by Simon Black
Another 508 people renounced their US citizenship last quarter according to documents published this morning by the Internal Revenue Service.
This brings the total number of US ‘renunciants’ under the Obama administration to 17,359.
It’s a pretty sad state of affairs when a government’s tax policy is so oppressive that it drives people to permanently divorce themselves from their country.
Now, it’s easy to dismiss these people as traitors and cowards, and to say “good riddance, we didn’t want you anyhow.”
But consider that many of these renunciants are what I call ‘accidental Americans’.
This could be someone born in, say, Thailand, to an American father and Thai mother.
Automatically at birth, the child is a US citizen due to his father’s nationality.
He grows up in Thailand for his entire life, barely ever setting foot on US soil.
He goes on to have a successful life, until, one day, he receives a ‘Dear John’ letter in the mail from the US government congratulating him on all his success.
“And oh by the way you owe us 20 years of back taxes.”
This has happened countless times. That’s because the United States is almost the only country in the world that has what’s called “citizenship based taxation”.
In other words, if you are a US citizen, you are required to file tax returns and pay tax to the US government, regardless of where you live, even if you are an accidental American who has never even been to the United States.
This isn’t normal. Most countries have ‘residency based taxation’ where they tax people based on where you live.
Here in Italy, for example, the Italian government (even as bankrupt as it is) only taxes people who actually live here.
For Italians living abroad (and who don’t have any Italian-sourced income), they don’t pay a single euro in income tax to the Italian government.
Residency-based taxation is a more sensible approach.
But in the Land of the Free, the government demands payment from all Americans, no matter where in the world they happen to live.
There are certain credits for foreign taxes paid, and exclusions like the Foreign Earned Income Exclusion.
But anyone earning income beyond the exclusion amount still owes tax.
Plus anyone earning investment income like capital gains, dividends, interest income, etc. still has to pay tax on those earnings without any exemption whatsoever.
Think about that. You’ve never received a dime of benefit or government service. And yet you’re still expected to pay up, along with all sorts of penalties and interest.
What’s really amazing is that when these accidental Americans get fed up and renounce their citizenship to put a stop to this madness, they aren’t allowed to do so until they settle their tax bills.
Many of these people never lived in the US, never worked in the US, never agreed to pay any tax…
Yet they’re not even ‘allowed’ to renounce until they pay off the federal government.
This is extortion, plain and simple.
Funny thing, solvent governments don’t engage in this type of behavior.
You don’t see Hong Kong devouring its own people through oppressive taxation that drives them to relinquish their passports.
On the contrary Hong Kong’s taxes are so low that they’re attracting talent and business.
Bankrupt governments, on the other hand, routinely resort to this type of financial cannibalism.
History is replete with cautionary tales of insolvent governments who plunder the wealth of their citizens in order to maintain the status quo.
So as western governments continue their grueling slide into insolvency, this is a trend that all of us will eventually face.
Yes, we can be grateful for the opportunities that have been afforded us by our nationalities.
But that’s no reason to lie down and be fleeced so that a government with a track record of wasteful, destructive spending can steal your wealth to drop bombs on children’s hospitals on the other side of the world.
Bottom line: they’re coming for your money at some point in the future.
It’s important to understand this reality, and have a plan to ensure you don’t become another statistic. If you’re interested in learning more about American citizenship and how to become a US citizen learn more at Lluis Law.