How will the U.S. retain talent and keep corporations and individuals (wealthy or not) on American soil? The answer seems simple enough: lower the tax rate on both corporations and individuals so that they are actually incentivized to stay put. And do not sic the Internal Revenue Service on people who do not even live in the United States, simply because they hold U.S. citizenship, or dual-citizenship.
Clearly, the current administration does not see it that way, which likely explains why a record number of people are renouncing their U.S. citizenship.
According to IRS data published in the Federal Register on Monday, 1,426 Americans expatriated in the third quarter of 2015, bringing this year's total to 3,221 so far. The figure is 25 percent higher than the same period last year, when 2,585 renounced their citizenship.
Ironically, the federal government still benefits from individuals renouncing citizenship via its administrative processing fees. Those renouncing U.S. citizenship are required to pay $2,350 (a sizeable increase from the $450 assessed last year) for the privilege of doing so. This garnered the fed an additional $7.5 million.
In addition to being a record for the year to date, it was the second quarterly record broken in 2015. The previous record was 1,336, set in the first quarter of the year. The IRS began collecting the data in 1996 as part of the Health Insurance Portability and Accountability Act.
While the IRS justifies assailing American citizens abroad under the guise that said ex-pats must have nefarious motivates, oftentimes those being penalized have lived abroad for decades or simply hold dual-citizenship. In some cases, IRS targets have never even lived in the U.S. at all, their citizenship status having been conferred simply through birth, or parental-origin.
Economists suggest that a territorial system is fair for all. After all, why would one need to pay into a system he or she is not benefiting from? While this is certainly logical, it has not stopped the U.S. government from also assailing foreign banks that market to Americans.
“The more significant problem is failing to see significant investments in the U.S. due to our high tax rates ... we don’t treat capital favorably," said one Bloomberg panelist during a discussion on taxing Americans abroad. Indeed we do not, and it is likely that if we remain on the current trajectory, the number of people renouncing their citizenship will only increase in the months and years ahead.
