Tuesday, April 27, 2010

More Americans give up citizenship

This weekend, the New York Times had an interesting article, "More American Expatriates Give Up Citizenship." It discussed banking issues as well as double taxation as the main reasons for American expatriates to give up their citizenship.

Financially, at least, giving up American citizenship can make sense. First of all, as American expatriates, we are treated as suspect criminals by our own government. Every year, Americans abroad must fill out a form stating their foreign bank accounts. Failure to do this can be costly: jail time and $500,000 fines. What? For having a bank account in a country that I live in? Excuse me for living, but every time I fill out this form, I somehow feel violated.

Look, I'm not about to give up my U.S. citizenship because then I would be homeless. But the U.S. government needs to stop treating those of us supporting their country without even living in it a break.

Americans are the only citizens in the industrialized world that are double-taxed. It's taxation without representation and our former tea party throwers would be disappointed in us. No other industrialized nation taxes citizens not living in the country. Yes, the U.S. government allows the first $91,400 of a salary to be double-tax free and this may be well and fine if you live in Mexico or a country with a low standard of living. But as most expats in Switzerland know, a 90k salary doesn't get you a heck of a lot here. Throw in taxes times two, and Americans are at a competitive disadvantage in most of Europe, particularly in expensive countries with coordinating high salaries like Switzerland and Norway.

Here's the thing as well: say an American has a child abroad. Born in Switzerland to American parents, the child would not be Swiss, they would be American. They may never live in the United States in their life. But they would pay American taxes. Please tell me how this makes sense.

In my view, the more Americans abroad, the better for America. Our country badly needs citizens that understand their place in the world, that understand other cultures, that speak other languages, and that can see beyond their 3-car garage. We need people that are open-minded and based on the expatriates I know, this describes many of the 5.2 million Americans abroad. But our government's policies don't make being an American abroad very appealing at a time when it has never been more critical for other nations to see us in a different light.

Anyhow, enough with this little raclette rant. What do you think? Do you think Americans abroad have taxation without representation? Have you had trouble getting a bank account in Switzerland because you're an American?

22 comments:

M'dame Jo said...

I had no idea you were taxed on your swiss salary. That doesn't sound really fair.

Kelly Jarosz said...

We arrived in Switzerland at the height of the UBS/IRS showdown, and Credit Suisse turned us away because we were American (even W's dual EU/US citizenship was verboten). UBS welcomed us with open arms, to our amusement, and it's all okay now.

Amanda said...

Very interesting points, Chantal. However, I guess the double taxation thing depends on where/how you live in CH. The cost of living and salaries are a lot higher in Zurich versus where I live in the Rhine Valley. My husband and I live modestly, yet comfortably, on one salary that's well under the 91K tax exclusion amount. (It's important to remember that if we were both working we'd each earn the exclusion for a total of 182K, which isn't bad if you ask me, not that it matters to us since I'm unemployed.)

This is our second year filing a U.S. tax return and we have not had to pay the IRS a penny. (We also are also exempt from California taxes.) Our tax situation is rather uncomplicated, making it much easier to file a return and be done with it. Of course, I'd probably be singing a different tune if we earned higher salaries, but we don't.

Chantal said...

Hi M'dame Jo,

No, I think it's grossly unfair.

Kelly,

I had heard of UBS turning Americans away but I had not heard of Credit Suisse doing the same. Sorry to hear that but glad UBS took you on...

Amanda,

I think you're right about where you live. Zurich and Geneva, for example, are very expensive cities and the salaries reflect that. So Americans living in these places are penalized more.

belalumo said...

It's totally unfair for Americans to be taxed while living abroad, although I doubt I'll ever earn enough to have to pay those taxes. I lived in France for 2 years, and now I'm living in Belgium. I've never heard of this form where we need to declare our foreign bank accounts. Do you know what that's called?

I've just recently discovered your blog and I really enjoy your writing. -Amy

Jackie said...

Well, perhaps it isn't entirely fair for the US to double tax, but just because other "industrialized countries" don't double tax, I wouldn't say it is quite "taxation without representation." You, unlike your Swiss neighbors, can vote in the US. You get a part in deciding who the most important person in the world is. And if you don't like double taxation, you, as an American, can lobby your representatives in the US government to change it. So perhaps you are not using many of the services and infrastructure Americans living in the country benefit from, but you are still represented there.

John, Kim and Ella said...

We've just been griping about the double taxation as well! So frustrating that we're continuing to pay taxes to a country that we're not currently in. I'm with Amy - haven't heard about declaring our bank account - yikes! Guess that means I have some work to do.
Great post- thanks!

mrsmac said...

it gets even better if you are from certain states like colorado and maryland. they make it extremely difficult to break residency from their state (example- we are here on a visa dependant on my husband's job. therefore our time here is temporary and our residence here is temporary. so they classify us as maryland residents)

we pay a ton of taxes to maryland as a result. i hate it.

Chantal said...

Hi Amy,

The foreign bank account form is the very memorable "TD F 90-22.1". It's due every year for the previous year by June 30. This is a recent thing, it just started in the last couple years.

Hi Jackie,

I think for Americans abroad to be truly represented we would need our own candidate that represents the interests of Americans abroad, kind of like a senator represents the interests of the state of Illinois.

Mrs. Mac,

I know the feeling. We also pay a ton of tax to the state of Virginia and haven't set foot there for over two years...last year we paid huge late fines as well even though there was no way to pay on time because the Swiss taxes had to be paid first...

Kathy said...

The best part is that both the CH and the US claim first right to tax the income.

I'm not sure what's fair when it comes to taxes. It felt pretty unfair (and still does) to pay for our insane wars.

I don't think it's particularly reasonable to ask people to pay taxes on income they earn as *residents* of another country. I would distinguish that from capital gains made in other countries, whether as an individual or corporation.

To some extent the foreign income tax credit does that, but of course it's a pretty arbitrary cut off point.

Doesn't seem very likely that the US and Switzerland will change this in a new tax treaty near term, does it?

Kristin said...

I read that article as well, but I had only learned of double taxation when I did my thesis on how to effectively transition US workers overseas. All I can say is that it double sucks!

Emily said...

I read this article too. Like the DC license plate, taxation without representation! Though technically, as expats, we are allowed to vote in federal elections. At least the US tax code is not as openly sexist as the Swiss tax code.

Chantal said...

I guess each country has its quirks. But yes, double tax sucks.

But families paying 8% tax penalty because the wife works in Switzerland is completely sexist and I can't believe the Swiss people don't want to vote on that in a referendum...

Jill said...

I could add lots more commentary here, just suffice to say, our "tax season" seems to run year-round. We are never free from tax forms, issues, paperwork, tracking expenses -- it is an expat nightmare. As an expat wife, it is my part-time job, seriously!

Chantal said...

Jill, I know exactly what you mean. Every day is tax day as an expat! The fun never ends...

E said...

UBS turned me away since I was American, but Credit Suisse opened an account for me without a problem. The only snafu I got with them was that I couldn't get a credit card through them until I had lived here for 6 months!

Chantal said...

Interesting...one American yodeler turned away by UBS, the other by Credit Suisse.

And I bet the credit card you got is actually more like a debit card, oder?

E said...

Still no credit card...today marks my 6 month anniversary in CH!

Sarah said...

I was stunned last year when in preparation for my move to Switzerland, a woman from the IRS so kindly explained to me that the US has a "worldwide tax system." I'm a tried and true patriot and would never dream of giving up my citizenship for my husband's (swiss/french), but I was SO glad when I saw this article in the NYTs. Thank goodness SOMEONE is talking about it...

Chantal said...

E--hope you get that card soon. I never even attempted--I just use an American credit card. Capital One has a no fees card, including no foreign transaction fees so it's perfect for expats.

Sarah, I too am glad that it's being covered in some newspapers. It should be.

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