With the recent economic downturn, many U.S. citizens and Green Card Holders may want to look at renouncing their U.S. citizenship or giving up Permanent Residency Status. Although this is a true outlook, there are other more numerous reasons why an individual may want to renounce. Not all renunciations are based on tax! Many individuals, when born, and who have one or both parents of U.S. citizenship become a U.S. citizen automatically. In times of war, America has a huge presence of servicemen and servicewomen present in foreign countries. This has lead to procreation between the U.S. service individual and the foreign individual, producing children with U.S. citizenship. In my recent travels to the South Pacific and European regions, I have met many individuals who had an American serviceman as their father during WWII and Korea. They, without their consent, became dual citizens of their home country and the United States. To be held accountable for taxation to a country that does not even know of their existence, or the burden of continued accounting for double taxation filings and foreign bank account reporting on retirement income, is onerous to them.
Heroes Earning Assistance and Relief Tax Act of 2008
The “Heroes Earnings Assistance and Relief Tax Act of 2008” provided relief to these individuals who are U.S. citizens and described as meeting one of the two circumstances:
1. An individual who was born with citizenship both in the United States and in another country, provided that:
a. as of the expatriation date the individual continues to be a citizen of, and is taxed as a resident of, such other country, and
b. the individual has been a resident of the United States (under the substantial presence test of Internal Revenue Code §7701(b)(1)(A)(ii)) for not more than 10 taxable years during the 15-year taxable year period ending with the taxable year of expatriation.
2. A U.S. citizen who relinquishes U.S. citizenship before reaching age 18½, provided that the individual was a resident of the United States (under the substantial presence test of section 7701(b)(1)(A)(ii)) for no more than 10 taxable years before such relinquishment.
Now, I am almost sure that these individuals may be able to claim some type of benefits under the United States various welfare programs, social security benefits based on the death of their U.S. parent, or obtain a passport for open travel into the United States. Then, when you consider that these individuals are now grandparents themselves, their children and grandchildren are also deemed to be U.S. citizens with certain rights to the United States. This situation is not restricted to the South Pacific, but worldwide and if acted upon by these hundreds of thousands to millions of people would significantly burden the economy of the United States. Yes, they may be subject to income taxation, but the double tax treaty that many of these foreign countries would act to effectively eliminate their U.S. tax liability. So, the question for America is whether we want to potentially open the floodgates of Americans into the social security system benefits and other benefits of U.S. citizenship? Fortunately, most of these individuals are proud productive citizens in their home countries and are not trying to gain some economic advantage with their involuntary U.S. citizenship.
There are many other reasons why a U.S. citizen may want to give up citizenship. Some Americans marry non-U.S. citizens. They live and work overseas and find the ease of European citizenship to be much simpler for continuing to live in Europe with their immigration regulations as well as social security benefits at their age of retirement and nationalized hospital care, such in the United Kingdom. There are many examples of American husbands and wives making a life overseas, raising a family overseas and expecting to retire overseas. In many instances, one spouse will renounce U.S. citizenship in favor of the host country to allow for continued residence, to continue to be present with their children and grandchildren, and to minimize the accounting cost of filing two countries’ tax returns and other reports when they only make retirement income.
The so-called Exit Tax was first seriously introduced by President Clinton as a way of stopping alleged wealthy Americans from departing America when he was preparing to introduce tough tax legislations with extremely burdensome financial consequence to the top taxpayers, who pay over 90 percent of all taxes. President Obama’s statements that the middle class will not pay one dime of tax more than before in light of the trillions of federal money giveaways just does not make rational sense. His plan is to tax the wealthy more and more and more. It raises the basic question: How many times can you go back to the well before it becomes dry? With the continuing failed economy and the Obama promise to continue to tax the wealthy, it is just a matter of time before the wealthy find the Exit Tax no longer a poison pill and will survive the swallowing.
JOB CREATION FOR EMPLOYMENT AND NEW TAX-REVENUE BASE:
Obama now is trying to create jobs to help employment and increase a tax base. Most of us know that before you can have jobs you have to have businesses. In the last few years, we have lost over 7,000,000 jobs as he mentioned in his recent State of the Union address with the current promise of a 1,000 jobs here and a 1,000 jobs there. It will take a lot of 1,000 jobs to make up for the 7,000,000 jobs lost. Remember that other countries have lost jobs too and are equally striving to attract wealthy, educated, entrepreneurial people to their shore. This effort has been around for years and was first officially called the “Brain Drain”. The British Royal Society first coined the expression Brain Drain to describe the outflow of its scientists and technologists to the United States and Canada in the 1950s and early 1960s. More recently, the United Kingdom passed a type of stimulus bill offering over $40 million U.S. towards funding to attract the return of Britain’s leading expatriate scientists and bring back its top young researchers.
The United States is the main pole of attraction for foreign skilled workers; 40 percent of their foreign-born adult populations have tertiary level education. Since the early 1990s, some 900,000 highly skilled professionals, mainly IT workers, from India, China, Russia and a few OECD countries (including Canada, the UK and Germany) have migrated to the United States under the H1B temporary visa program. The United States also takes in 32 percent of all foreign students studying in the OECD countries. Indeed, higher education is an important channel for U.S. firms recruiting highly skilled migrants; some 25 percent of H1B visa holders in 1999 were previously students enrolled at U.S. universities. The United States is not the only magnet. Canada, China, Germany, France and the U.K also attracts talent and have now implemented policies to attract foreign students, researchers and IT workers away from other countries, such as the United States. And why not? Just look at the number of foreign-born U.S. Nobel Prize winners or creators of global high tech companies, such as Intel or eBay, and other successful start-ups in the United States. China has recently launched a project to develop 100 universities into world-class institutions that not only provide higher education training, but also academic employment and research opportunities.
Obama campaigned on the platform of “buy American”, and I wondered what exactly is it that we can buy that still is made in America. This is how we are going to booster the American economy? Just pick up a few items on your desk or at the store and it most certainly does not say “Made in the USA”. We are, for the most part, a country of consumers, not manufacturers. When elected, Obama’s “buy American” policy hit the icy waters of the international communities and even American companies like General Electric Co. and Caterpillar Inc. with significant foreign sales are seriously worried over retaliatory measures of its client countries. Our neighbors to the north, Canada, were prepared to file a complaint under either the North American Free Trade Agreement or the World Trade Organization. We are a country with real problems that need serious and real solutions. Protectionism and financial hostage-holding are not the solutions. The Exit Tax is certainly a poison pill, but as the financial and tax worries of the wealthy now multiply, taking the poison pill may be the only viable option.
Asset Protection World is ready to discuss your options for your Asset Protection Planning. Call us for a FREE consultation.