The day after Christmas, Axios reposted an August article discussing wealthy Americans renouncing their citizenship - these renunciations are merely a symptom of a much bigger problem, and highlight the need to address inequality in the tax code for Americans abroad.
Unfortunately, though, the article gives the false impression that Americans abroad affected by the tax system are uniformly “zillionaires” trying to dodge their civic responsibility, tacitly blaming renunciation on the Biden Administration for attempting to reform taxes, and obscuring much more complex tax issues faced by middle class Americans abroad.
After repeated efforts to reach out to Axios in the hopes that they at least mention the serious issues regarding taxation faced by non-zillionaire Americans abroad, we at Democrats Abroad received no response, and thus feel compelled to correct the record here.
It is a myth that U.S. citizens who move abroad are wealthy and do so in order to avoid paying taxes, and this misconception does substantial damage to Americans living outside the country, the majority of whom, research shows, are middle class and moved for work or love.
Americans abroad are frequently asked to shed light on various things about the United States to the citizens of other countries, and when we attempt to explain our citizenship-based tax system to citizens of other countries, they are almost always shocked. Besides the astounding fact that the United States stands almost alone in double-taxing its citizens abroad (we are, as the Axios article rightly notes, joined only by Eritrea), the patchwork quilt of laws governing taxes on U.S. citizens abroad was clearly designed without consideration of the millions of middle-class Americans living outside the country.
The raft of tax problems that Americans abroad face includes but is not limited to double taxation of non-U.S.welfare payments, double taxation of non-U.S. pensions, punitive PFIC rules, and artificial capital gains due to currency fluctuations, all of which can have devastating impacts on the life and livelihood of Americans who live outside the United States.
Democrats Abroad and other American overseas organizations call on Congress to make the switch to Residency Based Taxation to bring the U.S. inline with the rest of the world.
Those wondering why record numbers of Americans are tearing up their passports should not blame the Biden Administration, which is in no way responsible. Instead, the issue rests squarely on the shoulders of multiple Congresses for having failed to address the profound inequities in the tax code faced by Americans living abroad.
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