Americans are renouncing their citizenships in record numbers, according to IRS records, displaying an exponential growth rate. But don’t blame Trump just yet.
Andrew Mitchel, a tax attorney in Connecticut, has been tracking IRS expatriation announcements since 2008. In the first quarter of that year, he notes that 123 people expatriated. In the first quarter of 2016, 1,158 Americans announced their expatriation—roughly 10 times higher. And last year, 4,279 citizens expatriated, the highest number to date.
Renouncing one’s citizenship sounds like quite the dramatic act, like torching your birth certificate before hopping on a one-way chopper to Toronto. Our current political tides make an appealing scapegoat, but this trend predates Trump’s ascent. So what’s going on here?
Mitchel started tracking these numbers after the 2009 UBS tax scandal. After the banking giant was fined $780 million for helping rich Americans evade tax obligations while living abroad, our government cracked down. “You started to see a lot of saber rattling and threats from the IRS,” says Mitchel.
The U.S. has peculiarly stringent tax requirements for its citizens who choose to reside in foreign countries. Namely, you are expected to keep paying taxes even if you aren’t living and working on U.S. soil. It’s a requirement that very few other countries ask of their citizens. In fact, Eritrea is the only other one to require the same.
Mitchel speculates—he can’t be certain, as there is no obligation to announce why you are expatriating—that there is a two-part cause for all these new ex-pats. First, many Americans overseas have only just been learning of their tax obligations, often when informed by their banks. Under the 2010 Foreign Account Tax Compliance Act (FATCA), banks are required to report all their American clients, lest 30 percent of all their U.S. income be docked. Due to FATCA, many banks have reportedly shut down the accounts of U.S. citizens. “Many people didn’t even know they were supposed to be paying U.S. taxes until their bank informs them,” Mitchel says.
After people learn of these obligations, Mitchel thinks they might also discover how unusual they are compared to other countries. If an American living abroad goes to a bar and starts chatting with ex-pats from say, Canada or the UK, they soon may find that their compatriots have no similar expectations. That’s when the wisdom of remaining an American citizen may come into question.
Additionally the forms and reporting requirements themselves have grown exponentially more complicated in recent years, according to Mitchel, with increasingly stiff fines (often $10,000) for filing incorrectly. “At some point I think people just get frustrated with the complexities,” he says.
Of course, none of this rules out the possibility that thousands of Americans will expatriate in response to a potential (or confirmed) Trump presidency. The Q2 statistics may be quite telling—stay tuned!
