Being an American citizen is a privilege and an honor. Millions of people around the world would sell everything they have for the opportunity.
But an increasing number of Americans are giving up their citizenship. The reason they’re doing this brings up some very interesting issues and problems in our society.
And the numbers don’t lie: 2020 saw a 260% jump in Americans giving up their citizenship from 2019, an even higher number than 2016, which saw a large number of citizens also renounce their citizenship.
In 2016 the reason was often related to President Trump’s election victory: last year’s motivations were more complicated.
Why Are So Many Americans Ditching Their Citizenship?
In 2020, a record 6,705 US citizens officially stopped being American, which is a 260% rise from 2019 which saw only 2,577 people renounce their citizenship. It is also important to keep in mind that many US embassies and consulates outside the country have had much shorter hours or been closed during COVID, which makes the large number all the more noteworthy.
In total there are about nine million US citizens living outside the country. Even more people likely would have stopped being citizens if the consulates had been open more, and this year is expected to even beak the record for 2020.
Part of the reason can be political or people who no longer feel an allegiance to the United States or their identity as Americans. But a lot of the reason is actually related to taxation.
The Foreign Tax Compliance Act (FATCA) makes all foreign banks tell them how much money Americans have and citizens have to pay US and foreign taxes in many cases. Banks that don’t do it are fined massively, and many banks won’t accept American clients unless they stop being citizens and prove it with a Certificate of Loss of Nationality.
Americans renouncing citizenship to avoid taxation is breaking records every year.
— Jash Sayani (@JashSayani) January 29, 2021
In order to drop your citizenship you have to pay $2,350 and personally go to the embassy in the country you’re living. You also have to fill out a last tax return and pay some additional fees in many cases.
EU countries have tried to lobby to get FATCA to relax its laws, but it hasn’t worked.
“People with a U.S. citizenship or Greencard must file their taxes regardless of where they live in the world every year. They also need to report every single bank account (FBAR), even if they are only authorized to sign, which feels intrusive for many,” explained Daan Durlacher, who works at Americans Overseas.
Americans Overseas is an EU-based group that helps Americans do their taxes and provides expert assistance on US tax policies. They also pointed out that COVID stimulus checks are being counted in people’s taxes currently, making it even pricier to leave and pay your last taxes.
The group said they have seen more and more Americans looking to leave and expects 2021 to have huge numbers.
Is Renouncing Your Citizenship Justified?
As sad as this is, there’s an ironic way in which it’s actually very American to renounce your citizenship over taxes. Remember the rallying cry of the American Revolution? “No taxation without representation!”
Well, FATCA is doing exactly that. And it’s un-American.
Citizens who choose – or are required – to live in other countries are still American, but it’s hard to see why they should still be paying taxes and you can see how much of a burden it could become, especially for people already struggling during the pandemic.
At the end of the day it’s a question worth discussing, and while it’s fair to say that being an American means far more than just protecting your bank account, it’s also fair to say that tax policy needs some serious reform.