The Five “Americans Abroad” Obama Would Meet In Heaven – How Taxation “Slices and Dices” Americans Abroad

Reminder:

US citizenship abroad information/discussion sessions in January of 2024:

1. London, UK – Wednesday January 17, 2024 – 18:00 – Location: The Sutton Arms – first floor wine room – 6 Carthusian Street, London – EC1M 6EB

2. Prague, Czech Republic – Sunday January 21, 2024 – Brix bar & Hostel, Rohacova 132/15, Prague 3 Žižkov
– 200CZK – includes lunch

3. The Prague session will be livestreamed on the IRSMedic Youtube Channel. Check there for how to join.

Further details here.

Outline, table of contents and purpose of this post.

Because U.S. citizenship taxation impacts different groups in different ways, it is hard to garner a significant mass of people to committed to the mission of ending citizenship taxation. There are five different groups who are impacted by citizenship taxation. Yet they would seem very different if you were to meet them in heaven.

Part A – “The Five People You Meet In Heaven” – the notion of interconnectedness
Part B – Barack Obama and the revival of citizenship taxation – how did his administration “slice and dice” Americans abroad?
Part C – Different kinds of Americans abroad with different attitudes toward the taxation of Americans abroad
Part D – Fault Lines Among Americans Abroad – The discussion in Keith Redmond’s American Expatriates Facebook group
Part E – The Five Types Of Americans Abroad Obama Would Meet In Heaven
Part F – Conclusion

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Part A – “The Five People You Meet In Heaven” – the notion of interconnectedness

From Wikipedia:

The Five People You Meet in Heaven

The Five People You Meet In Heaven is a 2003 novel by Mitch Albom. It follows the life and death of a ride mechanic named Eddie (inspired by Albom’s uncle[1]) who is killed in an amusement park accident and sent to heaven, where he encounters five people who had a significant impact on him while he was alive. It was published by Hyperion and remained on the New York Times Best Seller list for 95 weeks.

Plot

On his 83rd birthday, amusement park ride mechanic Eddie is killed in an accident when a ride breaks down. During the accident, he makes a desperate attempt to save a little girl’s life.

Eddie arrives in Heaven, where he meets “the Blue Man.” The Blue Man explains that Eddie is about to journey through Heaven’s five levels, meeting someone who has had a significant impact upon his life or someone on whom his life had a significant impact. Eddie asks why the Blue Man is his first person, and he informs Eddie that, when Eddie was very young, he caused the car accident that killed him. From this, Eddie learns his first lesson: there are no random events in life and all individuals and experiences are connected in some way.

You can read an excerpt from the actual book here.

I read the book years ago and once attended a “reading” by the author in Toronto. At a minimum the book describes how seemingly small random events can have a large impact on the lives of those impacted. This is particularly true in the way that changes in U.S. tax rules impact Americans abroad and the trajectories of their lives.

Part B – Barack Obama and the revival of citizenship taxation – how did his administration “slice and dice” Americans abroad?

https://youtu.be/PMEInTNsacg?si=xQGsWEoicKRfZ_pe

In his 2004 keynote speech at the Democratic convention in Boston, Barack Obama in an effort to emphasize that what unites Americans is greater than what divides Americans said:

Well, I say to them tonight, there is not a liberal America and a conservative America — there is the United States of America. There is not a black America and a white America and Latino America and Asian America — there’s the United States of America. The pundits like to slice-and-dice our country into Red States and Blue States; Red States for Republicans, Blue States for Democrats. But I’ve got news for them, too: We worship an awesome God in the Blue States, and we don’t like federal agents poking around in our libraries in the Red States. We coach Little League in the Blue States, and, yes, we’ve got some gay friends in the Red States. There are patriots who opposed the war in Iraq and there are patriots who supported the war in Iraq.

The history of the United States is rooted in taxation and taxation is the defining feature of the United States and its citizens. Taxation is the tie that binds all Americans.

The Internal Revenue Code regulates the lives of American citizens. It DOES “slice and dice” Americans. One would think that there would be ONE tax code for Americans. But, there (in effect) are different tax codes for different groups. Professor Dorothy Brown in “The Whiteness Of Wealth” emphasizes the level of wealth is a function of taxation and the blacks and whites experience the tax code differently.

Americans abroad are subjected (via citizenship taxation) to a tax system that is different from (and more punitive) than the tax system that applies to resident Americans. “Citizenship taxation” separates resident Americans from nonresident Americans. It further defines and separates different groups of Americans abroad. There are huge differences among Americans abroad. These differences cause huge divisions among Americans abroad. Those divisions impact the commitment (or lack of) to end the U.S. practice of citizenship taxation – imposing U.S. tax rules on people who don’t live in the United States.

“Change you can believe in”

Although US citizenship taxation had existed (although unknown) for years, there is no doubt that the combination of (1) the Obama IRS offshore disclosure programs coupled with (2) the Obama Treasury’s roll out of FATCA has impacted the lives of Americans abroad in various ways (ranging from very little to renunciation of U.S. citizenship).

Part C – Different kinds of Americans abroad with different attitudes toward the taxation of Americans abroad

Although only a minority of Americans abroad believe that citizenship taxation is a good thing, it is difficult to garner enough opposition to pressure the U.S. government for meaningful change. The only meaningful change is to end the connection between citizenship and taxation. In other words, the life circumstance of citizenship should no longer be relevant to how or whether somebody is taxed. The United States would join the rest of the world in adopting residence based taxation. Whether one is subject to the tax law of a country is dependent on:

1. Whether one is a resident of the country; or

2. Has income sourced in the country. To date ONLY SEAT and Republicans Overseas support the vision of severing the link between citizenship and taxation. If you look carefully, you will see that many who advocate changing the current system are actually advocating change to a system where:

1. The U.S. retains tax jurisdiction over U.S. citizens when they don’t live in the United States; but

2. The U.S. refrains from taxing the non-U.S. source income (some or all) received by its overseas citizens.

The combination of these two things is NOT residence based taxation. This is a modified form of “territorial taxation”.

Part D – Fault Lines Among Americans Abroad – The discussion in Keith Redmond’s American Expatriates Facebook group

A few days ago, Keith Redmond in his American Expatriates Facebook Group made two provocative posts.

First, “It’s mind boggling to me that someone would obtain US citizenship knowing they won’t live in 🇺🇸 or live in 🇺🇸 forever. Why would one do it to oneself as it inhibits one the freedom to live a normal life outside 🇺🇸. What am I missing?

Interestingly the comments in this post did NOT reflect a huge concern about U.S. citizenship taxation. Some of the comments were dismissive of the tax issue suggesting that taxation was irrelevant, a side issue or far less important than the rights that U.S. citizenship afforded. Interestingly the question posed in the post was on whether one should become a U.S. citizen (a different question from whether people should renounce U.S. citizenship). Nevertheless, I don’t have a sense that U.S. citizenship taxation was the dominant issue in the comments/answers.

Second,If you’re an American emigrant (i.e. PERMANENTLY living outside 🇺🇸) & your center of financial gravity is in your resident country, what’s the value of your US citizenship? Asset or liability?(No nasty comments.)

This question focused on the value of U.S. citizenship to U.S. citizen emigrants living permanently outside the United States. The comments/answers elicited responses that reflected frustration that resulted in renunciation.

Part E – The Five Types Of Americans Abroad Obama Would Meet In Heaven

In general: Tax compliant U.S. emigrants, who are NOT dual citizens from birth, are under the most pressure to renounce U.S. citizenship!!

The five kinds of Americans abroad are:

1. Accidental Americans – don’t generally file US taxes.

– ALL foreign income

– possible bank access issues

– don’t care about U.S. tax policy

– goal is to not be subject to U.S. tax rules

– subject to full taxation in country of residence

– likely dual citizen from birth so if were in U.S. tax system and renounced can avoid the 877A Exit Tax.

Likely NOT damaged from a tax perspective by the U.S. extraterritorial tax regime.

2. Retiree Abroad – earned their money in the USA and left the USA in order for retirement income to go further

– no foreign income (all U.S. source income)

– want the continuation of the current system

– if tax resident abroad then all U.S. income is foreign source to their country of residence

– may or may not be a tax resident of country of residence

– not likely to have a second citizenship so don’t think about renouncing.

Not damaged at all by the U.S. extraterritorial tax regime because all income is U.S. source.

3. Digital Nomads – All foreign income, but goal is to use the FEIE to pay tax nowhere!

– leverage the U.S. tax system in order to not pay tax anywhere!

– permanent U.S. tax resident but NOT a tax resident of any other country.

– Love US citizenship taxation because by using the FEIE and not being a tax resident of another country can avoid most forms of taxation.

Not damaged by the U.S. extraterritorial tax regime because all income is foreign source excluded under the FEIE and not tax residents of another country.

4. Expat – temporarily abroad

– center of financial gravity in the USA.

– foreign employment

– likely no foreign investment income

– tax resident abroad and likely pays tax on employment income.

May pay higher taxes on employment/business income earned outside the USA. But no passive or investment income earned outside the USA and foreign to the USA. Depending on the country of residence there may be issues with respect to pension income.

5. Emigrant

– moved permanently from the USA.

– all forms of income, pensions, retirement planning foreign to the USA

– not a dual citizen from birth and likely files U.S. taxes – must renounce!!

Very very difficult for them to survive! Financial and retirement planning outside the USA is somewhere between difficult and impossible.

This is the group where:

“All Roads Lead To Renunciation!”

Part F – Conclusion

The differences among the groups explain why it is difficult to get a critical mass of support to end the U.S. citizenship taxation regime.

John Richardson – Follow me on Twitter @Expatriationlaw

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