Friday, January 10, 2014

Dorfman on the Cost of US Citizenship Abroad

I missed this student's point of view on the Cost of United States Citizenship Abroad when it was posted early last month, and it is of interest. The student notes that the US is the only country* in the world to impose worldwide taxation on the basis of citizenship instead of residence, that "there are no philosophical grounds" for this position, and that the position creates unnecessary obstacles to human mobility that serve no policy purpose. Excerpts of note that I wish US lawmakers could understand as well as this student apparently does:
[T]his archaic policy is not only unjustified, but is frustrating and alienating expatriates across the globe. 
... In general, [US] citizens pay the difference between their domestic taxes and what they would have been taxed in the US – so, if a citizen’s domestic taxes are higher than what they would owe in the US, they pay no additional taxes. However, an exemption from additional taxes is not an exemption from the inconvenience, penalties, and hidden costs that come with filing US taxes abroad.
... the vast majority of expatriates are not living abroad to duck taxation – they have simply moved away for work, education, or family reasons and have not returned. 
Many non-resident citizens have inherited United States citizenship by birth, but have never actually resided there– they’ve received no services from the US government, yet must file American taxes every year or face severe penalties. 
...In attempting to punish tax dodgers, the US government is heaping financial penalties, stress, and even criminal charges upon the blameless.
...At its core, citizenship based taxation makes it harder for American citizens to live and thrive outside of the United States. This is a significant obstacle to the freedom of Americans to emigrate abroad in an increasingly globalized world. 
The United States has also implemented barriers to renouncing American citizenship. ...The Economist has dubbed these obstacles “America’s Berlin Wall”.  
 The author concludes:
It is no wonder that American expatriates frequently report feeling frustrated, harassed, and persecuted – the United States system has been built to punish them for merely residing outside of its borders. The United States needs to get with the times and abolish citizenship-based taxation. The policy is tremendously unfair and detrimental to Americans living abroad, and it serves to anger and alienate citizens, many of whom have a lot to contribute to the United States in terms of international experience and skills. It is ironic that a citizenship so widely desired has come to feel like a burden for so many.
Well said, but I am afraid it is falling on deaf ears in Congress where every move concerning the taxation of humans--in stark contrast to that of multinational companies--is moving in the direction of protectionism and penalty rather than export and free mobility.

* Eritrea also apparently taxes its citizens abroad at a rate of 2 (two!) %. For this it has been condemned  and sanctioned by the United Nations Security Council after then US Ambassador, now US National Security Adviser Susan Rice stated that the country was "funding its [war-related] activities through its diaspora tax." Rice added that "Eritrea must confirm through its actions that it was ready to re-emerge as a law-abiding State." One can but hope that such statements can be made only by someone who is blissfully unaware of the comparatively much more expansive--and punitive--US disapora tax.

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