And he tells his personal story like it is and why he is giving up his American citizenship. He writes about it in the NY Times’ Opinion Pages as an OP-ED CONTRIBUTOR in a piece entitled, “Why I’m Giving Up My Passport”. He says what I have stated many times over about the state of taxation without representation. I would recommend that you also check out the books he has written on the future of the economies and how to protect your financial future (see link at end of this blog post).
LONDON — THE mayor of London, Boris Johnson, who was born in New York
and holds both American and British passports, recently said that he would not
pay a tax bill from the United States on capital gains from the sale of his home in
the London borough of Islington. Mr. Johnson pointed out that he hasn’t lived in
America since he was 5. He’d like to renounce his citizenship, but said the process
was “very difficult.” It is, but I am doing it. My “in-person final loss of citizenship appointment” is
scheduled for Jan. 14 at the United States Consulate here. My British passport,
acquired in 2012, will be my only one.
Some 3,000 Americans gave up their citizenship last year, a tiny number
that’s nevertheless been soaring. Yes, a few expatriates may be trying to avoid
future taxes, as Senator Charles E. Schumer accused the Facebook co-founder
Eduardo Saverin of doing two years ago, when Mr. Saverin, who lives in
Singapore, surrendered his passport ahead of the company’s initial public
offering. But most, like me, are not tycoons. We’re responding to the burden and cost
of onerous financial reporting and tax filing requirements that are neither fair nor
just. (Living and working in London, I pay higher taxes, to Britain, than I would
in New York.)
Some 7.6 million Americans live abroad — expats would be the 13th most
populous state, if we were a state. Many are overseas temporarily, for work or
study. But many others marry foreigners, start companies or have long-term
overseas assignments. We are just like ordinary Americans — except that we lack
representation. The United States is an outlier: Its extraterritorial tax laws apply to American
citizens and companies no matter where they are. We are the only country
(except, arguably, Eritrea) that taxes all of its citizens on worldwide income
rather than where the income is earned. Expatriate Americans have to pay taxes once, wherever they live, and then file again in the United States. The I.R.S. doesn’t tax the first $97,600 of foreign earnings, and usually
doesn’t double-tax the same income. So most expatriates owe no money to the
I.R.S. each year — and yet many of us have to pay thousands of dollars to
accountants because the rules are so hard to follow.
The extraterritorial reach of the income tax dates from the Civil War, when
the government wanted to prevent Americans from fleeing to Britain to avoid
taxes. This outdated and harmful relic has only gotten worse.
It’s one thing if a New Yorker creates a shell entity in the Cayman Islands to
evade taxes. It’s another if an American who has spent most of his life overseas,
as I have, creates a legitimate company. The I.R.S. doesn’t care about the
distinction. Under a 1962 law, it treats the two companies I’ve started as
“controlled foreign corporations,” subject to detailed regulatory requirements,
though a majority of our employees and clients are foreigners.
Moreover, if you are an American, you can’t invest in foreign mutual funds
without paying punitive tax rates. This is a blatantly protectionist measure for
American funds, but it also makes saving for retirement very difficult.
Renunciations of citizenship have soared because of a 2010 law, the Foreign
Tax Account Compliance Act, which requires foreign financial institutions to
report assets held by American clients or face a 30 percent withholding tax. In
response, many foreign banks will no longer take American clients and are
terminating existing accounts. The Economist says this “heavy-handed,
inequitable and hypocritical” law will cost American banks alone $800 million a
year to implement. Moreover, the magazine reported, “seasoned tax dodgers are
not so naïve as to hold money in their own names.”
Most of us who are overseas long term simply accept the status quo. Some
may fear that renouncing their citizenship will put a bull’s-eye on their back with
the I.R.S., even if they’ve complied with all laws. It does not help that members of
Congress occasionally threaten to bar any Americans who renounce from ever
visiting the United States again. Like many Americans, I didn’t choose to grow up abroad. My father is from
New York, and my mother, who died in 2012, was from North Carolina. They
moved abroad for work in the 1970s, and ended up in a poor neighborhood in
Madrid, where they ran drug rehabilitation centers. I went to an American school
in Spain and recited the Pledge of Allegiance each morning. Except for two years
in childhood, four years at college in North Carolina, and two years in New York,
I’ve lived overseas all my life. At 38, I’ve voted in only one American election and
I don’t have much connection to the United States. Almost all my friends are
cultural mutts — people with hybrid backgrounds, for whom nationality isn’t the
most important part of their identity. If America makes it so difficult to be
American, I’ll happily just be British.
The challenges facing expat Americans abroad would disappear if the United
States taxed and regulated only those who lived in America. Sadly, American
politicians don’t care about Americans living abroad. It is easier to demonize us
as tax dodgers than to fix irrational policies that no longer make sense in an
interconnected world. The founders agreed on “no taxation without
representation.” Why can’t Congress?
Jonathan Tepper is a founder of Variant Perception, a macroeconomic research
company, and co-author of “Endgame: The End of the Debt SuperCycle and How It
Changes Everything.” He and John Mauldin have also co-authored “Code Red: How To Protect Your Savings From the Coming Crisis”.