Dear Janet Yellen: Congratulations! You’re probably the next Treasury secretary of the U.S. That’ll throw you into daunting policy cauldrons—from financing America’s massive deficits to managing China and taming the tax code. With so much in your inbox, we urge you not to forget about one large group of Americans: us.
We’re U.S. expats, and there are 9 million of us. If we were a state, we’d be the eleventh largest. And we’re suffering from a problem that you can fix.
We ended up abroad because we got a job in Canada, married someone in France or retired in New Zealand. For others among us, “abroad” is actually home, because we’re “accidental Americans”—we were born in the U.S. but never lived there.
No matter how we ended up with U.S. passports, all of us are subject to American taxation, as well as annual bank and asset reporting requirements so onerous and complex that many experts don’t fully understand them. And that’s just the start of our troubles, as we’ve tried to explain before.
The U.S. is the only country in the world that practices citizenship-based taxation. All other nations tax individuals based on their residence. OK, Eritrea also taxes its diaspora, but that’s not exactly the same thing.
We certainly don’t live abroad to avoid taxes. After all, we already pay tax in our countries of residence, which tend to have higher rates than the U.S. We can take these foreign taxes as a credit on our U.S. returns, so most of us never owe anything to the Internal Revenue Service. But that makes the huge compliance burdens, and the Draconian penalties for innocent mistakes, all the more unnecessary.
Many of us can’t lead normal financial lives because we’re snared in two incompatible tax systems simultaneously. We can’t invest or save for retirement like our neighbors or other Americans because either the U.S. or our country of residence won’t recognize the other nation’s financial products and rules. We can’t even open bank or brokerage accounts, because financial institutions won’t take us.
Many of us escape by renouncing our U.S. citizenship. But the U.S. has been making that more expensive and difficult in recent years. And most of us would hate to give up our nationality anyway.
If we had representation in Congress as a bloc, this problem would have been solved long ago. But we don’t. Instead, we vote in the U.S. state where we lived most recently. And our representatives and senators don’t think listening to our concerns can help them get re-elected. So while a legislative fix is our preferred option, we’re not holding our breaths.
That’s where you come in. As Treasury secretary, you will oversee the two bureaus to which we expats must file reports, the IRS and the Financial Crimes Enforcement Network (doesn’t that name say it all).