Why More Americans Are Renouncing U.S. Citizenship

Why More Americans Are Renouncing U.S. Citizenship by Ari Shapiro February 20, 2014 3:42 AM number of U.S. citizens renouncing their American citizenship spiked to 3,000 last year, up from about 500 in earlier years. While reasons vary from person to person, a U.S. tax law passed in 2010 has complicated life for many Americans living abroad. David Sucsy/iStockphoto The number of U.S. citizens renouncing their American citizenship spiked to 3,000 last year, up from about 500 in earlier years. While reasons vary from person to person, a U.S. tax law passed in 2010 has complicated life for many Americans living abroad. David Sucsy/iStockphoto A few times a year, the Treasury Department publishes a long list of names announcing all of the Americans who have lately abandoned their U.S. citizenship. According to the legal website International Tax Blog, the number hovered around 500 a decade ago. Last year, it hit a record high of nearly 3,000. This was not a gradual change. It was a sudden spike. It's a story of dominoes falling, one after another, leading to an unexpected outcome. The first domino fell in 2008, when federal prosecutors accused the Swiss bank UBS of helping wealthy Americans hide their money tax-free in overseas accounts. It was a big case, leading to indictments, fines and prison time. The U.S. Congress wanted to make sure it didn't happen again. During the economic recession, lawmakers saw a chance to bring in massive sums of money and stop tax cheats at the same time. "They just found UBS in a terrible scheme to encourage tax evasion," Barney Frank, the Democratic congressman from Massachusetts, told NPR in 2009. "I think there are clearly tens of billions that can be recovered there." The next year, in 2010, Congress passed the Foreign Accounts Tax Compliance Act. The law affects every foreign bank that does business with the U.S. And not just banks: It also applies to retirement accounts, mutual funds, and more. Renouncing citizenship is not as easy as throwing a passport onto the fire. It's a lengthy process, involving interviews, paperwork and legal procedures. So people who do it generally have a compelling motivation. And while individual reasons for renouncing may vary from person to person, experts in the field say the recent dramatic spike has more to do with the 2010 tax law than any other factor. Wisconsin financial adviser David Kuenzi works with Americans overseas who are affected by the law. "[Congress] said to all of these institutions, 'You need to follow this set of criteria to determine all of the Americans who are your clients," says Kuenzi, "and you need to report directly to us on their holdings.' " Shut Out Of Foreign Banks Foreign banks looked at the new law and decided that the regulations would be a huge hassle. Many of them decided to wash their hands of American account-holders. "They canceled the accounts of just about every American in Europe," says retiree John Mainwaring, "including me." Seventy-year-old Mainwaring grew up in Ohio, served in the U.S. Army, and has lived in Munich, Germany, for about 40 years. After his old German banks kicked him out, he tried to find new ones that would take him in. "I went everywhere," he says, "to every bank in Germany. The problem is, the ones here don't deal with Americans." Congress wanted to catch tax cheats. But the net also snagged Americans whose foreign bank accounts let them pay their bills in the countries they now call home. U.S. Taxes Americans, No Matter Where They Live The United States is very unusual in this respect. Most countries in the world don't tax their citizens living abroad. So, for example, a Spaniard living in Canada won't pay Spanish taxes. Instead, he'll pay Canadian taxes. But the U.S. taxes American citizens wherever they are in the world. "If I can compare it to romance, I say the U.S. is like Fatal Attraction," says Suzanne Reisman, a lawyer in London who advises Americans abroad. "Once they've got you, they never let you go. You have to renounce your citizenship, or you have to die." So today, Americans who don't like the Fatal Attraction relationship are giving up their U.S. citizenship in record numbers. In Switzerland, so many people want to renounce their citizenship that the U.S. Embassy actually has a waiting list. "I want to be clear: It's not about a dollar value of taxes that I don't want to pay," says Brian Dublin, a businessman who lives near Zurich. "It's about the headache associated with the regulations, filing in the U.S., and then having financial institutions in the rest of the world turn me away." Dublin says he is ready to renounce, despite the ties he feels to the country of his birth. "I grew up in America. I love my country. But I just feel that the current regulations are onerous." Officials from the Treasury Department, the State Department, the IRS and Congress spoke on background for this story. None would talk on tape. They all generally agree on the facts of the situation. Even so, there is very little pressure to change it. As one Senate staffer pointed out, nobody in Congress represents overseas Americans. And government officials think this law is succeeding at catching the tax cheats. That may be worth the side effect of losing a few thousand American citizens every year. ​26 top American corporations paid no federal income tax from ’08 to ’12 – report Published time: February 28, 2014 22:55 Get short URL AFP Photo / Getty Images / Scott Olson Tags Corporate news, Global economy, USA Twenty-six of the most powerful American corporations – such as Boeing, General Electric, and Verizon – paid no federal income tax from 2008 to 2012, according to a new report detailing how Fortune 500 companies exploit tax breaks and loopholes. The report, conducted by public advocacy group Citizens for Tax Justice (CTJ), focuses on the 288 companies in the Fortune 500 that registered consistent profit every year from 2008 to 2012. Those 288 profitable corporations paid an “effective federal income tax rate of just 19.4 percent over the five-year period — far less than the statutory 35 percent tax rate,” CTJ states. One-third, or 93, of the analyzed companies paid an effective tax rate below 10 percent in that timespan, CTJ found. Defenders of low corporate taxes call the US federal statutory rate of 35 percent one of the highest companies face in any nation. But the report signals how the most formidable corporate entities in the US take advantage of tax breaks, loopholes, and accounting schemes to keep their effective rates down. “Tax subsidies for the 288 companies over the five years totaled a staggering $364 billion, including $56 billion in 2008, $70 billion in 2009, $80 billion in 2010, $87 billion in 2011, and $70 billion in 2012,” CTJ states. “These amounts are the difference between what the companies would have paid if their tax bills equaled 35 percent of their profits and what they actually paid.” Just 25 of the 288 companies kept tax breaks of $174 billion out of the $364 billion total. Wells Fargo received the largest amount of tax subsidies - $21.6 billion - in the five-year period. The banking giant was joined in the top ten on that list by the likes of AT&T, ExxonMobil, J.P Morgan Chase, and Wal-Mart. AFP Photo / Etienne Franchi AFP Photo / Etienne Franchi About 1 in 11 of the 288 companies paid a zero percent effective federal income tax rate in the five years considered. Pepco Holdings – which supplies utility services to Delaware, the District of Columbia, Maryland, and parts of New Jersey – paid a cumulative five-year effective rate of -33 percent, the lowest of any company in that period. In fact, utilities came out particularly well among other industries. Reuters / Jonathan Ernst Reuters / Jonathan Ernst “The sectors with the lowest effective corporate tax rates over the five-year period were utilities (2.9 percent), industrial machinery (4.3 percent), telecommunications (9.8 percent), oil, gas and pipelines (14.4 percent), transportation (16.4 percent), aerospace and defense (16.7 percent) and financial (18.8 percent),” CTJ reported. CTJ said the companies are allowed to pay such low federal rates based on factors that include offshore tax sheltering, accelerated asset depreciation based on continued investment, stock options, and industry-specific tax breaks. “Of those corporations in our sample with significant offshore profits, two thirds paid higher corporate tax rates to foreign governments where they operate than they paid in the U.S. on their U.S. profits,” according to CTJ. The non-profit group says this lax taxation climate among the most powerful US corporations comes amid an aggressive push by lobby and trade groups on Capitol Hill “to reduce the federal corporate income tax rate, based on the claim that our corporate tax is uncompetitively high compared to other developed nations.” Just this week, US House Ways and Means Committee Chairman Dave Camp (R) introduced a tax reform proposal that would lower the maximum federal effective tax rate to 25 percent. Though, tellingly, this aspect of the plan – among other attempts at bipartisan consensus in the proposal – renders it no chance of even getting a hearing in the Republican-dominated House during a mid-term election year, when such a conciliatory offering can be used as a cudgel against disapproving conservatives. House Ways and Means Committee Chairman Dave Camp (R-MI) (AFP Photo / Chip Somodevilla) House Ways and Means Committee Chairman Dave Camp (R-MI) (AFP Photo / Chip Somodevilla) Companies have already disputed CTJ’s report, saying that the study only looks at federal income taxes while ignoring other tax burdens they face, such as on the state and local level. In addition, the companies say low effective rates are part of congressional attempts to offer tax relief to corporate America in order to create larger economic opportunity. To reverse low corporate federal tax rates, CTJ recommends Congress end corporations’ ability to "defer" taxes on offshore profits; limit use of executive stock options that reduce taxes by "generating phantom 'costs'” the companies don't really incur; end accelerated depreciation opportunities; restore the corporate Alternative Minimum Tax; and strengthen corporate income and tax disclosure regulations. “These findings refute the prevailing view inside the Washington, D.C. Beltway that America’s corporate income tax is more burdensome than the corporate income taxes levied by other countries, and that this purported (but false) excess burden somehow makes the U.S. ‘uncompetitive,’” CTJ concluded.