American Taxation

Some years ago I was in Tunisia producing a film about Roman antiquities and history which abound throughout the country. At one ancient city I asked the guide working there what was one of the main causes of the people leaving in those days. He laughed and said, ‘What else-taxes.’ Several thousand years later an exodus of sorts is taking place by another tribe of people over tax issues, Americans. Fed up with the continuous money grab by the Washington political class, Americans in record numbers are renouncing their citizenship to deny the U.S. tax authority their financial assets. Most are expats who have been living abroad for some time and have grown weary of the long arm of the American Internal Revenue Service (IRS). But now others who do not live outside the United States are beginning to contemplate a similar move especially with the 2016 election approaching.


In a Bloomberg 2015 report a ‘total of 1,335 people renounced US citizenship during the first three months of the year, topping the previous record by 18 percent, according to data compiled.’ This would make 2015 the highest on record of almost 3,415 American citizens renouncing their allegiance to the country. This figure is small compared to the number of people moving to America the United States Census reports, ‘An estimated 41.3 million immigrants, both legal and illegal, currently live in the United States and their numbers grew by 1.4 million people between 2010 and 2013.’ But could this start even bigger migration of Americans and their wealth with demands of more Federal taxes by the elected elites?

The IRS estimates that 6 million Americans reside outside the country and can exclude up to $100,800 of earned income. One of the biggest complaints from Americans abroad is the filing of tax forms have become so complex that they must seek help from accountants just to get the forms properly filled out. Adding to the tax headache is the 2010 tax rule passed by Congress known as the Foreign Account Tax Compliance Act (FATCA) that requires a mandatory tax filing for assets of $50,000 or more being held in foreign financial institutions with a requirement that the institutions also file a report on their U.S. customers. This has created problems for American citizens who want to open bank accounts in foreign banks as the banks do not want to go through the hassle of reporting to the IRS.  To date The United States is the only country within the Organization for Economic Cooperation and Development that taxes citizens wherever they reside.

In a survey conducted December 2014 and January 2015, the University of Kent polled 1,546 Americans and former citizens who were asked why they were considering giving up their citizenship. ‘Survey participants stated that high taxes were the primary reason for renouncing their citizenship. But the survey also found that contrary to popular belief, income was not a key factor in their decision.’ Additionally the survey found ‘Of the US citizen respondents, 31% have actively thought about renouncing US citizenship and 3% are in the process of doing so.’ Along with high taxes was also the high cost to prepare their I.R.S tax returns as a reason to renounce their citizenship.

One other is the issue of the Exit Tax.  It’s all part of the The Heroes Earnings Assistance and Relief Tax Act of 2008 (the HEART Act) and the U.S. Treasury Notice 2009-85 which established the following rules for US citizens abroad.

The law applies to US citizens who expatriate, as well as long-term US permanent residents who give up their green cards that have been held for 8 of the last 15 years.

Before you leave you must prove 5 years of tax compliance in the U.S. Plus, if you have a net worth greater than $2 million or have average annual net income tax for the 5 previous years of tax filings of $155,000 or more requires you to pay an exit tax.

For holders of a Green Card they can also be subject to costs as well should they decide to leave.

Escape Route

So where are the places Americans are flocking to live outside the country?  The Migration Policy Institute reports that the top locations include number one with Mexico with 849,000, followed by Canada with 317,000 and The United Kingdom has 222,000 American expats. Other countries popular with Americans include Australia and Israel.

The report also notes that ‘Canada, along with Mexico, is also a member of the North American Free Trade Agreement that in some cases can make obtaining work visas easier for those wishing to emigrate.’

Home Grown Headache

In a 2015 report the Pew Research Center reviewed how the U.S. government was funded and what Americans thought about the current tax situation. The report cites IRS data for people with adjusted incomes ‘above $250,000 paid nearly half (48.9%) of all individual income taxes, though they accounted for only 2.4% of all returns filed. Their average tax rate (total taxes paid divided by cumulative AGI) was 25.6%. By contrast, people whose incomes were less than $50,000 accounted for 63.4% of all individual income tax returns filed in 2013, but they paid just 6.2% of total taxes; their average tax rate was 4.2%.’

According to the National Taxpayers Union their review of IRS data showed: The Top 1% of all tax payers account for 36.73% of all taxes. The Top 10% of Americans pay over 70% of all taxes. The Top 50% of Americans pay over 97% of all taxes. The Bottom 50% of Americans pay zero to 2.25% of all taxes.

The Pew report also mentioned that Americans ‘don’t much like the federal tax system with the main complaint that people other than themselves are not paying enough.’

Another growing problem is the pressure to get more taxes out of the wealthy by the politicians for what could be called the ‘Free’ movement which includes free healthcare and free university for all funded by the taxpayers. Presidential candidate Bernie Sanders, the t Socialist candidate from Vermont, has made this a key part of his campaign platform and he has been steadily rising in the polls.

High wage taxpayers still have help with mortgage and other deductions to help lessen the sting of the tax liability but fear is setting in that some of those may be phased out in the years to come as the Federal government continues to grow, borrow and spend.  In 2014 the U.S. government took in $3 trillion USD in tax receipts but continued to run a half trillion dollar budget deficit.


Abolishing the I.R.S. has long been the hope of taxpayers but has always been dismissed by the Washington elites. With its thousands of employees, thousands of pages of tax rules the time has long since passed to find an alternative to the current revenue raising behemoth. Billions of potential revenue goes uncollected in the cash only underground economy.

One of those plans is the Fairfax which would eliminate the I.R.S. and the headaches it brings.

The Fairfax organization describes the plan as:

‘…a national sales tax that treats every person equally and allows American businesses to thrive, while generating the same tax revenue as the current four-million-word-plus tax code. Under the FairTax, every person living in the United States pays a sales tax on purchases of new goods and services, excluding necessities due to the prebate. The FairTax rate after necessities is 23% compared to combining the 15% income tax bracket with the 7.65% of employee payroll taxes under the current system — both of which will be eliminated.

Important to note: the FairTax is the only tax plan currently being proposed that includes the removal of the payroll tax.

One of the main points of the plan is the individual’s ability to control their own tax burden with retailers collecting the tax and forwarding it to the government with the retailers receiving a fee for doing so. One of the biggest concerns is the effect on pensioners and those receiving Medicare assistance as the plan pledges: ‘Benefits will not change. The FairTax actually puts these programs on a more solid funding foundation. Instead of being funded by taxes on workers’ wages, which is a small pool, they’ll be funded by taxes on overall consumption by all residents.’

The Internal Revenue Service is no longer just a revenue collection arm of the government but rather a political tool and the weapon of choice of Washington politicians. There are absolutely no constraints on spending and the politicians as we know will do anything, strike any deal to stay in power. Abolishing the I.R.S. would be a healthy start in reigning in the power and stop the squandering of taxpayer money. Term limits on Washington politicians would not hurt either.

Article by Kevin Murphy:

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