What is citizenship? Why does it matter? Is it membership in a political community? Do countries assume a “property right” in their citizens? The United States assumes a “property right” in its citizens. This includes using them as instruments of foreign policy. This includes treating them as “cows to be milked” (taxed). In the words of one former U.S. citizen living in Canada:
To Canadians, it’s about a foreign state suddenly asserting an unusual extra-jurisdictional tax and penalty claim on hundreds of thousands of law abiding Canadian resident citizens. This is not based upon US-based assets or earnings, but simply upon birthplace – a kind of indentured serfdom. In fact, a challenge in explaining this to to most other people in Canada is how wrong, illogical and immoral it all sounds.
Nobody really knows what citizenship means. Citizenship is defined by both citizens and governments to suit their respective interests.
The U.S. is a country where citizenship (or lack thereof) has been important. Slavery (indentured serfdom) was important to the early economy of the United States. Eventually a second civil war (the first being the American Revolution which was really a war between the Loyalists and the Patriots) was fought to end slavery. A principal purpose of the 14th amendment of the U.S. constitution was to guarantee citizenship to African American slaves. It reads:
“All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States…”
The 14th amendment guaranteed “citizenship”. This guarantee of “citizenship” was considered to be a “shield” from the potential abuses of “non-citizenship”. The Obama government is now using the 14th amendment guarantee of citizenship as a “sword” against U.S. citizens living abroad. What was once a “shield” in the hands of a citizen, has now become a “sword” in the hands of the government.
A guarantee of citizenship does NOT mean that all citizens are created equally. As is well known, the African American community was subjected to a form of “second class” citizenship. This necessitated legislative intervention, including the Civil Rights Act of the 1960s. The “second class” citizenship of U.S. citizens of African American descent gradually evolved into the “First class citizenship” which U.S. citizens of Anglo Saxon descent presumed.
The point is that:
1. Although, citizenship is guaranteed by the 14th Amendment
2. There are, as a matter of practice, different classes of citizenship.
U.S. citizens living outside the United States are “second class” citizens of the United States. U.S. citizens living outside the United States are also “second class” citizens in their country of residence. (This is the result of U.S. government policy toward their expats. Therefore, U.S. citizens living outside the United States are “second class” citizens the world over. Is it any wonder that renunciations of U.S. citizenship are on the rise?
“Second Class” U.S. Citizenship For U.S. Citizens Living Outside The United States
U.S. citizens living outside the United States have no political representation. U.S. citizens living outside the United States receive no benefits from the U.S. government. Yet they are required to:
1. Pay taxes on their world income; and
2. Comply with all provisions of the U.S. tax code (all 72,000 pages) and reporting requirements.
These requirements exist (and are enforced) even though citizens receive no benefits in return. This strongly reinforces the view that the U.S. views its citizens as the property of the U.S. government.
It’s important to recognize that paying tax and complying with the tax code are two separate requirements. It would be logically possible (still bad policy) to require U.S. citizens to pay tax on their world income. That does NOT mean that the tax they pay must be calculated in the same way that it is calculated for U.S. residents. This principle justifies the foreign tax credit and the FEIE (Foreign Earned Income Exclusion). These are not enough. It is compliance with the current tax code (irrespective of the idea of citizenship-based taxation) that makes life for U.S. citizens abroad impossible and turns them into “second class” citizens. There are approximately one million U.S. citizens living in Canada (many of who are also Canadian citizens). The demands of the U.S. tax code are in many ways incompatible with the tax laws of Canada. It is therefore, impossible for U.S. citizens in Canada, to live and invest in the same way that non-U.S. citizens can. For example a mutual fund is a PFIC (tax cancer). Assuming you accept the validity of citizenship-based taxation (only the terrorist state of Eritrea and the U.S. do), that doesn’t mean that dual citizens in Canada should be taxed the same way as U.S. residents. Why should the fact of U.S. citizenship become a disability in your country of residence?
Toward a more tolerable form of citizenship-based taxation
Why not simply charge U.S. citizens living outside the U.S. a fee for retaining U.S. citizenship? This would be more rational and more fair. It would also clarify the purpose of the tax. I.e. U.S. citizens living outside the United States would then be paying for an “option” to return to the United States. It would be recognized as nothing more than a tax on U.S. citizenship. Fairness aside, it would be simple. It would NOT require the services and fees of the “cross border professionals”. It would be more honest. The cost of U.S. citizenship would be clear.
U.S. citizens living abroad are “second class” U.S. citizens because …
– U.S. citizens abroad receive NO benefits from the U.S. government. U.S. citizens living in the United States do receive benefits. Therefore, U.S. citizens living abroad are “second class” U.S. citizens. They receive no benefits, but are required to meet all the obligations.
– U.S. citizens living abroad have little voice in the U.S. political process. They are clearly subjected to “Taxation without representation”. An interesting example is the move to end the FEIE without input form U.S. citizens living outside the U.S.
– Pursuant to provisions in the Patriot Act it is almost impossible for a U.S. citizen who lives abroad to open a bank account in the U.S.
In Summary: U.S. citizens living outside the United States have become disabled from enjoying the benefits of ” First Class Citizenship” in the United States. The U.S. government refers to them as “tax cheats”. They are urged to “come clean”. In its zeal to attack its citizens living abroad, Congress has enacted FATCA: the neutron bomb of the world financial system, the “Berlin Wall of the United States”, and legislation of such arrogance that it is united the world against the United States.
U.S./Canada dual citizens living in Canada are “second class” Canadian citizens because …
Citizenship-based taxation, FATCA and FBAR impose financial, social and political disabilities on U.S. citizens living in Canada.
Financial – Some Examples:
Citizenship-based Taxation: By taxing U.S. citizens living in Canada, the United States is really saying to Canada: You pay for the them, and we will claim part of their money in the form of taxation. This is because we have a “property interest” in U.S. citizens. This is unfair. For example, Canada provides health care to its residents. Clearly Canada taxes its citizens to pay for such services. If people are forced to empty their retirement accounts as part of the great IRS “Shake Down”, Canada will suffer.
FATCA has been described as the single greatest act of U.S. imperialism since the Philippines. The costs that FATCA is putting on Canadian financial institutions are enormous. These costs are borne by Canadian society. Furthermore, a complete group of Canadian citizens (those who are also U.S. citizens) are at risk of not being allowed to get basic banking services.
Social – Some Examples:
Mr. FBAR is the biggest culprit here. He unleashes clear privacy issues. A U.S. citizen is required to report all his foreign financial accounts and keep those records for five years. This responsibility is triggered by a U.S. citizen having “signing authority” over a bank account (including the Trust Accounts of professionals). This is a very dangerous situation. The “record keeping” requirement forces U.S. citizens to (upon demand) turn over to the U.S. government complete banking records for certain accounts. For example, what if a U.S. citizen were the financial agent for a Canadian politician in an election campaign? The U.S. government could demand access to the account information which would identify contributors. Those employers who are knowledgeable will NOT allow U.S. citizens to have signing authority over business bank accounts. This affects the employment prospects of U.S. citizens abroad.
Political – U.S. citizens are the soldiers left in the Trojan Horse who will do damage to any country they go to.
In summary …
FBAR, FATCA and citizenship-based based taxation guarantee “second class” citizenship for U.S. citizens living outside the United States. They are “second class” citizens from the perspective of the U.S. government and from the perspective of their country of residence. A recent commentator suggested that:
“If FATCA proceeds, Canadians of American origin will be second class citizens in their country of citizenship and residence”
“Second class citizenship in both the U.S. and the country of residence is a current reality for U.S. citizens living abroad.
Some concluding thoughts …
Likewise, I hope you can understand how distressing it is for those of us who have chosen to live our lives and pay taxes outside of the U.S. to be called “tax cheats,” “tax evaders” or “traitors.” As you can see from the few stories above, we are responsible, law-abiding, contributing and tax paying individuals. These stories are representative of millions around the world–some whose only link to U.S. was to have a parent who was born there.
In addition to the intrusion of IRS into our lives, spouses and children are also affected. In some cases, so are employers or charitable organizations if we have financial signing authority where we work or volunteer. This puts marriages, careers and volunteer work at risk, along with education and disability savings plans for our Canadian born children.
I hope you will take many of this comments to heart in understanding the impact this is having on people who have had no ties with US for years, decades or, in some cases, never.
We all feel like we are in the middle of a nightmare. We just want to wake up and find that it’s over.
Can this be understood by anybody in the United States? I suspect the answer is NO. As I commented on another post:
It’s as though (in general) there are two groups of people: those who are living the nightmare and those who aren’t.