‘Rich tax cheats’ escape but expat grannies with modest retirement accounts are in the crosshairs of U.S. financial reporting requirements
By Brett Arends
London Mayor Boris Johnson, a dual British and American national, says he will join the growing lines of Americans overseas who are now being driven to renounce their U.S. citizenship by the federal government for no good reason.
Johnson, a possible future British prime minister, was born to British parents in New York. His case is not important individually, but it is illustrative. A record number of Americans abroad renounced their citizenship last year, and the numbers are escalating fast. That’s in response to a growing set of U.S. financial laws that make it nearly impossible for them to keep two passports.
Most people don’t understand the government’s war on U.S. expats and dual nationals, so they buy the official spin that it is just “cracking down” on “rich tax cheats.” It is doing no such thing, and it knows that it is doing no such thing.
Indeed some of its most onerous financial rules, while “cracking down” on overseas grandmas with a $30,000 retirement account, specifically and deliberately exempt billionaires with money in hedge funds and private-equity funds.
Even National Taxpayer Advocate Nina Olson has pointed out in her official reports to Congress that the war on expats often punishes ordinary middle-class and even poor Americans abroad far more severely than it does the rich.
Olson is appointed to her role by the Congress, but she says that when she called up the Treasury to discuss some of the problems, they didn’t bother to respond. Talk to the hand, honey.
Oh, and doesn’t it say a bundle that while the U.S. Treasury was “cracking down” on Grandma Moses, it was waiving all penalties on U.S. Treasury Secretary Tim Geithner for failing to pay tens of thousands of dollars in taxes?
What is going on?
To put a complicated issue in a nutshell, the federal government is currently ramping up a wide set of bizarre and impossible regulations on all Americans living abroad — and threatening them with the financial equivalent of the death penalty if they don’t comply.
As an American expat, you can be arrested, thrown in jail and bankrupted by Uncle Sam for failing to disclose a $15,000 checking account on which you have paid all the taxes owed. You are liable to double taxation, required to spend thousands of dollars a year on professional advice simply to survive — oh yes, and you are effectively barred from investing in either U.S. or non-U.S. based mutual funds. Ha ha! You lose!
Meanwhile, like I said, the rules and enforcement procedures go easy on the super-rich, while doubling down on the working stiff in London or Hong Kong or Tel Aviv.
For good measure, U.S. expats are also stripped of an amazing number of alleged constitutional rights. They are subject to unreasonable search and seizure without probable cause (Fourth Amendment), required to testify against themselves under oath (Fifth Amendment), subject to excessive and completely disproportionate fines (Eighth Amendment), and denied equal protection of the laws (Fourteenth Amendment).
Johnson said this week he would give up his U.S. citizenship after being slapped with a huge U.S. tax bill for selling his London home at a profit. What is missed in most of the coverage is that while Britain exempts your primary residence from capital gains tax, it levies tons of other taxes that America doesn’t. So a U.S. citizen living in London must pay 20% sales tax on most items, very hefty income taxes, cannot deduct 401(k) contributions or home mortgage interest – and then loses the few compensating British exemptions, such as on the sale of your home, as well. Heads you lose, tails you lose.
It is no wonder the numbers renouncing U.S. citizenship jumped 14% to a new record last year. While the official number is “only” 3,400, that number is apparently understated, and surveys suggest the number who may follow suit is in the millions.
The U.S. government’s response comes straight from Gen. Westmoreland’s strategy in Vietnam. If a campaign is going badly, take three steps. First, deny there’s a problem (“talk to the hand, Ms. Olson”). Second, escalate the rhetoric (“we’ve got to get these tax cheats”). And, third, escalate the bombing.
So new U.S. regulations are now driving foreign banks to strip U.S. expats even of their bank accounts.
Foreign banks don’t want to offer accounts for Americans living abroad, because they’re Americans, and the IRS may come calling. Meanwhile U.S. banks don’t want the accounts of those Americans, because they live abroad.
Ha ha! You lose again!
Credit: Market Watch, www.marketwatch.com