Americans Renouncing Citizenship Over Tax Issues
This one has me a bit confused. I’m not a tax guy, and perhaps one of my faithful tax expert readers (you know who you are) will kindly jump in on this issue. Here is what the New York Times had to say:
Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship.
Anecdotally, frustrations over tax and banking questions, not political considerations, appear to be the main drivers of the surge. Expat advocates say that as it becomes more difficult for Americans to live and work abroad, it will become harder for American companies to compete.
American expats have long complained that the United States is the only industrialized country to tax citizens on income earned abroad, even when they are taxed in their country of residence, though they are allowed to exclude their first $91,400 in foreign-earned income.
Yes, Americans are taxed on overseas income over 91,400 (that amount goes up on a regular basis, by the way). That means you get 90K tax free (U.S.) and pay over that amount on the normal graduated basis. However, that’s only if you take the tax exclusion. I assume that folks who make anything under 90K, or even slightly over, will take the exclusion since it’s easy. But there is another option, the tax credit.
Under this alternate option, if I understand it correctly, you basically get a credit for any tax paid to a foreign government. However, this also depends on the tax rates applied in that country. For example, if you live in Fakeistan and are taxed at an actual rate of 25%, but in the U.S. you would be taxed at a rate of 35%, then you would still be responsible for paying U.S. tax for that additional ten percent.
I think the last time I took the credit, the rates between the U.S. and China were not terribly far apart, but that also will vary depending on your income, etc.
Anyway, my point is that there are at least a couple of ways to minimize tax, and for most folks, I’m not sure why the issue of double taxation comes up. I do have some suspicions, though.
First, these “disaffected” folks are probably in very high tax brackets and have different concerns than the rest of us who live in the real world. For them, a couple of percentage points may amount to serious money.
Second, let’s face it, a large number of expats (in China at least) are getting a big chunk of change offshore, probably in Hong Kong or alternative locations where they are paying zero in tax. They report some of their income to the tax authorities here, just enough so they don’t get into trouble, but the majority goes offshore. This means that a lot of people are avoiding PRC tax and, more important for this discussion, have no offsetting China tax credit to avoid U.S. tax.
In other words, many expats who make a lot more than 90K probably cannot use the tax credit option. And even though they are avoiding tax, they are still complaining about the U.S. government coming after them on their offshore income.
If I’ve got this right, at least for some individuals, then all I have to say is boo freakin’ hoo. You can’t complain about double taxation if you are not paying PRC tax. And if you are paying PRC tax, then take the damn credit.
For anyone who is legitimately having a double tax problem (i.e. not a tax cheat), obviously the above does not apply to you.
The important point of that article and why many Americans are angry is this: why the hell should we pay — or potentially be liable for payment — in 2 places? Why do Canadians, Brits, and Aussies not have to pay their own countries’ respective income taxes if they reside overseas as expats, but Americans do? If, as an American, I was receiving services from the US government in exchange for paying of taxes, then I would not be as angry. However what types of services is the idiotic US Embassy in Beijing and the incompetent govt workers in the US Consulate in Shanghai doing for an American? The American visa people are sometimes assholes; and the Commercial Section is made of some uppity folks intent more on policy and their own bureaucratic office politics than actually helping American businesses grow in China. Though, I have met some nice folks at the US Embassy/Consulate, nonetheless.
American senators and congressional reps do not care about the average USA expat. If we talk about tax issues, they worry we are evading taxes. I would be supremely happy to pay USA taxes if I was getting in-kind services and full representation.
The US govt should understand that we expats are the ambassadors for the US way of life and for US businesses. There are an incredibly large amount of intangible downsides to residing outside the USA, and while I do not want a medal or kudos for being an expat, I would like a better tax regime.
Anyway, USA taxes are screwed. Why are taxes so complicated that we must hire others to assist us? Taxes should be simple enough that we need to hire nobody and need to buy no software to complete our annual taxes. Of course, then tax accountants would lose their jobs….
I think you should become a Teabagger.
None of what you said suggests to me why anyone would renounce their citizenship, and I think you are overstating the double taxation issue.
This reminds me of trailer park rednecks complaining about the estate tax as a “death tax”.
Do they no longer teach math in school?
Many Teabaggers are just hiding their racism. If they truly believed what they preached, they would be Libertarians instead. Teabagging seems to have risen up over hatred of Obama instead of hared of the stupid policies Bush put into place.
I am actually a fan of taxes, as I feel the government should provide its citizens more services than a Libertarian would like the govt to provide. However, if I am paying taxes, I want services back from the govt. This is a two-way street.
In addition to the large chunk of foreign-sourced income that can be excluded from US taxation, an expat can also get a generous exclusion for employer-provided housing. It’s around $25k by default, but in the most expensive finance centers like Tokyo, Hong Kong and Paris, the exclusion approaches or exceeds $100k a year, so you can get a total of $200k in compensation excluded from US taxes if your employer is shelling out for a really nice apartment. This is one reason why expat packages often include housing.
An American friend of mine who went to work for a UK firm in the Middle East said he had to fight tooth and nail to get corporate housing so he could take the additional exclusion — the Brits had never heard of it and didn’t understand why it mattered to him.