't heard anything back from them yet. They're a fantastic resource!

    2. Please try again. Write to Petros.

  4. Well said. Curtis. The disinformation out there is just incredible and the Bloomsberg article is one among many that has me gnashing my teeth and considering throwing in the towel. I was also amused that the Seattle Times (my hometown newspaper picked up the story. I had sent them a Letter to the Editor about FATCA and citizenship-based taxation months ago which they appear to have ignored. I guess a sensational inaccurate story from Bloomberg trumps the actual experience of a former born and bred Seattleite (who still votes in King country BTW).

  5. From a fellow (ex)American also living in France: well put! You just very eloquently explained why I renounced...

    1. You've renounced? Would you be willing to give an anonymous interview about that? Contact me at my email listed above.

      Sadly, everyone I've asked has refused for obvious reasons :)

  6. I lived in Scandinavia for 6 years and now am back in the US. The year where I moved between Sweden and Norway, I had to deal with the mess of Scandinavian net worth taxes as well as income tax to the country where it was earned and the US.

    US taxes on ex-pats are a completely immoral money grab (as are Scandinavian net worth taxes) and I am glad that someone is writing this. America is caught up in de Tocqueville's foreshadowed undoing, where American democracy has become about voting yourself other people's money. If you do something the average voter has never done (move abroad), you are viewed as someone non-average who should have to pay to have your money re-distributed to the average American. Never mind that the government is not spending money particularly wisely and is engaged in several wars it can't afford that don't benefit it, supported by both the Republicans and Democrats.

    Given everything else that is broken in America, the only solution I see is to vote for Ron Paul or the Libertarian Party and hope this movement starts to gain traction in the US to fix things. I am pessimistic that things will get worse in the US (more stupid policies on taxes and lots of other things, nothing fixed) before they get better. They will only potentially get better when the bond markets force the US to deal with debt and built a sustainable economy where the government doesn't waste so much money. The issues that matter are not even discussed in the US media, at least not without being dumbed down and put in a moderately (economically) leftist and overly nationalistic spin.