Benjamin Franklin once said that there are only two certainties in life: death and taxes. This is especially true for American citizens.
The American tax system extends far beyond the country’s borders and applies to Americans living abroad, even those who have not been to the United States for decades.
The United States is one of the few two countries around the world with a global tax policythe other is the East African country, Eritrea.
In most countries, taxation is based on residence, meaning citizens must pay taxes in the country where they reside.
For example, if a British citizen living in Dubai resides in the United Arab Emirates for more than 183 daysthey would pay taxes under UAE tax law, not under UK tax law.
While the IRS has a “Exclusion of income earned abroad“up to $120,000 per yearAny income above this threshold is subject to Double taxationwhich means that a person must pay taxes in both the country where he or she lives and in the United States. Americans abroad must file an annual tax return if their income exceeds Registration thresholdthat is $13,850 for Single people in 2024.
For many Americans living abroad, this means that their American citizenship is more of a burden than an advantage. According to Forbes, between 2005 and 2009 less than 2,500 Americans have renounced their citizenship, while the number from 2010 to 2020 was an astonishing 36,840.
One of the reasons for the increased number of waivers was the Implementation of FATCAthe Foreign Tax Compliance Act, in 2010. This law requires individuals, report their foreign assets to the IRS if they exceed a certain threshold and that Report foreign banks the identities and values of bank accounts owned by US citizens.
Even former British Prime Minister Boris Johnson renounced his US citizenship in 2016and declared that it was outrageous to tax American citizens “everywhere and under any circumstances.”
A 2024 survey by Greenback Expat Tax Services shows that almost every third American expat plan to give up their US citizenshipThis figure has increased significantly in just one year, from 20 percent in 2023 to 30 percent in 2024.
Another 37 percent of expats are “may consider” giving up their U.S. citizenship. That means nearly 70 percent of American expats consider their citizenship problematic in some way.
The study also asked people considering waiving their primary reason, with the most common reason given being “the burden of managing/filing U.S. taxes.”
Adam Smith stated in The prosperity of nations that taxes should be paid “in proportion to the revenues they generate at any one time under the protection of the State.” When Americans live abroad, especially for decades, they are by and large not beneficiaries of American public services. They should not be expected to contribute to a system in which they no longer participate.
The US passport is one of the strongest passports in the world. It allows Americans to visit 188 countries without a visa. The Henley Passport Index It is currently the eighth best passport in the world.
Giving up such a powerful passport is no small sacrifice and individuals would only endure such a sacrifice if extensive bureaucratic and financial process if current global tax policy were really annoying.
For almost a decade, from 2014 to 2023, The fee for renouncing U.S. citizenship was $2,350 until the State Department recently announced that the fee would be reduced to $450.
Perhaps the lower fee will lead to more renunciations, but the fact that the number of people giving up their citizenship jumped during the period of higher fees suggests that for Americans seeking to escape the burden of U.S. tax laws, price is not an issue.
The United States was founded on the principle of freedom. Expats who have left the United States have chosen to live abroad and should be allowed the freedom to do so without permanently pushing themselves to the limit financially.
