Rachel Millios: “Why I Would Consider Renouncing US Citizenship For Tax Reasons (It’s Not What You Think)”

The above tweet references an interesting article by Rachel Millios. Rachel is an Enrolled Agent with competence in managing the tax requirements of Americans abroad. She has had an interesting career – including a stint in Iraq with the U.S. military. What I find particularly interesting about her post is that she is NOT a U.S. citizen abroad. She is a “Homelander”.

Her insightful post (I have highlighted parts of particular interest) includes:

So why would a homelander like me consider renouncing US citizenship?

I’ve lived in the US my entire life (although I maintain dual US/Canadian citizenship). I’m a tax accountant by trade. I’ve served in the US military. I don’t consider myself particularly patriotic but the US is my home – I work here, live here, vote here and receive the benefit of my tax dollars here. If I were to move abroad, I would know exactly what tax traps await me just across the border to the north, and be able to plan accordingly (save for the pesky bank account I would need to live abroad, but wouldn’t be able to get because of my passport). I know the risks well, it’s unlikely that I would owe any additional tax to the US government, and I would have a low cost of compliance (other than my time).

Still, if a move abroad were permanent, I would consider renouncing US citizenship. This was a country founded to free its people from tax tyranny, and the colonists rejected the authority of the British Parliament to tax them. Those in the colonies believed they weren’t represented in the Parliament, and that any laws that were passed taxing the colonists were illegal. The purpose of citizenship based taxation was to prevent wealthy Americans from skirting military and civic obligations in a time of crisis (the Civil War, when it was considerably harder to pack up and move overseas). That time and purpose has passed and while every other country has moved to a residence based taxation model, the US has maintained a citizenship based taxation model.

Today, the US government reaches its arm across land and sea to tax those who are citizens by birthright or acquired through some other means when they are not adequately represented in the current Congress. Save for members of the military and those working on temporary assignment abroad for a multinational corporation (both of which classes of people generally have some kind of free tax help provided by their employer), most expats give up their ties to the US. They don’t maintain a residence in the US, don’t vote in the US, don’t have income in the US. Voter turnout among expats is around 7%. Many ballots cast are rejected because the states do not recognize the expats residency in the US (amazing!).

Some would argue that in today’s globally mobile world, citizenship based taxation is more important than ever. Perhaps its time to revisit Cook v. Tait. The real effects of citizenship based taxation are wasting government resources and tarnishing our already badly damaged image abroad. Citizenship based taxation isn’t in the interests of the US government, it is unique to the US, and it certainly has no benefit to a US citizen living abroad. It seems patently unfair to require tax returns of individuals who have no ties to the US and receive no benefits from the US, even if year after year there is zero tax due. What benefits can there be? This was the same argument that was made by Congress when they extended worldwide taxation to US green card holders – they must be receiving some benefit simply by holding a green card, so let’s tax them on income regardless of where earned or where effectively connected.

I can’t imagine why anyone who doesn’t intend to return to the US permanently would want to keep their passport. It is the most expensive passport in the world and for the individual who does not intend on working or doing business in the US again, it is much less painless to wait in the customs line at the airport for vacation than to prepare the most complex tax returns under the Internal Revenue Code each year.

Thank you Rachel for being a voice of reason and reality in this emotionally charged debate.

Note you can tell your story on Rachel’s blog.