Kenneth Rubinstein, a tax attorney, was at a party thrown by his clients-a husband and wife who were both physicians-when the conversation turned to President Obama's health care initiative. The hosts and two guests said if the plan's impact were as dire as they imagined, they would leave the country. They then asked Rubinstein where they should go.
"Whether or not they really meant it, I don't know. Whether or not the health care plan will be so bad for them that they would carry out this threat, I don't know. The point is, I'm sitting there with four physicians, and there was never a point when one of them turned to the others and said, 'You don't really mean that, do you?'" Rubinstein says. "I have a number of clients who have said that if their tax burden gets any worse, they see no reason to stay here."
Rubinstein's experience is not unique. Tax experts are seeing more and more clients either giving up their U.S. citizenship for financial reasons or making inquiries about whether they should. Many of those clients already live overseas. But some actually live here and are considering a move abroad.
As many as 743 people with American citizenship or legal resident status renounced their U.S. citizenship in 2009-three times as many as the 235 renunciations in 2008, according to the Office of the Federal Register. Another 180 did so in the first quarter of 2010, according to the Internal Revenue Service, which publishes the actual names of those individuals each quarter.
The figures highlight a growing dissatisfaction with the Obama administration's tax policies, tax experts say. Rubinstein says in the past, he might have gotten one or two questions about expatriation per year. Now it's more like one or two inquiries a month, he says.
Those already living overseas have long complained that the U.S. is the only industrialized country to tax citizens on income earned abroad, even when they are taxed in their country of residence, though they are allowed to exclude their first $91,400 in foreign-earned income.
"This has always been an issue for Americans living abroad," says Howard Gluckman, a CPA with Metis Group LLC, a New York City-based accounting firm. "Some countries will only tax you where you reside and earn money. But in the U.S., you'll be taxed on your income regardless of where it's generated."
It can feel particularly egregious to people working in a place like the Cayman Islands, where the tax rate is just 5%, yet they're subject to a U.S. tax rate of about 25%, Gluckman says.
But it's not just Americans living abroad who are considering renouncing their U.S. citizenship. Those in the highest tax bracket often squawk about America's high tax rates, particularly if they live or work in New York City. Between federal, state and city taxes, they wind up paying about 45% to 55% of their income to tax authorities. Moreover, the federal income tax rate is due to rise from 35% to about 39.6% for the highest tax bracket in 2011-though, at press time, President Obama and Republican congressional leaders were close to working out a compromise that would extend the lower tax rates for two more years.
David Adams, a CFP with Southwestern Investment Services, a Raymond James affiliate in Nashville, Tenn., says about seven of his about 100 clients are considering giving up their U.S. citizenship for tax reasons.
"I have quite a few business owner clients who have been talking about this out of frustration with what they see as a non-business-friendly tax environment," Adams says. "Some were just venting, but I have several clients who have taken it a little further, and we're actually looking into it."