The third and final debate Monday night between President Barack Obama and Republican presidential candidate Mitt Romney focused almost exclusively on the growing unrest in the Middle East.
However, while one would be remiss to disregard, say, the recent violence in Benghazi or Syria during a debate on foreign policy, we feel the presidential face-off ignored an important and particularly troubling trend: The growing number of Americans who have chosen to renounce their citizenship in favor of countries with a less burdensome tax code.
You may recall, for example, Facebook co-founder Eduardo Saverin who made headlines back in May when, just before Facebook made its disastrous Initial Public Offering, he decided to give up his U.S. passport and become a resident of Singapore.
As Singapore has no capital gains tax, the decision will end up saving Saverin a great deal of money. Of course, and not too surprisingly, a few people were upset that he decided against renewing his citizenship. And by “upset,” we mean a few politicians went so far as to try to block him from returning to the U.S.
But here’s there thing: He’s far from alone.
“Renouncing citizenship is an option chosen by increasing numbers of Americans. A record 1,780 gave up their U.S. passports last year compared with 235 in 2008,” Bloomberg reports.
And if you think that’s bad, wait until the much-dreaded Foreign Account Tax Compliance Act (FATCA) takes effect January 1, 2013. Some analysts predict FATCA will boost the number of renounced U.S. citizenships exponentially, especially among Americans living abroad.
“[U]nder the FATCA legislation, the U.S. will require all of its citizens to report their worldwide assets and earnings to the Internal Revenue Service (IRS), regardless of where they live, how long they have lived there, or whether any money is owed,” Georgina Lavers reports.
“Similarly, foreign financial institutions will also be required to disclose such information of any American clients that they may have,” she adds.
Nigel Green, chief executive of the deVere Group, a financial consulting firm, backs up this claim:
Over the last six months, we have received a 22 per cent increase in the number of enquiries from American expatriates around the world who tell us that they are considering the drastic step of switching their homeland citizenship to that of their adopted countries.
The majority of these US expats are being prompted to consider this due to the complexity of the reporting process to the IRS, plus the threats of heavy penalties, including for previous, inadvertent non-compliance.
This sense of anxiety is compounded by the fact that a growing number of Americans are being left stranded by their foreign financial institutions as all banks and wealth management firms will also have to declare the assets of their American clients – and this process is perceived as too costly and burdensome, meaning many are refusing to deal with US citizens.
But wait! There’s more: According to Green, foreign firms have recently started to turn down American applicants for jobs where signatory authority is required.
Why? Because those accounts would be subject to the new tax legislation.
“The fact that a growing number of the six million US citizens who happen to live overseas are being refused bank accounts outside America, or that they are being turned away from jobs as that will mean opening up firms’ accounts to U.S. bureaucrats, or because it could very well discourage foreign companies from doing business with American ones, is clear evidence that this legislation has serious, unintended negative consequences,” Green told TheBlaze in an email.
Representing those with an outside perspective, Green explains why some Americans would choose not to renew their passports.
“Many international observers believe that FATCA is a step too far. Some foreign governments and foreign financial institutions have hinted that they are not prepared to do the work of, or act as ‘de facto’ agents for, the Internal Revenue Service for many reasons,” Green told TheBlaze.
“It is easy to see why for some expats FATCA may be the straw that breaks the camel’s back as the U.S. is the only developed nation in the world which taxes its citizens on income they earn abroad,” Green told TheBlaze.
But let’s circle back to the very beginning of this article. Why should this be a “foreign policy” issue?
Think about it: The U.S. is losing a record number of businessmen and entrepreneurs to countries with lighter tax burdens. Who do you think is more likely to benefit from this transfer of wealth and talent?
Yes, the president and Gov. Romney spoke at length about trade with foreign countries, but they would have done well to address the fact that increases in competition in said countries may soon be attributed to the fact that some of them are on the receiving end of a tax-related exodus of talent.
“FATCA is overly complicated and far too onerous for both the individual and the foreign financial institution. A simpler and fairer tax system for U.S. expats is required as these people are, to all intents and purposes, global ambassadors for America,” Green’s email to TheBlaze reads.
“With a staggering 95 per cent of the world’s consumers living outside America, expats play a vital role for the U.S. economy, especially when it comes to promoting the exports of goods and services,” the email adds.
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Front page photo source courtesy the AP. This story has been updated.