By BRUCE BARTLETT | New York Times – 1 hour 25 minutes ago
Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of "The Benefit and the Burden: Tax Reform - Why We Need It and What It Will Take."
On April 30, the Treasury Department announced that 461 Americans had renounced their citizenship in the first quarter of 2012. A 1996 law requires that every person doing so be named, with their names published in the Federal Register. The idea is to shame those who may be renouncing their citizenship solely to escape taxation.
The extreme step of renouncing one's citizenship is necessary to escape taxation by the United States, because the United States, alone among the major nations of the world, taxes its citizens wherever on earth they live.
Other countries tax only those who live and work within their borders; if their citizens live and work in another country, they are liable only for taxes incurred in that country.
Americans living abroad, however, must not only pay taxes in the country in which they are living, but United States taxes as well, although there is an exemption of $93,000 that is adjusted for inflation annually. The only legal way for American citizens to avoid American taxes is to renounce their citizenship and live their lives permanently in another country.
In recent years, the number of Americans renouncing their citizenship has increased. According to the international tax lawyer, Andrew Mitchel, the number of Americans renouncing their citizenship rose to 1,781 in 2011 from 231 in 2008.
This led William McGurn of The Wall Street Journal to warn that the tax code is turning American citizens living abroad into "economic lepers." The sharply rising numbers of Americans renouncing their citizenship "are canaries in the coal mine," he wrote.
The economist Dan Mitchell of the libertarian Cato Institute was more explicit in a 2010 column in Forbes, "Rich Americans Voting With Their Feet to Escape Obama Tax Oppression."
According to Andrew Mitchel's research, the sharp rise in Americans renouncing their citizenship since 2008 is less pronounced than it appears if one looks at the full range of data available since 1997, when it first was collected. As one can see in the chart, the highest number of Americans renouncing their citizenship came in 1997.
Mr. Mitchel hypothesizes that the reversion of Hong Kong to Chinese control may have forced many residents of that former colony with dual citizenship to renounce their American citizenship, because China does not recognize dual citizenship.
It is undoubtedly the case that the vast bulk of those renouncing American citizenship do so for reasons unrelated to taxation. Americans who marry foreign nationals, for example, often adopt the citizenship of their spouse's nation. Also, many of those on the Treasury list are not actually American citizens, but foreigners who had permanent residence status in the United States. Those born with dual citizenship sometimes prefer to have only one to simplify their lives.
However, reports by Bloomberg News and the Zurich newspaper Tages-Anzeiger suggest that increased scrutiny by the Internal Revenue Service of Americans living in Switzerland, where a number of banks are suspected of aiding tax evasion, may have led some American expatriates living in that country to renounce their citizenship.
The mobility of individuals with a large net worth - who generally have no difficulty finding a nation to welcome them and their capital - has unquestionably increased in the last several years, especially within the European Union, where barriers against the movement of people have fallen sharply. This has reduced the ability of all governments everywhere from engaging in soak-the-rich policies.
As I noted in a recent post, Britain recently reduced its top income tax rate in part because of a belief that it would reduce the number of Britons living abroad. And the victory of the Socialist François Hollande in France's presidential election on Sunday, on a platform of raising the top tax rate to 75 percent, may lead to some relocation from there, according to an article in The Financial Times.
However, while there is no doubt that some people do migrate solely because of taxes, the number is small even when it doesn't involve a loss of citizenship.