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In its latest attack on the Foreign Account Tax Compliance Act (FATCA), the Wall Street Journal describes in ominous tones the “record” number of individuals who renounced their U.S. citizenship in the last quarter, supposedly driven by FATCA’s reporting requirements, which are designed to prevent tax evasion.
What scary headlines about a “surge” in expatriations leave out, however, is what a miniscule number it really is. Even the six-fold increase this quarter compared to the second quarter of last year meant that only 1,130 people renounced their citizenship in the second quarter of this year. To give some context, this number represents less than 0.02 percent of the estimated six million Americans that live abroad.
“Surge in Expatriations to Avoid Taxes!” “US expatriates renounce citizenships at record rate!” Pretty alarming headlines. News coverage of what complying with FATCA actually entails has been misleading and would make you think that the rise in renunciations is driven by the “overly burdensome” rules that are financially crippling US citizens living abroad. The fact is, the primary component of FATCA affecting individuals is the requirement that U.S. citizens with $50,000 or more in foreign financial assets (which does not include housing or other basic non-financial assets) simply have to attach a disclosure statement about their accounts in their yearly tax return.
Whatever inconvenience is caused by these requirements is far outweighed by the benefits to the U.S. and its law abiding taxpayers. According to the Congressional Joint Committee on Taxation (JCT), FATCA’s anti-tax evasion measures are estimated to raise $8.7 billion (PDF) over their first decade of implementation (and JCT has a history of underestimating such tax enforcement measures, too.) Considering that the U.S. loses an estimated $100 billion (PDF) annually due to offshore tax abuses, rather than seeking to curtail FATCA, Congress should expand on these efforts through legislation like the Stop Tax Haven Abuse Act in the House or the CUT Unjustified Loopholes Act (PDF) in the Senate.
While the emigration of every single wealthy person abroad is makes big news (see, for example, coverage of Facebook billionaire Eduardo Saverin or singer Tina Turner), the reality is that the number of renunciations is negligible – especially compared to the number of new citizen naturalizations each year. In fact, 503,104 people have been naturalized in the US since the start of Fiscal Year 2013, which means well over 250 people embracing US citizenship for every one person renouncing it over the past several months.
Asking the few and largely wealthy Americans with substantial offshore financial assets to do a little extra paperwork is not unreasonable when we know that cracking down on offshore tax evaders will bring in revenues to invest in things like roads, schools, healthcare and a quality of life that make the US so attractive to aspiring U.S. citizens.