08 Jan FATCA Fallout: Mass Renunciations?
The Foreign Accounts Tax Compliance Act (FATCA) continues to prompt intense opposition from Americans overseas. In my post below, I suggested that some would simply take their citizenship underground, on the expectation of imperfect enforcement and the continuing value of holding a US passport — becoming, in effect, secret Americans.
Others are predicting that large numbers of Americans abroad will shed their citizenship. This isn’t entirely implausible. Many hold dual citizenship with their state of residence, so they wouldn’t go stateless. Their state of alternative nationality is often a quality citizenship (EU, Canada, AUS, NZ), in the sense of allowing visa-free travel through much of the globe (including to the United States). If you have permanently relocated to, say, France, US citizenship doesn’t do you much good. In the past, it didn’t do you much harm, either, but now it poses some significant costs. There may be sentiment involved, but what is sentiment against thousands of dollars in annual accounting fees by way of FBAR and FATCA compliance?
So rational Americans abroad might just ditch the citizenship, through formal renunciation (official instructions here). There’s a suggestion here that demand might require mass renunciation proceedings, a sort of anti-matter version of July 4 naturalization ceremonies.
I doubt it’ll come to that, but if renunciations happen in large enough numbers for the MSM to notice, what would the reaction stateside be? One could imagine a “good riddance” response, as in, these people don’t live here any more, don’t have much continuing connection, and aren’t even willing to pay their taxes. See you later. It might be a back door way to police dual citizenship, still unpopular with some folks. It takes care of happenstance Americans — those born here but who left at a young age, for whom there won’t even be sentimental values in the balance.
On the other hand, the symbolism of nontrivial numbers renouncing their US citizenship would be pretty bad. A lot of these people would look like real Americans (many of them native born), in the sense of socio-cultural identity. It would drive home a point that US citizenship isn’t really that special any more — not worth the trouble of dealing with a lot of paperwork, much less actual additional tax liabilities.
It might also conceivably result in economic loss. The tax revenue, for starters, enough to balance out any gains from FATCA enforcement. An important reason that other countries have moved to accept dual citizenship (and not to tax their diasporas) is to cement economic connections to the homeland. This may be less of a concern in the US context, but it can’t be a good thing to alienate (literally) your natural economic agents in the global economy.