We read about famous people like French film star Gerard Depardieu, who moved to Belgium to avoid a 75 percent income tax on millionaires proposed by France’s Socialist government. Then there is Eduardo Saverin, who took the extreme step of giving up his U.S. citizenship and could see a savings of $39 million on his Facebook investment, according to the research firm Wealth-X.
I had read about financially motivated expatriates but never knew one who had taken the ultimate step until I visited with my longtime friend “Sam” (I’m withholding his real name to protect his current employment). Sam works for a large investment firm. He has lived in Hong Kong for the past 25 years.
He said that five years ago, he began thinking he could no longer “afford to be an American.” Contributing to his decision was the cost of sending his five children to college. Even though he and his wife pay taxes on a home in California, the state has denied them in-state college tuition rates, meaning it could cost them $50,000 per child. While there is a $95,100 earned U.S. income-tax exclusion, Sam said it isn’t enough to substantially reduce his U.S. taxes and still cover his costs.
Here is how burdensome U.S. tax laws have become: Seven years ago, Sam left a major investment banking firm based in the United States. to join another international bank. The law required that his 14 years of pension savings become current income and taxed it at a rate of 35 percent. He said he could not roll over the account because of a “quirk” in the law. Hong Kong citizens are taxed at a rate of only 15 percent.
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Another consideration, he said, was the refusal by Hong Kong banks to allow him to open a securities account. The reason? “None wanted to deal with onerous U.S. reporting requirements,” he said. “My own bank could not even open an account for me to invest in local securities.”
Sam said his decision was “emotionally difficult. My parents worried I would not be able to return to see them in the U.S.” (He managed to get a 10-year tourist visa.) “I would have to give up the right to vote or run for political office. I was concerned that others would call me a traitor or deserter.”
“I had paid over $1 million in U.S. taxes but didn’t receive any benefits, nor did my wife and kids.” (She maintains her U.S. citizenship.) “As I saw the massive U.S. deficit continue to climb,” he said, “it became clear that the government would likely raise taxes further. I finally decided to expatriate.… A dozen of my friends who have lived over 10 years in Asia have done the same. We can no longer afford to be American citizens.”
Eugene Chow, an attorney who specializes in helping Americans give up their U.S. citizenship, told the Wall Street Journal’s “Asia Today” program that while such actions continue to be rare, they are increasing.
With so many foreigners wanting to become U.S. citizens, it’s still a shock to know someone who has relinquished his citizenship. It is another reason for simplifying the U.S. tax code. America should want to retain people with the skills and experience of people like Sam who have contributed more than tax money to their (now former) country.