
U.S. citizens ditch passports in record numbers due to high taxes - sinnerswing
http://finance.fortune.cnn.com/2013/05/08/citizenship-taxes-irs/?iid=SF_F_River
======
mikeyouse
Ugh, this article again? It crops up every quarter without fail.

If one of these could actually provide some sort of analysis or evidence for
their conclusions, that'd be pretty great. Each time it's published, they
relay a few anecdotes about 1 or 2 mildly famous people renouncing
citizenship. They then give a trend in absolute numbers without addressing
population changes, and finally go on to blame taxes or whatever else for the
trend that they assure is happening.

Is expatriation increasing? Maybe? Who knows with this quality of reporting.

The question of how to treat international taxation is almost entirely
separate from expatriation. If people aren't taking the easy step and
relocating to different states due to tax differences[1][2][3], I doubt it's
the main reason they're renouncing citizenship.

[1] -
[http://www.stanford.edu/group/scspi/_media/working_papers/Va...](http://www.stanford.edu/group/scspi/_media/working_papers/Varner-
Young_Millionaire_Migration_in_CA.pdf) [2] -
[http://www.cbpp.org/cms/?fa=view&id=3556](http://www.cbpp.org/cms/?fa=view&id=3556)
[3] - [http://publicassets.org/press/press-releases/new-study-
jobs-...](http://publicassets.org/press/press-releases/new-study-jobs-not-
taxes-stimulate-migration/)

~~~
mech4bg
Good points, but regarding moving states - that doesn't address large federal
taxes, or taxes on things that aren't taxed in other countries (death tax,
gift tax).

~~~
mikeyouse
True, but if tax regime had a significant impact on migration, it should have
an incremental impact at all scales, offset by the expense / difficulty of
actually migrating.

If one lives in California and earns enough to be in the top bracket
(>$1mm/year), they could save a marginal 10% by relocating to Nevada. It's
only a four hour drive to Tahoe, so you would expect to see a fair portion of
people doing so. However, there is almost no evidence that this actually
occurs.

Expatriation is just migration on a larger scale. The expense and complexity
are obviously higher, but the basic incentives are identical. I have no doubt
that at some very-high net worth, it makes sense to renounce and move abroad,
but is it worth wasting energy on the few people a year who will do so?

~~~
dalke
"Is expatriation increasing? Maybe? Who knows with this quality of reporting."

It certainly is. With this reporting it was very easy to find the actual list,
which is at
[https://www.federalregister.gov/articles/2013/05/08/2013-108...](https://www.federalregister.gov/articles/2013/05/08/2013-10852/quarterly-
publication-of-individuals-who-have-chosen-to-expatriate) .

(Though "LOCKE-TECKEMEIER LORETTA ULLRICH" and "LOCKE-TECKMEIER LORETTA U."
are likely the same person, so the count won't be perfect.)

With a bit of work, you can easily verify if the number is increasing.

"If people aren't taking the easy step and relocating to different states due
to tax differences..."

A different logic is much more likely. There are Americans who have already
relocated overseas and some decades later renounce their citizenship.

Consider Corine Mauch, the Iowa born mayor of Zurich. “My relationship with
the U.S. is limited to my very early youth,”. "[S]he regards Switzerland as
her home and doesn’t want to deal with Internal Revenue Service paperwork,
according to an e- mailed statement from her office today."
[http://www.bloomberg.com/news/2013-04-18/zurich-mayor-
renoun...](http://www.bloomberg.com/news/2013-04-18/zurich-mayor-renounces-u-
s-citizenship-amid-tighter-tax-rules.html) .

You're right; it's hard to tell if someone renounced citizenship in order to
avoid paying US taxes. Indeed, there are other reasons for doing so. Someone
running for the legislature of another country may be required to renounce all
other citizenships.

But given the rather rapid rise in renunciations, correlated with the increase
in tax reporting and compliance policies, it's a pretty reasonable conclusion.
In any case, the US policies both real (the Reed amendment) and proposed (the
Ex-Patriot Act) are rather harsh on people who renounce for tax reasons, so it
will be hard to carry out a study where you ask people if that's the basis for
their decision. (You'll see that Mauch carefully did not say that she left
because of taxation reasons.)

"Expatriation is just migration on a larger scale."

Your example, with two US states, isn't the same comparison. Better would be
to think of a California resident who moves to Nevada, never goes back to
California, but still has to pay California taxes.

"is it worth wasting energy on the few people a year who will do so"

No. Absolutely not. But there's a few other issues at play. For example, the
reason for the heightened tax reporting policies is to crack down on US
residents with overseas bank accounts, who use those accounts to avoid paying
US taxes. Ex-pats (who have no strong representation in Congress), are caught
in the cross-fire.

~~~
mikeyouse

        With this reporting it was very easy to find the actual list, which is at .... 
        (Though "LOCKE-TECKEMEIER LORETTA ULLRICH" and "LOCKE-TECKMEIER LORETTA U." are 
        likely the same person, so the count won't be perfect.) With a bit of work, you 
        can easily verify if the number is increasing.
    

That's much of my point, I went looking at the source, to check for myself.
But the best case scenario is aggregating a series of CSV files which you have
to locate manually, something an actual news article would have done for
themselves. Further analysis would be to move past the absolute number of
citizens dropping citizenship and perhaps calculate the proportion of citizens
doing so. We could even hope to run some simple tests to determine if the
number of expats was statistically significant.

Instead we get none of that, just a vague, "Taxes are complicated, expats are
increasing, trust me." It's very disappointing.

~~~
dalke
You want something between the raw data and the digested summary provided by
the news service? That's expensive. Who should pay for it?

For the most part, I agree with your view. There's almost no deep analysis of
the reasons for renunciation. That analysis is hard. It's going to be a
variety of factors. Given the political tone behind the (unenforced) Reed
amendment and the (proposed) Ex-PATRIOT act, anyone reasonable would avoid
bringing up the non-tax-avoiding reasons and emphasize the other reasons.

But your view is that we can't make any inferences. I disagree. We have the
raw numbers - there's no need to trust people for that. It might not be as
easy as you like, but it's at most an evening of work. (Less if you trust
graphs like [http://finance.yahoo.com/news/should-you-renounce-your-
citiz...](http://finance.yahoo.com/news/should-you-renounce-your-
citizenship-144048875.html) ).

There's no need to "calculate the proportion of citizens doing so." As the
article reports, "From 2009 to 2011, the number of expatriates, or those who
renounced their U.S. citizenship, doubled to 1,781." The number of US citizens
did not double in two years. Including a population analysis in this news
article would be a distracting tangent stating the obvious.

Those raw numbers show a big increase in 2010. That's when the US reporting
law went into effect. You insist on some statistical analysis, but in my
readings, no one has come up with a better explanation for the increase - what
tests should people do? Correlated it with Bieber Fever?

We can't get meaning from those numbers, and it's hard to get that information
directly from the people, but we can ask people who generally give
international tax advice. Biased though it might be, that's what this CNN
article does.

In fact, it gives a specific and reasonable example of why someone may
renounce their US citizenship, because of tax purposes: "growing numbers of
Middle Eastern investors were ordering their dual-citizen children to dump
their U.S. passports if they wanted to inherit family-owned companies without
onerous U.S. estate taxes".

This is not vague, though it is from a secondary source.

Therefore I persist in correcting you. This article gives enough information
to draw the reasonable conclusion - affirmed by other data - that 1)
renunciations are increasing and 2) that the US tax laws are a likely factor.

~~~
mikeyouse
I definitely trust that graph, and if the good people at Yahoo Finance can put
it together for their piece, surely Fortune magazine has the wherewithal.

    
    
        There's no need to "calculate the proportion of citizens doing so." 
        As the article reports, "From 2009 to 2011, the number of expatriates,
        or those who renounced their U.S. citizenship, doubled to 1,781." 
        The number of US citizens did not double in two years. 
    

The point I took the most offense to was the article providing 3 data points
about migration and calling that a trend -- especially since the period in
question is directly on the tail end of a massive global recession and they
ignore a more recent data point (year 2012) which contradicts their story. I
took a few minutes and put together a chart with a simple linear regression:

<http://i.imgur.com/ieCTHrk.png>

Including all the available data really changes the story don't you think?

And just for the fun of it, taking the proportion (which should control for
population growth) actually weakens the correlation even further:

<http://i.imgur.com/C9rdDHx.png>

~~~
dalke
That's a poor analysis. What basis do you have for assuming that it's a linear
growth over the entire period?

As you see, that 1997 data point is very high. The Yahoo Finance link I gave
notes "The high number of expatriations that year is thought to be a result of
Hong Kong reverting back to Chinese sovereignty, according to tax attorney
Andrew Mitchel. Chinese citizens are not allowed to have dual citizenship, so
many Hong Kong residents renounced their U.S. citizenship prior to Hong Kong
joining China in 1997, so they would become fully Chinese citizens." You might
be able to verify that a bit by looking to see if there's a higher number of
Chinese sounding names for that year.

In any case, remove that first data point and you'll see that the trend is
much more pronounced and statistically significant. Because you have so few
data points, any analysis will be sensitive to a single large outlier like
that one.

You'll should also investigate if there were similar effects elsewhere. Why,
for example, was there a seeming slump in 2006-2008?

You'll also need to compare your linear model to other models. The one
proposed by many is that the tax and enforcement changes around 2010 caused a
big reaction. Can you model that piece-wise?

Also, there are many factors which affect the numbers. The rate of US citizens
who renounce citizenship in order to take on high office in another country
should be about the same, compared to those leaving for tax reasons, so you
should be subtracting some baseline for that.

With this few data points, and with a complicated underlying system, it's
basically impossible to make a valid statistical interpretation. That's why
these articles end up talking to the people who work with those who renounce
their citizenship.

~~~
mikeyouse

        You might be able to verify that a bit by looking to see if there's a 
        higher number of Chinese sounding names for that year.
    

Once again, why should I have to?

These are professional journalists writing articles with massive holes, it's
embarrassing.

    
    
        In any case, remove that first data point and you'll see that the trend
        is much more pronounced and statistically significant. 
    

Here's what that looks like: <http://imgur.com/a/FBeAv> \-- Still ugly.

    
    
        The one proposed by many is that the tax and enforcement changes around
        2010 caused a big reaction. Can you model that piece-wise?
    

Why should the reader have to perform these exercises? If the author's premise
relies on such a situation existing, they should absolutely perform the
analysis.

    
    
        The rate of US citizens who renounce citizenship in order to take on high office in 
        another country should be about the same, compared to those leaving for tax reasons,
        so you should be subtracting some baseline for that.
    

Once again, someone would have to actually do some reporting to determine what
that baseline should be.

    
    
        With this few data points, and with a complicated underlying system, it's basically
        impossible to make a valid statistical interpretation. That's why these articles end up 
        talking to the people who work with those who renounce their citizenship.
    

Precisely my problem with this type of reporting. What do you think a tax
lawyer is going to say when you ask him why people are renouncing their
citizenship? How does that add any value?

~~~
dalke
Good luck in your search for a news service with the rigorous quality that you
demand.

------
philiphodgen
I'm quoted in the article and would be happy to answer questions about this.
Our firm does a lot of this kind of work -- U.S. citizens and green card
holders cutting all ties to the United States.

~~~
seanmcdirmid
Why would this make sense for any country with taxes at or higher than the
states, since you can write off taxes paid to foreign governments anyways?
Yes, Singapore, Switzerland or Hong Kong, or any country like Afghanistan if
you have enough power (Karzai), but for most of us?

Also, 640 a year is hardly more than an anomaly statistically.

I've been out for 7 years and haven't paid anything to the IRS yet, even
without the FEIE I just deduct anyways. The only annoying thing is double
taxation when I go back to the states on business trips.

~~~
jawngee
My company is a Hong Kong registered entity and there is no tax because no
work is being performed in Hong Kong. Personal income tax in HK is like 15%,
but only of you earned that income in HK.

Some people I know who have setup a similar thing only pay themselves 50k USD
a year and the company pays for the rest as expenses. It's a little more
complicated then that, but that is the gist of it.

Hong Kong and Singapore are set up to work like this. It's how all the
mainland Chinese hide their money from the communists.

~~~
stfu
Very interesting. How much is the setup / running costs for a system like
this?

~~~
jawngee
About $1200. There are a ton of companies in HK that will set it up for you
(that's all they do).

~~~
nolite
I've been looking for a reputable one for this for a few months now.. hard to
know since I have no connection. Can you give a recommendation?

------
ajross
FTA: _In total, more than 670 U.S. passport holders gave up their citizenship
[...]in the first three months of this year_

Not understanding how a fact like this even rises to the level of a sentence
in a related article, much less the lede. Can someone please explain to me how
a tax policy which has a net effect of reducing its tax base by 0.002% (rough
guess, assuming I didn't slip a digit) is something worth talking about at
all?

I mean, the IRS is going to lose more revenue to people upset with US food
choices...

~~~
_delirium
Also worth noting: during that same period, around 165,000 formerly non-
Americans naturalized as U.S. citizens. A 250:1 ratio of people joining to
people disaffiliating ain't bad.

Some countries have major problems with an exodus of qualified people and an
inability to attract people to the country, but the U.S. is not really in that
category. Quite the opposite: there are _many_ qualified, intelligent people
wanting to move to the country, but who are currently blocked by immigration
law from doing so.

~~~
obviouslygreen
That's only an interesting counterpoint if those people more than counteracted
the taxable assets/income of the ones leaving. I would not take that as a
given.

~~~
seanmcdirmid
For 165,000 * M >= 640 * N, N would have to me much greater than M. I think
its a win.

But this isn't accurate, the 165k who naturalized were probably already visa
or greencard holders and paying taxes. A more accurate way to measure this is
to look at how many visas that support employment are issued each year, which
is probably greater than 165K.

------
lifeisstillgood
Oh come on guys. Every country has some tax blip that makes it foolish for a
small number of people to live in that regieme. Fine. Lets not extrapolate
that out to headlines designed to be read as "millions are throwing away their
citizenship - its all because we are over taxed!"

Plus please realise America is a low-tax country compared to Europe and
Australia because it has a minimal welfare state, compared to Europe and
Australia.

~~~
cjh_
It is more that the USA is one of the few countries that taxes on citizenship
rather then residency, so this means that if you are living in another country
you are still dealing with USA tax laws as well the tax laws of your country
of residency.

~~~
doktrin
It's worth noting that the US has tax agreements with most developed nations,
which in theory limits the dual-taxation burden.

In practice, it's allegedly quite a bit of hassle and paperwork and a net
expense (regardless of tax agreement).

~~~
mjn
If you're doing a lot of convoluted business dealings, I imagine it could be a
hassle, but for a regular professional expatriate employee I have not found it
complex. I earn a salary; I pay Danish taxes on that salary; I deduct the
Danish taxes paid from my U.S. tax obligation as a Foreign Tax Credit; and the
net result is negative so I pay no U.S. tax.

It would be even easier if I spent less than 35 days/year in the U.S. and
qualified for the $95k foreign income exclusion. But even though I don't (I
spend ~2 months/yr in the U.S. in an average year), it's still easy enough.

~~~
doktrin
Interesting. Thanks for sharing your perspective. That's certainly
encouraging.

------
mjn
I wonder if that "due to high taxes" causal explanation can be quantified a
bit better. Not _every_ person who renounces U.S. citizenship does so for tax
reasons. I could believe it's 98% though, or maybe 80%; I have no idea. Is
there any way to estimate the proportion who renounce for various reasons?

A non-tax category in which I know people who've renounced is those who have
issues with dual citizenship. Denmark, for example, does not permit dual
citizenship. So if you are an American who moves to Denmark and eventually
wishes to naturalize, you must renounce your American citizenship. Perhaps
more commonly, if you are born with dual Danish-American citizenship (Danish
parents but born in the U.S.), you can keep the dual citizenship until age 22,
but then at age 22 must apply for permanent Danish citizenship, and at least
officially they will, as with the naturalization case, require you to renounce
your American citizenship (though in practice it seems not everyone actually
does so).

------
gamechangr
This is BS.

A total of 932 gave up their passport in 2012. This quarter has been high, so
we are taking about a couple hundred in a country of 310,000,000

------
Mc_Big_G
Does a flat tax (with reasonable deductions) hurt anyone besides the super
rich? It seems like it would solve a lot of problems and close a lot of tax
loopholes. Imagine if we could nearly eliminate the IRS.

~~~
gnoway
A few thoughts:

1\. If you accept current economic theory, a flat tax actually hurts poor
people more because it's regressive. It's regressive because each percentage
point of tax means more to the poor person than it does to the rich. 15% of 1M
is a lot of money compared to 15% of 30K, but the 30K earner feels that a lot
more.

2\. The IRS would not be eliminated. There would probably still be a federal
entity responsible for managing the tax income at the federal level

3\. The IRS would not be eliminated. There are a lot more taxes besides
personal income taxes.

4\. We basically already have most of what you're really thinking about with
adopting a flat tax. The majority of tax information is already given to the
IRS by your employer, bankers, etc. _Most_ people don't really need to file a
tax return, since they are just writing down numbers they got from forms which
the IRS also gets copies of. Eliminating the personal income tax return in
these situations has been discussed, but Intuit and some bright lights on the
right/republican side of the aisle believe its a terrible idea and are
fighting against it.

5\. Does this response really have anything to do with people renouncing
citizenship to avoid taxes on foreign income? Would replacing a rule heavy
progressive taxation system with a simple flat tax really change someone's
opinion on having to pay it?

~~~
dragonwriter
A few nitpicks:

> If you accept current economic theory, a flat tax actually hurts poor people
> more because it's regressive.

A flat tax is not "regressive" by either of the usual definitions (by the
standard definition, a "regressive" tax takes a either a higher total
percentage or a higher marginal percentage at lower incomes.)

It still hurts poor people compared to a progressive tax system, because it
_isn't_ progressive, so the burden on the poor, at any given total revenue
level, is greater than in a progressive system.

> It's regressive because each percentage point of tax means more to the poor
> person than it does to the rich. 15% of 1M is a lot of money compared to 15%
> of 30K, but the 30K earner feels that a lot more.

While this decreasing-marginal-utility based argument for why flat taxes are
bad for poor people is both consistent in outline with the current theory and
well supported by empirical research on the marginal utility of income,
calling this "regressive" is inconsistent with the usual definition of
"regressive" when it comes to taxation.

~~~
gnoway
I agree. Prefacing with 'current economic theory' was a poor choice on my
part.

A few of my friends are heavily left-leaning, and anytime the topic of flat
taxation or 'the fair tax' comes up they start foaming at the mouth about how
it's regressive. The two concepts are paired in my mind.

