Obama agenda drives record expatriation

Obama agenda of punishing success drives record expatriation

John Gaver
April 5, 2011

John Gaver According to official government reports, US citizens are now formally renouncing their US citizenship at the highest rate in history - almost seven times the expatriation rate, when Obama took office.

The expatriation rate more than tripled, in Obama's first year in office, from 231 in 2008, to 750 in 2009. That rate then more than doubled again, to 1534, in 2010.

This data comes from what has become widely known at the Taxpatriate Lists. Those are lists that the US government publishes quarterly, in the Federal Register, containing the names of every person who has formally renounced US citizenship, during the previous quarter. The stated purpose of the lists, as revealed in congressional speeches advocating their implementation, was to intimidate prospective expats, so as to prevent them from leaving - especially the wealthy ones. It obviously didn't work.

However, the Taxpatriate Lists have provided us with a very useful tool for measuring expatriation. Although the lists only include the names of those who formally renounce, most indicators point to a percentage correlation between formal expatriations and informal expatriations. In other words, when formal expatriations go up, so do informal expatriations. It's just harder to track informal expatriations.

Formal Expatriations vs. Informal Expatriations

While the numbers from the Taxpatriate Lists reflect only formal expatriations, other reliable statistics show that for every name on that list, thousands more are quietly leaving.

In fact, credible evidence leaves no doubt that there are millions of American's quietly leaving the USA, every year. In 2008, Zogby International released the results of seven polls that they had conducted over the three prior years and one of the most prominent statements in the summary of those polls was their statement that, "by a moderate estimate", more than three million Americans relocate outside the USA every year. But those polls were conducted between 2005 and 2007, before Obama was elected and took dead aim on the successful. That means that, at the time of those polls, respondents had no idea how bad things were about to get in the USA, under Obama.

Now to be fair, not all of that three million a year, will actually take the formal step of renouncing. But history shows us that many of them will acquire one or more foreign passports and then just drop off of what many expats call, the "US vassal radar". Although they never formally renounce their US citizenship, many will adopt a new country or maybe more than one and just stop paying US taxes. Sure, according to US law, that would be illegal. But the fact that so many otherwise law-abiding citizens have felt it necessary to take such a radical step, should be raising all kinds of red flags about how US law treats the people who pay the bills.

But just how many informal expats are there?

While we don't have any way to determine, with any degree of accuracy, just how many informal expats there may be, we can look at certain government statistics and make a reasonable guess. The two places that we'll look are a July 1999 report titled, "Private American Citizens Residing Abroad", compiled by the US Bureau of Consular Affairs and a report from the Department of the Treasury, Office of Tax Policy titled, "Income Tax Compliance by U.S. Citizens and U.S. Lawful Permanent Residents Residing Outside The United States and Related Issues (May 1998, pp9)".

The first report, from the Bureau of Consular Affairs, shows that in 1999 the US government knew the location of almost four million US expats, living offshore (and that was just the ones that they could find). I should also point out that after completing their 1999 report, the Bureau of Consular Affairs decided to not try to count expats again, due to the expense and the fact that even after all that expense, they were still unable to account for a significant portion of the US expats that they knew were out there. This was echoed in a 2004 report to the US Census Bureau, by the US Government Accountability Office (GAO), titled, "Counting Americans Overseas as Part of the Decennial Census Would Not Be Cost-Effective". I point this out to show that even the government knows that their best numbers are far from accurate.

The second report, from the Office of Tax Policy, shows that only a few years earlier, in 1994, the IRS received only 257,000 tax returns that claimed any kind of offshore exemption. Note too, that this second report was specifically addressing Income Tax Compliance for Americans outside the USA, which is important to us.

So let's look how these two reports fit together with Income tax law, to paint a very clear picture.

First, as a person who has lived offshore, I can assure you that there are two things that every US citizen, considering a move offshore, is certain to learn, before making such a move, even temporarily. I can almost guarantee that you will hear at least a dozen times, from as many sources that 1) you get a huge income exclusion on monies earned overseas, for tax purposes (in other words, you aren't taxed on foreign earned income up to that level) and 2) you must file your US tax returns every year, even if you don't earn enough to owe any US taxes. It's the law. And just to make sure that you know this, the State Department even prints it on the back page of every US passport.

Back page of US passport

So that income exclusion, combined with the filing requirement and those two reports, raises a significant question.

Why did three and a half million of the almost four million Americans living offshore (that the government knew about) not take advantage of what was then, a $70,000 dollar income exclusion?

The answer should be obvious. Since any person who filed and knew about the income exclusion would certainly take it, the obvious answer is that over three and a half million of those offshore Americans DIDN'T FILE a tax return. But this raises another question.

If the law requires Americans living abroad to file a tax return every year, reporting their worldwide income, even if it doesn't exceed the income exclusion, why did more than 93% of those offshore Americans not obey US law and file their US tax returns?

Again, the answer should be obvious. Those three and a half million offshore Americans didn't feel obligated to obey US law, since they are permanently settled in another country and have no intention of ever returning to IRS jurisdiction.

That's more than 93% of "known" US citizens living abroad, who are likely to never return.

But it gets worse. Consider that even the Bureau of Consular Affairs admitted that their study didn't come close to counting all the US expats that they knew had to be out there. So what this means is that 93% represents the lowest possible number.

Now, combine those findings with the Zogby findings and you can see that expatriation was already becoming a problem, before Obama took office. But Obama's attempts to punish our most prolific taxpayers for being successful, has gravely exasperated an already serious problem. Remember that as formal expatriations increase, informal expatriations tend to increase proportionately.

In reality, while such a seven-fold increase in formal expatriations is not that large a jump, in real numbers, it would be a tremendous number, in informal expatriations. For that reason, it's reasonable to assume that while informal expatriations are rising, they probably are rising at a somewhat slower rate. After all, a seven-fold increase in the Zogby estimate of three million, would be 21 million and that's not likely to happen, short of a complete economic collapse. But one thing is certain, informal expatriations have risen to a lot more than three million a year, as a result of Obama's all out war on success.

So what does this mean for you and me?

The problem is two-fold.

First, the people who are leaving, are those whose investment dollars create jobs in the USA. When they leave, they almost always take all of their money with them and divest themselves of their US dollar assets, in order to protect those assets from future government confiscation. That means that our economy, as a whole, gets worse.

But there's an even worse result of increased expatriation of the wealthy. When they leave and take all that money with them, those who do continue to pay US taxes, almost always have much of it sheltered, so they pay far less to the USA in taxes. Then, there are those who formally renounce and pay no US taxes. And let us not forget that there are even more, who just drop off the government's vassal radar and also end up paying no US taxes. So that means that the government has to look elsewhere for tax revenue.

You may think that this doesn't affect you, because you don't have enough money for the government to target you. But think again.

As more wealthy Americans leave, the richer you look to the government.

Think about it...

See related articles and supporting documents:

1986-2008 IRS Collections Data by Income Category
Obama agenda drives record expatriation
Tick - Tick - Tick / The Economy Bomb
Tax Freedom Day Builds Case for FairTax
US Tax Freedom Day Clock Web Widget
UK Tax Freedom Day Clock Web Widget
US Tax Freedom Day Clock
US Tax Freedom Day Clock Widget (for Mac)
UK Tax Freedom Day Clock Widget (for Mac)
The Privacy Factor
More Attacks on the Wealthy
US Taxpatriates List
2000 Statistical Yearbook of the Immigration & Naturalization Service (6.2mb PDF)
2003 World Wealth Report (Press Release)
American Citizens Residing Abroad (US Bureau of Consular Affairs)
Health Insurance Portability & Accountability Act of 1996 (26 USC 877(a)(1))
Immigration Reform and Immigrant Responsibility Act of 1996 (8 USC 1182(a)(10)(E))
Heroes Earnings Assistance & Relief Tax Act (Public Law 110-245) (8 USC 1182(a)(10)(E))
The Economic Impact of Replacing Federal Income Taxes
with a Sales Tax (CATO)
Fair Tax Act of 2011 (H.R. 25)
Americans for Fair Taxation
National Retail Sales Tax Alliance