Obama warned everyone back in 2009 that “elections have consequences.” Now, eight years later, we learn that apparently the “consequences” of running around the country for nearly a decade threatening to raise taxes, “spread the wealth around” and pursue any number of other socialist policies are a record number of people renouncing their U.S. citizenship.
As Fortune points out, the United States, unlike almost every other country in the world, taxes people on the basis of citizenship rather than residency.So even if you spend all of your adult, wage-earning years on a remote tropical island with a 0% tax rate, if you were born in the United States, you still owe Uncle Sam your “fair share.”
The cause of the defections, which led the U.S. to say so long last quarter to everyone from Jonathan Abbis to Anna Zwirner, is primarily the U.S. tax system.
When it comes to taxes, the United States is an outlier because, unlike nearly every other country, it taxes people based on nationality rather than residency. While U.S. citizens can claim credits with the IRS for what they pay to foreign tax authorities, those amounts are not always enough to offset what they owe.
U.S. expats also face the burden of annual filings with the IRS with the prospect of stiff penalties if they fail to comply.
According to international tax attorney Andrew Mitchel, those who deliberately fail to report foreign accounts to the IRS can face a fine of $100,000 or half the value of the account—whichever is greater. Meanwhile, there are a range of other penalties for small business owners abroad and for those with assets of more than $30,000.
“The IRS has been very gracious in saying they won’t take more than 100% of your money,” says Mitchel, ironically. “These people are terrified they will go bankrupt because of the United States. They just want to get out of the U.S. tax system.”
