The 6,045 US citizens who renounced their US citizenship so far in 2020 is just the tip of the iceberg. The increasing trend in the renunciation of US Citizenship represents a substantial and permanent loss to the US tax revenue base. I have been helping High Net Worth and Ultra High Net Worth American clients permanently leave the US tax system for 30 years. In recent times I have seen an increased trend in those considering renouncing their citizenship. My recent article examined how many more may be renouncing their citizenship in 2020 than current figures suggest. Here I examine why this might be the case and consider the true value of America’s Golden Geese leaving the tax system.
The Renunciation of US Citizenship – The True Value Behind The Numbers
The Federal Government’s Quarterly Publication of Individuals, Who Have Chosen To Expatriate lists only those renouncing US citizens (or long-term green card holders) who exceed the minimum threshold of over US $2Million in worldwide assets and/or averaging US$170K in annual tax paid (meaning their taxable income was greater than $500-600K per year).
Once these “Covered Expatriates” reach these minimum thresholds, the government does not report whether they are worth $2M or $2 Billion!
Given current estate tax exemptions, renunciation as a strategy does not make financial sense for those who have less than $25 Million in wealth. Therefore, those on the List can logically be considered “Super Tax-Payers”. They are the proverbial Golden Geese of the IRS…the top 0.1%. To replace the lost tax revenues of just a single one of these Super Tax-Payers requires several hundred new average tax payers. Under the current tax collection model, the US tax system is highly dependent on the Golden Geese. Given that in the most recent data (2017), the top 0.1% contribute over 19% of the total personal tax collected, the future lost tax revenues from departed Golden Geese is enormous!
The Government Line…
The US Government does not comment on why these Golden Geese have left and why many others are considering leaving. The US Government collects a final cheque from the Golden Geese; however, it doesn’t acknowledge the loss of future income or state why this exodus is exploding. This leaves the politicians free to ignore the devastating loss of future annual tax revenue. Instead they continue their populist rhetoric of claiming even more revenue through new ‘Tax the Rich’ proposals. Instead of understanding the drivers behind their departure, these Super Tax-Payers are increasingly vilified by politicians and the media as – greedy, selfish, un-patriotic, etc.
After decades of dealing with these Super Taxpayers, I can conservatively estimate that a minimum of 10 Golden Geese are thinking of renouncing for each one that has already left. This means there are currently well over 60,000 Super Tax-Payer US citizens contemplating renouncing…and if they do leave, it will blow a giant hole in government tax revenues!
Why are more Americans Renouncing their Citizenship?
Thirty years ago the main reason for renunciation was estate tax – an issue that has peaked and waned with changes in tax laws over the years. However, in the past few years my clients cite extreme political polarization and dysfunction as equal motivating factors along with taxation. Due to globalization, Golden Geese can now reproduce their personal and business lives in many places. If they wish they can still access American benefits, such as the stock market, without the burden of being US taxpayers. Logically US politicians should develop policies to retain the Golden Geese and their oversized tax contributions. Instead they succumb to espousing short-sighted populist “Soak the Rich” rhetoric. Remember Elizabeth Warren’s ‘Billionaire Tears’ coffee mugs?”
Each time the Golden Geese are attacked or feel nervous, my phone rings. Unfortunately, until the day that this accelerating loss of tax revenue is acknowledged and addressed, I don’t see anything other than a very busy future.