Denis Kleinfeld considers the growing concern in the US over American expatriation.
People throughout the world would like to come to the United States.
Some come as tourists or students and never leave. Others pile on to creaky old boats, pay professional smugglers, or just climb a remote fence and hike their way through some desolate part of the border. A few get their proper immigration papers or get married and some real rich or politically connected get the VIP fast track treatment.
So it is a bit bewildering to understand why Congress and some newspaper writers would think that Americans want to expatriate to someplace else.
The phenomenon of American’s expatriating must be real enough since expatriation has been a hot topic for Congress. Representatives and Senators seem incensed and outraged by what they must believe are hordes of people just falling over themselves to live in another country.
It must be the case since the revenue estimates that Congress uses from the expected future expatriation taxes to offset other budget expenditures (read as welfare payments) are so large.
Looking at this from a Congressman’s point of view, one may very well conclude that expatriation is such a significant national problem that without Congress building, effectively, the tax equivalent of the old Berlin Wall, that the United States will be in great difficulty—if not collapse altogether.
It is true that there is a lot of talk about Americans expatriating. This has always been the case. And there are, in fact, Americans who do give up citizenship or their right to permanent residency for a variety of reasons.
No doubt tax, among other factors plays a significant part in the greater number of cases. The United States stands out as taxing its citizens or permanent residents on their world wide income whether they live in the United States or not. What is more, the United States will again, starting in 2011, impose an estate tax on world wide holdings. And the gift tax is always just lurking in the background ready to trap the less than wary.
Basically, in the United the government taxes you 50 per cent while you’re alive and tries to take the rest when you die.
Now it does seem reasonable that some Americans, maybe a great number of them, object to being financially plucked like some goose, or shorn like a sheep. It is not as if Congress or the President are very good stewards of the public tax money.
It takes a lot of somebody else’s money to pay for a vast system of political featherbedding, to reward campaign contributors for giving to ever increasingly expensive political campaigns, and give-a-way programs to assure the loyal vote of the suitably compliant and grateful recipients of the governments largesse.
How could a politician afford to run for office if a real taxpayer just ups and leaves and takes their hard earned money with them?
Clearly, on one side of the equation Congress and the President, much like Max Biallystock (the lovable fictional character in Mel Brooks’ The Producers) want the money. Cash is the grease that makes the wheels of politics run a lot smoother. On the other side of the equation are those taxpayers - citizens and permanent residents - who don’t feel the love. It seems that history has a way of repeating itself as this does not seem all that different than when feudal lords and the King didn’t like the peasants leaving the land.
The Unites States unquestionably has problems. The economy is in recession, unemployment numbers are frightening, housing property values are still dropping and foreclosure proceedings clog the courts. People have lost faith in the stock market as it appears that it is nothing more than a rigged system run by, essentially, criminal enterprises passing themselves off as Wall Street. Fannie May, Freddie Mack, Sallie May, creations of the government, are part of, if not the dominant cause of, the financial crisis that enveloped the globe. The Federal Reserve prints money, the US Treasury prints debt, and the two exchange colorful pieces of paper and call that monetary policy. Social security taxes, called “trust funds” for tax enforcement purposes, are taken out and replaced by treasury debt as fast as it comes in.
If anyone in the real private world did what Congress, the Federal Reserve, and the Treasury does every day, they would be sitting in jail for the rest of their lives.
The debt of the United States is so large that only astronomers and quantum physicists understand the numbers. In a matter of 18 months Congress and the President have tripled the debt that took three prior presidents (two of them serving for eight years each and one for one term of four years) to amass. The richest nation on the earth is the most indebted.
Most Americans are beefing about money. The President and Congress passed a vast economic stimulus package which it seems did nothing more than stimulate government expansion and control. What is even more upsetting is that no one seems to know exactly where the money went, who got it, or how much is left. Then they took eight months to “reform” the medical health care system. A reform most Americans did not want. Besides adding trillions of dollars to the debt, it is now such a wonderful and desirable system that it will take 16,500 new agents from the Internal Revenue Service to enforce it. Every piece of legislation enacted by the Administration and Congress reads like a very long Stephen King novel.
There are many people who have strong objections to the direction the United States is going. While complaints about government policies are nothing new, the United States is going through a new revolution. No longer is the paradigm between Republicans and Democrats. The politics of the United States is now a partisan war between those committed to a free market capitalist system and those of the political establishment who believe in governmental socialism. The rise of the so-called “Tea Party” reflects a growing movement of the citizens who dislike the Washington politics of business as usual.
Neither Congress nor the Administration have the appetite to secure the borders of the United States, promote policies that allow the Unites States to become energy independent, deal with the growing threat of politicized Islamic radicals as proxies of their supportive state financiers, cut welfare and transfer payments, eliminate set asides, or balance the budget in terms of real spending and real revenues. The President cannot explain exactly what war America is fighting and how we will know if we win it. A couple of experts think that the way to plug the BP oil leak in the Gulf is to pump the members of Congress and the Administration in the hole. It used to be a joke that nobody’s life, liberty or property was safe when Congress is in session. Now, no one is laughing.
If governmental actions were not enough, the legal system also is driving people to take action. The “litigation industry” is a well documented phenomenon in the United States. Asset protection planning, which at one time was a niche practice of bankruptcy lawyers, is now a major area of practice for most law firms. In one way or another every business or profession has some claim on being in the protection of something, for somebody, somewhere. With good reason everyone is scared stiff of the American legal system and that fear means there is a big market for people who want to feel that they are someplace safe. And for those who cannot find adequate safety in the United States from what they fear, then is it so outside the box that they would think about seeking adequate safety outside of America?
So where can Americans go? Americans love to visit Europe but very few actually move there except for employment or they’re Woody Allen. Europe has even more economic problems than the United States with its political/religious clash growing and becoming intractable.
South and Central America contain wonderful countries to visit, but do not seem to have the cultural or economic environment that draws crowds that clamor for citizenship. Kidnapping and threats of crime seem to put a damper on things. Russia is a bit cold; China is a bit, well, communist; India is exotic to be sure, but not usually on the expatriation destination list unless you are Indian of course. A nice canton in Switzerland may have possibilities if someone has lots of money and can afford to travel a lot of the time. There are lots of nice islands around the world but most people do not want to live like they were a piece of flotsam and jetsam washed up on a beach. I do not need to comment on any place in Africa, Sahara or Sub-Sahara, or the Middle East. I do like Norway.
The United States may have faults in its political system but, none-the-less, it has survived severe economic difficulties and failed Presidencies and Congresses before. The United States may be multi-ethnic but it has only one culture - the American culture, which is based on creating success and which rewards the overcoming of adversity. It is made up of a highly mobile society where it is a real possibility, expected in fact, for anyone to move up the economic ladder. It is still the land of opportunity.
The United States is different than the rest of the world community. Clearly most of the countries of the world are run by thugs, despots or dictators. Or are states which are economically socialist and whose living standards are, in fact, declining. These are not places for which Americans willing give up their citizenship.
Americans, despite the political histrionics of Congress or complaining about the faults of the country, are not expatriating. The world may be viewed by many as being a real crappy place. And if it is, then the United States is the best house in a crappy neighborhood.
For Americans, there is no place like home.
Denis Kleinfeld is highly regarded as a lawyer, teacher and author. His private legal practice, Kleinfeld Legal Advisors, is located in North Miami Beach Florida. He is an Adjunct Professor at the LLM Wealth and Risk Management Program, Texas A & M School of Law. His private practice focuses on strategy planning of domestic and international tax, legal, financial, matters involving the wealth and risk management for private clients and private businesses. He is co-author of the two-volume treatise, “Practical International Tax Planning,” 4th Ed. published by Practicing Law Institute. He is the contributing author on Foreign Trusts published in “Administration of Trusts in Florida” by The Florida Bar and authored chapters for the American Bar Association’s in “Asset Protection Strategies: Wealth Preservation Planning with Domestic and Offshore Entities Vols. I and II.” He is a contributing author to the “LexisNexis Guide to FATCA”.