In the first three months of 2014, more wealthy U.S. citizens felt compelled to take the distasteful step of formally renouncing their U.S. citizenship than in any whole year before Barack Obama assumed office.
So why is this important? It’s important because the people we’re talking about are exclusively from the income group who create more than 90% of all U.S. jobs and who pay roughly 60% of all federal personal income tax (not to mention their businesses that they most often move offshore with them – businesses that used to pay even more, in corporate income taxes).
This data comes from a government report titled, “Quarterly Publication of Individuals, Who Have Chosen To Expatriate“. It should be noted that this report is more commonly referred to as the “Taxpat Lists” and to have your name placed on one of those quarterly lists, you must fit the government’s definition of “rich,” although the government uses the term, “covered expatriate,” instead of “rich.” I suppose they figured that term sounds less ominous.
You can find links to all of the Taxpat Lists here.
By the latest definition, a “covered expatriate” is any expat who earned more than $155,000 per year in each of the five tax years before renunciation (based on 2013 dollars) or who had a net worth exceeding $2,000,000 on the day prior to his renunciation (based on current dollars). In other words, even the poorest person whose name appears on the Taxpat Lists is at least somewhat rich.
So the question that we must be asking is, “Who will create the jobs and pay all that tax after those people and the jobs they created are gone?”
When people in this income group renounce, it disproportionately hurts both the job market and income tax revenue, since expats tend to move their investments offshore with them, when renouncing. Depending on his wealth, one wealthy expat who moves his business offshore, takes with him not just his own job, but possibly several dozen or several hundred jobs, along with all the taxes that his business paid, as well.
This flight of wealth had climbed only slightly from when the Taxpat Lists were created in 1996, through George W. Bush’s first term in office. In fact, while expatriations grew by 83% for the first five years of the Bush Administration, expatriations dropped to their lowest level ever, in 2006 and then to another record low again, in 2008, closing out the Bush years 45% lower than the rate he inherited.
But the first official posting of expatriation data after Obama assumed office signaled the beginning of a dramatic increase in the number of wealthy U.S. citizens who are finding it necessary to pay the federal government’s hefty exit tax and formally renounce their U.S. citizenship, thus ending any future U.S. tax liability on non-U.S. sourced income.
As we reported three months ago, the total number of formal renunciations of U.S. citizenship in 2013 hit a record high of a phenomenal 1300% that of the level of renunciations Obama inherited (compare that to the 83% peak under Bush). But the report for the first quarter of 2014 paints an even bleaker picture.
There were 1001 formal renunciations of U.S. citizenship between January 1 and March 31 of 2014.
That number not only dwarfs any previous quarterly expatriation total, but it dwarfs the total for the worst full year of expatriations, prior to Obama assuming office.
Let’s forget for a moment that every year since Obama took office, expatriations have tended to climb throughout the year and instead, assume a flat expatriation rate for the rest of this year. In other words, we’ll assume that just 1001 expats leave each quarter. That would mean that we would see 4004 expatriations, which would be in excess of 1000 more U.S. citizens renouncing in 2014, than in that record year of 2013.
Even this rosy projection would put us well over the trend line projection that we calculated three months ago. To put this into perspective, it would mean that in just one year, renunciations that were already 1300% that of the expatriation rate that Obama inherited, would climb to more than 1700% of that rate.
In fact, in our report on the total of 2013 renunciations, we projected a trend that ended with more than 11,000 renunciations in 2016. However we had a number of our readers tell us that such a projection was just too “incredible” to be believed. But as it turns out, 4004 renunciations, would slightly outpace even our “incredible” projection and that 4004 number based on no growth in expatriations for the rest of 2014. We should be so lucky.
But since Obama took office, formal renunciations have not remained flat. Rather, they have increased geometrically. So assuming a flat expatriation rate for our projection, as we just did for the rest of 2014, is not really reasonable. We only did that for the skeptics. In fact, the most accurate way to project a trend, in this type of scenario, would be a polynomial trend, with a five year spread (since Obama has been in office for five full years). That’s the type of trend that we used in our projection three months ago, which I should point out, is proving accurate, after all.
So when we apply that type of trend to this new data, it suggests that the total number of expats in 2014 will much more likely be well over 5000, representing a greater than 2100% increase over the renunciation rate that Obama inherited from Bush.
However, even that estimate is probably quite low. That’s because FATCA (the Foreign Account Tax Compliance Act), which was a part of the HIRE Act of 2010 (H.R. 2847) takes effect on July 1st and that will make it virtually impossible for U.S. citizens living abroad to open or maintain a bank account in their country of residence.
You see, FATCA is based upon two very incorrect assumptions. First, it assumes that every U.S. citizen who holds a foreign bank account is trying to dodge taxes. Secondly, it assumes that foreign banks that hold the accounts of U.S. citizens will choose to undertake the quite severe FATCA requirements, rather than just asking U.S. citizens to take their business elsewhere. Therefore, based on these two incorrect assumptions, FATCA imposes numerous onerous requirements on foreign banks that wish to continue to use the U.S. banking system and who maintain accounts of U.S. citizens. Among those requirements are giving the U.S. Government access to private bank information, without a warrant, which all bankers find abhorrent. The plan was that FATCA would give the IRS a window into the foreign bank accounts of U.S. citizens, so they could collect more taxes.
Oops!… It isn’t working out that way.
FATCA hasn’t even gone into effect yet and thousands of foreign banks are already opting to maintain their account secrecy, by telling their U.S. citizen customers that their accounts are no longer welcome at that bank. This vain attempt by the IRS, to probe the financial affairs of U.S. citizens who work and reside abroad, is leaving those U.S. citizens abroad with no access to local banks and they are finding it increasingly difficult to do things as simple as pay their electric bill. If you have ever found it difficult to cash an out-of-state check, try cashing an out-of-country check some time.
Since their income is generated in their country of residence, many U.S. citizens who live and work offshore are finding that they have only one option – formal renunciation of U.S. citizenship. This is a drastic step to have to take. But if they are to be able to function financially in the country where they earn their living, FATCA leaves them no other choice. This is why they call themselves taxpats.
So with the FATCA deadline looming and more foreign banks telling their U.S. citizen customers that their business is no longer welcome, it’s extremely likely that many more U.S. citizens living abroad will be forced to take that option of last resort and renounce their U.S. citizenship, just so they can continue to be able to function financially in the country where they live and work.
Therefore, adding the FATCA effect to the expatriation projection means that if we saw only 6,000 renunciations of wealthy U.S. citizens in 2014 we would be very lucky.
Obama’s blind and reckless “Soak the Rich” agenda is clearly driving away those taxpayers that we need most. Remember that the data that we’re talking about is not based on some analyst’s estimate, but rather on a real count of the names of the people who renounced each quarter. Obama’s policies are making it far worse by the year.
Then consider that for every U.S. citizen who formally renounces, many more just drop out (becoming a “PT” ), without making their expatriation formal. Sure, that’s considered illegal in the USA. But the chances are that those people don’t plan on ever returning to the USA to face the ire of the IRS, so they don’t care what the U.S. government thinks.
The point is that these taxpats, be they formal expatriates or PTs, are the people that this nation needs in order to insure our continued tax revenue and to create the jobs that keep our nation running.
After all, when did you ever hear of anyone getting a job from a poor person?
1) The term “covered expatriate” is defined in the Health Insurance Portability and Accountability Act of 1996 (H.R. 3103 – 104th) and later amended in the American Jobs Creation Act of 2004 (H.R. 4520 – 108th).
2) The term “PT” is a popular slang among expats, indicating a person who has dropped off the government’s financial radar. It has several meanings, including, “Practically Transparent,” “Prior Taxpayer,” “Privacy Trained,” and “Permanent Tourist,” among others. To learn more about PTs, just Google the term, “W. G. Hill”, as a starting point.