U.S. Expats Unhappy About Long-Arm Taxation

Taxation without representation in the 21st century

This week, a "New York Times" article titled "Why I'm Giving Up My Passport" stirred up plenty of talk among local Baja expats, and likely in other expat communities around the world. In this article, the author discussed the compelling reasons why U.S. citizen expats are deciding to give up their citizenship.

This phenomenon of giving up citizenship earned either via birthright or naturalization has been soaring and reportedly reached around 3,000 citizens last year alone. It is estimated that around 7.6 million U.S. expats live abroad for various reasons. While some of the estimated 3,000 might be giving up their citizenship for philosophical reasons, it is safe to say that a vast majority are probably doing so because of what they see as a country overreaching its own established (and vehemently defended) borders by taxing all of its citizens' income without regard to where that income is earned.

So, while the U.S. may not have contributed even an ounce of effort to you earning that income while in a foreign country, or to building the roads that you travel on to earn that income, or backing up the financial institutions that you use to save and grow your income in a foreign country, or any of the other things that a government does to facilitate its citizens making a living and growing wealth, it still gets to make money off of you - pretty much just because.

Obviously, this makes little sense and expats are not happy about it. As if paying taxes weren't bad enough, expats not only pay taxes for services that they primarily don't get to enjoy, but they also lack any sort of meaningful representation while abroad.

"No taxation without representation" is a slogan originating during the mid-18th century when the Thirteen Colonies were unhappy about having to pay taxes to the British Empire despite not having a say in how that money was used, and despite the government's total disregard for their needs on the other side of the ocean. In a fight to change the status-quo, the American Revolution was ignited and the rest is history. This doesn't sound too far off from the current status-quo of taxing U.S. expats.

As the New York Times article pointed out, with 7.6 million expats, that would make this group the 13th most populous state in state terms (more people than Washington, Massachusetts, Indiana, and Arizona), yet expats don't have their our own Senators, or Congressmen, or local representatives, and some expats don't even have a nearby Consulate or Embassy. Yet expats pay the same proportion of taxes as pats for defense, international security, safety net programs, the national debt, medicare, and medicaid.

Interestingly enough, these medical services that you pay for will not cover you outside of the U.S. borders unless you are traveling through Canada to Alaska "without unreasonable delay," or if a foreign hospital is closer to your home than your nearest U.S. hospital during an emergency.

It is interesting to see how the government conservatively treats borders when it comes to outlaying money, but not when it comes to income.[/p]

I receive a lot of mail from readers, but the most popular topic is related to FATCA, which is as bad as it sounds and stands for the "Foreign Account Tax Compliance Act." Under FATCA, all foreign banks are required to provide annual reports to the IRS in relation to accounts owned by U.S. Citizens, or else face stiff penalties levied on their U.S. affiliates or investments. While the main target of this act may be multi-millionaires trying to hide their money in off-shore accounts, it is also effecting more benign people such as expat retirees trying to stretch their savings in cheaper countries. For many people that don't meet the $50,000 threshold it isn't so much about the fear of having to pay taxes, but the burden of having to file yearly reports to a country that they have little to do with any more.

Expats in Mexico immediately started to feel banks transferring the burden of FATCA on to consumers. Bank accounts that used to offer free withdrawals started charging transaction fees, for example, presumably to offset the cost of increased reporting requirements. Many consumers received notices from their banks indicating that failure to comply with reporting requirements would result in closure of their accounts.

Grassroots anti-citizenship-based-taxation groups have sprung up since the implementation of FATCA, and have brought to light the fact that the implementation of this act goes far beyond monitoring income outside the U.S., and has resulted in exorbitant fines to those who comply, in addition to the burden and hassle of filling out forms, and hiring expensive accountants and lawyers. In fact, should you decide to give up your U.S. citizenship, you are taxed for that too.

As borders are becoming less and less important from a business and technology perspective, the contrast of the government maintaining geographic constraints on people's money even when they are outside its borders becomes more and more ridiculous.

One of the tenets of Bitcoin, the digital currency established in 2008 and subject to crackdowns by various countries in years since, is that it can put an end to the discrimination of citizenship. While this may sound like a preposterous concept, and fodder for One-World-Government conspiracy theorists, when we look at it in the context of FATCA, and citizenship-based-taxation, and the over-reaching of government into people's affairs, it puts it all into a different context. Maybe U.S. expats don't want to be discriminated against by their own government – the only government in the world (other than Eritrea) to tax its citizens no matter where they earn their money around the world.

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@borderzonie

borderzonie@gmail.com

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