5 ms·

It's by no means cheaper. It used to be free to leave. Now they expropriate 50% of your net worth. Massive shift in US policy. Used to be hard to enter the US.

by temphn 15y ago

It's by no means cheaper. It used to be free to leave. Now they expropriate 50% of your net worth. Massive shift in US policy. Used to be hard to enter the US. When they make it hard to leave, that is a terrible sign. Legal Background: www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/3892307d-1b8e-4636-ba2b-f58609256689.cfm Color commentary: www.davidtanzer.com/david_tanzer_articles.asp?article=exit+tax+in+america "The Exit Tax works as though you have died. It’s calculated similarly to the Federal Estate Tax. It requires American taxpayers to identify all assets and debts to determine their net worth, and then to compute a theoretical gain or loss on all assets. The Exit Tax applies to anyone with a net worth of more than $2 million. It also applies to a taxpayer whose average U.S. income tax liability for the past five years is above approximately $124,000. Net worth is without inflation adjustment, which means increasingly more individuals will fall victim. It treats all property as being sold, and all deferred income retirement accounts as being distributed. There is an exclusion of $600,000 for any unrealized gain or deferred income. Then a 30% withholding tax is automatically withheld before deferred income accounts are distributed."

gyardley 15y ago
Ah, yes, the 'HEROES' act. (Hard to vote against something with an acronym like that, huh?) That's the one that might bankrupt me if either I or the federal government ever decides I'm no longer a permanent resident -- because the taxes on the value of all that illiquid (but highly-valued, on paper) startup stock, marked-to-market, would be more than my liquid assets. And my wife wonders why I get nervous when crossing the border.
anigbrowl 15y ago
Er....no. It was not free before; section 877 of the Internal Revenue Code was amended in 2004, and even before that reflected the assumption that any expatriation from the US was for purposes of tax avoidance. All US income for 10 years after expatriation was subject to US income tax for 10 years, and if you spent more than 30 days of any given year within the US, you were treated as a resident and liable for full US taxes on all income worldwide. Now you can spend up to 120 days in the US per annum after expatriating. http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html http://www.irs.gov/businesses/small/international/article/0,... has detailed explanation of the different tax regimes since 2008, from 2004-2008, and prior to 2004. They don't take 50% of your net worth; they take progressive amounts on assets above the inflation-indexed $600k exemption up to a top rate of 35% (same as the estate tax). The 50% thing is a special case for future deferred income from a US asset; you pay 30% up front and 30% on distribution, which comes out at 51%. The idea here is that you should pay more because you are trying to have your cake (live outside the US and not pay US income tax) and eat it too (enjoy the fruits of the US economy and enforce any future income claims in a US court if required). If you really don't want that, then you can sell the asset, giving up any deferred income, and take the 30% hit. I am not a tax lawyer, or any other kind of lawyer right now. Nor do I have a very strong opinion on whether this tax is good or bad; I'm just pointing out that there are factual errors in your statements above.
- temphn 15y ago
  By your own admission you are not a tax lawyer. Perhaps this is why you are conflating two different things, income and assets. All US income for 10 years after expatriation was subject to US income tax for 10 years Yes, and that was bad enough, but what is new is this: they take progressive amounts on *assets* above the inflation-indexed $600k exemption up to a top rate of 35% (same as the estate tax). The 50% thing is a special case for future deferred income from a US asset; you pay 30% up front and 30% on distribution, which comes out at 51% That is a tax on assets in addition to income. Assets. Meaning everything you've built up to this point, not just your continuing revenue streams while overseas. An asset tax for expatriation is a new development in American history.
  - anigbrowl 15y ago
    Then maybe you should have made that clear in your original post, rather than claiming that expatriation was 'free,' as if there were no costs at all. If you read the IRS instructions a little more carefully (or peruse the more detailed treatment at http://www.irs.gov/publications/p519/ch04.html#en_US_publink1000222368 http://www.irs.gov/publications/p519/ch04.html#en_US_publink...) you'll see that liquidation or exchange of any US assets, including property, were booked as gains prior to 2008. For the majority of people (ie: not multi-millionaires) it has become easier and cheaper to take up citizenship elsewhere than it used to be. The worldwide taxation approach of the IRS is an anomaly, but a long-standing one rather than some recent innovation. You have yet to show that the increase in voluntary expatriation is correlated with high earnings, much less caused by them.
    - temphn 15y ago
      > You have yet to show that the increase in voluntary expatriation is correlated with high earnings, much less caused by them. http://www.time.com/time/world/article/0,8599,1983238,00.html http://www.time.com/time/world/article/0,8599,1983238,00.htm... While a small number of Americans hand in their passports each year for political reasons, the new surge in permanent expatriations is mainly because of taxes. http://www.nytimes.com/2010/04/26/us/26expat.html http://www.nytimes.com/2010/04/26/us/26expat.html Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship. http://blogs.wsj.com/wealth/2011/06/13/are-taxes-causing-the-rich-to-renounce-their-citizenship http://blogs.wsj.com/wealth/2011/06/13/are-taxes-causing-the... The IRS doesn’t tell us why people expatriate, or who they are or where they go. Lawyers say most are wealthy Americans who have expatriated to all manner of countries. EDIT: Look, I'm as put off by deeply nested arguments as the next person. My empirical points are primarily two fold. One, the new exit tax is both substantial and yet also just the beginning. Two, many are seeing the writing on the wall and trying to get out while the tax is "only" 51% of assets. Given the discussion in the United States about raising taxes on the successful* to balance the budget, do you really think this is an irrational decision on their part? Or that it is irrational to infer that this is part of their decision-making process, especially given copious media reports to this effect?

by temphn 15y ago

gyardley 15y ago

Ah, yes, the 'HEROES' act. (Hard to vote against something with an acronym like that, huh?) That's the one that might bankrupt me if either I or the federal government ever decides I'm no longer a permanent resident -- because the taxes on the value of all that illiquid (but highly-valued, on paper) startup stock, marked-to-market, would be more than my liquid assets. And my wife wonders why I get nervous when crossing the border.

anigbrowl 15y ago

Er....no. It was not free before; section 877 of the Internal Revenue Code was amended in 2004, and even before that reflected the assumption that any expatriation from the US was for purposes of tax avoidance. All US income for 10 years after expatriation was subject to US income tax for 10 years, and if you spent more than 30 days of any given year within the US, you were treated as a resident and liable for full US taxes on all income worldwide. Now you can spend up to 120 days in the US per annum after expatriating. http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html http://www.irs.gov/businesses/small/international/article/0,... has detailed explanation of the different tax regimes since 2008, from 2004-2008, and prior to 2004. They don't take 50% of your net worth; they take progressive amounts on assets above the inflation-indexed $600k exemption up to a top rate of 35% (same as the estate tax). The 50% thing is a special case for future deferred income from a US asset; you pay 30% up front and 30% on distribution, which comes out at 51%. The idea here is that you should pay more because you are trying to have your cake (live outside the US and not pay US income tax) and eat it too (enjoy the fruits of the US economy and enforce any future income claims in a US court if required). If you really don't want that, then you can sell the asset, giving up any deferred income, and take the 30% hit. I am not a tax lawyer, or any other kind of lawyer right now. Nor do I have a very strong opinion on whether this tax is good or bad; I'm just pointing out that there are factual errors in your statements above.

temphn 15y ago
By your own admission you are not a tax lawyer. Perhaps this is why you are conflating two different things, income and assets. All US income for 10 years after expatriation was subject to US income tax for 10 years Yes, and that was bad enough, but what is new is this: they take progressive amounts on *assets* above the inflation-indexed $600k exemption up to a top rate of 35% (same as the estate tax). The 50% thing is a special case for future deferred income from a US asset; you pay 30% up front and 30% on distribution, which comes out at 51% That is a tax on assets in addition to income. Assets. Meaning everything you've built up to this point, not just your continuing revenue streams while overseas. An asset tax for expatriation is a new development in American history.
- anigbrowl 15y ago
  Then maybe you should have made that clear in your original post, rather than claiming that expatriation was 'free,' as if there were no costs at all. If you read the IRS instructions a little more carefully (or peruse the more detailed treatment at http://www.irs.gov/publications/p519/ch04.html#en_US_publink1000222368 http://www.irs.gov/publications/p519/ch04.html#en_US_publink...) you'll see that liquidation or exchange of any US assets, including property, were booked as gains prior to 2008. For the majority of people (ie: not multi-millionaires) it has become easier and cheaper to take up citizenship elsewhere than it used to be. The worldwide taxation approach of the IRS is an anomaly, but a long-standing one rather than some recent innovation. You have yet to show that the increase in voluntary expatriation is correlated with high earnings, much less caused by them.
  - temphn 15y ago
    > You have yet to show that the increase in voluntary expatriation is correlated with high earnings, much less caused by them. http://www.time.com/time/world/article/0,8599,1983238,00.html http://www.time.com/time/world/article/0,8599,1983238,00.htm... While a small number of Americans hand in their passports each year for political reasons, the new surge in permanent expatriations is mainly because of taxes. http://www.nytimes.com/2010/04/26/us/26expat.html http://www.nytimes.com/2010/04/26/us/26expat.html Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship. http://blogs.wsj.com/wealth/2011/06/13/are-taxes-causing-the-rich-to-renounce-their-citizenship http://blogs.wsj.com/wealth/2011/06/13/are-taxes-causing-the... The IRS doesn’t tell us why people expatriate, or who they are or where they go. Lawyers say most are wealthy Americans who have expatriated to all manner of countries. EDIT: Look, I'm as put off by deeply nested arguments as the next person. My empirical points are primarily two fold. One, the new exit tax is both substantial and yet also just the beginning. Two, many are seeing the writing on the wall and trying to get out while the tax is "only" 51% of assets. Given the discussion in the United States about raising taxes on the successful* to balance the budget, do you really think this is an irrational decision on their part? Or that it is irrational to infer that this is part of their decision-making process, especially given copious media reports to this effect?