Note to Congress – Please do not force me to give up my US citizenship

by Rhodri C. Williams

Its been a year and a half since my cri-de-coeur about the double-filing (and occasional double-taxation) burden that the US – alone among all other countries in the world but Eritrea – places on its citizens abroad. At the time I wrote it, the best case scenario was for me to find a discreet way to back report some information no one had ever bothered to tell me to forward report before and then get on with it. Meaning?

Well. Continue the annual Springtime circus of spending 48 hours in a pointless and dispiriting clinch with 1040 supplements seemingly written by pedantic Klingons. Maybe hand it all over to a tax lawyer so that I could spend USD 2,000 per year for the purposes of verifying I owed nothing to the US over and over again in grammatically impeccable Klingon. Keep a weather eye on the incoherent calls for reform of this incoherence until it got to be time for the kids to make a decision. Meaning?

I’ve bent over backwards to be sure that my kids, growing up Sweden, will always have a home in the US. From day one, Dr. Seuss has been right there alongside Pippi Longstocking and transatlantic flights represent perhaps our second biggest household cost after the mortgage. But as the little guys approach the age of independent incomes, the IRS is waiting too, a lifetime of pointless Springtime anxiety clutched in its hot little hands.

So while it always seemed self-evident that I would no sooner give up my US passport than I would the nose on my face, the kids were definitely going to have the benefit of an informed choice in the matter. But that all changed with the FATCA, an astonishingly blithe raft of garbled global overreach. With banks worldwide now annually forced to disclose all information on ‘US persons’ holding accounts with them, my individual decision to stand and let the kids eventually decide on jumping became irrelevant. Meaning?

Meaning that the US decision to unleash FATCA on the world has taken the decision out of my hands. My citizenship and that of my children is literally now in the hands of the Swedish banking system, on whom the US Congress has placed the entire cost of compliance with its dogs breakfast legislation. Should the Swedish banks jointly decide that the cost of hosting US persons is too high, then they will cast us out and we will have no decision to make. We will not jump. We will be pushed.

Is this idle speculation or unconsidered hysteria? No. Axa bank in France just took this decision, derailing the lives of thousands of ‘US persons’ there, some of whom, as pointed out by the indispensible Victoria Ferauge, did not even have reason to know they were US persons. My bank here in Sweden might take a different approach. Or it might not. Other banks might take me in. Or not. If not, good luck to me and the kids. Sweden is a bureaucratic society, and loss of my bank accounts would roll out a chain reaction of inconvenience and potential disaster that I do not care to even consider.

If and when I get the letter, I do not see any other option than to apply for Swedish citizenship and renounce my US citizenship – and presumably that of my children. I can live with a little inconvenience and arbitrariness, if that is the cost of maintaining the link with my ancestral home. But I can’t live in the 21st century without bank accounts.

I don’t know if anyone in the US particularly cares about whether me and my little flock in distant Scandinavia remain part of their community or not. But does that justify allowing foreign banks to take the decision for me?

Annual double-taxation-without-representation time rolls around for US citizens abroad

by Rhodri C. Williams

Spare a thought this week for US citizens abroad, who will be scrambling to comply with one of those nightmarish bureaucratic systems that no rational person would ever propose if they were working from a clean slate today.

As one of those affected, what to say? Many of us will have stayed up far too late during recent nights, working out whether we are likely to fall victim to an arbitrary snap-enforcement program that has imposed massive fines on people out of compliance with a previously dormant filing requirement we had precious little reason to be aware of. Still more of us face the prospect of spending entire days working through a battery of incomprehensible forms in order to prove what should be a self-evident point – we owe nothing to the US Government because our residence is registered in foreign jurisdictions with a legal right (and often a great enthusiasm) for culling our incomes in exchange for the services they offer. Those with higher incomes will simply be taxed on them twice over, and this by the ostensibly most tax-averse country in the developed world.

As an American on the ‘liberal’ side of the political spectrum, I have never had much time for black helicopter conspiracy theories about an oppressive ‘big government’. On the other hand, my experience with the US tax authorities has sharpened my classically American concerns about unrestrained government. While I have little doubt that the US Internal Revenue Service behaves responsibly and responsively (e.g. as a ‘service’) when it comes to ‘internal revenue’, it has taken the form of an unaccountable, repressive juggernaut for those of us in the ‘external revenue’ free-fire zone (consider the terrifying recent experience of one of my fellow US citizens in Sweden). However, it is ultimately the IRS’ masters in Congress and the Executive Branch (ahem, Mr. Obama) that have given these dubious tendencies ample room to breathe.

For those of you interested (academically or personally), there is lots of good information out there on the internet. A few starting points include the Isaac Brock Society representing the enormous population of affected people in Canada, as well as the more academic Federal Tax Crimes blog. Peter Spiro also provides a helpfully contextualized running commentary on these issues on Opinio Juris. However, the most important player is American Citizens Abroad (ACA), an organization that provides updated advice on navigating the double taxation labyrinth while actively seeking to replace it with an ordinary system recognizing residence-based taxation that would let Americans abroad get on with raising families and engaging in the private diplomacy and trade promotion we provide our country with every day (at zero cost to any taxpayer!)

If you surf this topic a bit, you will probably find yourself scratching your head and wondering how this could have come to pass. Foreign banks to refuse to open accounts for US citizens as a matter of policy? Struggling US citizens abroad put to the rack for the sins of fat-cats with undeclared Swiss bank accounts who are mostly US residents anyway? (I mean, who really thinks the Swiss care where you live if the numbers add up?) US citizens lining up to renounce their citizenship because their own government is shaking them down in a desperate and legally questionable attempt to fill the deficit gap?

In the cold light of day, this stuff should not stand up for a single Congressional term, particularly in a Congress now dominated by politicians dead-set on (1) reining in out-of-control Federal agencies, and (2) cutting tax burdens on productive citizens come hell or high water. For the first time in my memory, I may actually passionately agree in principle with my conservative delegates to Congress, at least as far as this issues goes. So why does it just get worse?

My considered opinion after some self-interested research is that affected people have been kept so busy sweating over personal compliance that they have had very little energy left over to focus on political message. There are lots of complaints about how the US media seems only too happy to fall into line with the IRS’ implicit assumption that living outside the US is in itself a form of tax evasion. However, beyond the ACA’s important efforts, there doesn’t seem to be much systematic advocacy. So let me take a first stab of my own. Why should the average US citizen care about the fiscal fates of their brethren abroad?

Mixed signals on citizenship

by Rhodri C. Williams

The last few weeks have brought a confusing spate of reports that predict the demise of traditional, monogamous one person-one passport citizenship along with others that indicate that states are more determined than ever to retain its essence. So what does this have to do with this blog? Well, for one thing, citizenship is the glue that governments have traditionally used to bind particular populations to the territories they control, completing the triangle of statehood. But the issue also has personal overtones for me as part of the great global expat class. I’ve got two dual citizen kids, and could probably use a bit of dual citizenship myself, at the very least as a matter of administrative convenience.

Should administrative convenience count? The Economist argues yes in an editorial the week before last, noting that traditional citizenship was never an ironclad guarantee of loyalty, and nor is it particularly relevant to security in an age of professional militaries. Although significant complications involving voting rights are acknowledged, the magazine sees and applauds a trend toward routine multiple citizenship as an economic win-win situation, and one in which tax residence can serve as a new and more practical signifier of political loyalties:

Rather than making a fetish out of passports, a better approach would be to use residence (especially tax residence) as the main criterion for an individual’s rights and responsibilities. That encourages cohesion and commitment, because it stems from a conscious decision to live in a country and abide by its rules.

However, an article in the same Economist outlines new restrictions on the acquisition of dual citizenship imposed by EU states such as the Netherlands and Germany. Meanwhile, citizenship law expert Peter Spiro posts on Opinio Juris on how the US – which is already virtually unique in imposing double taxation on its better-earning expat citizens – has now piled on burdensome reporting requirements on assets held abroad. Spiro notes that the requirement may make it impossible for the 4-6 million Americans abroad to open local bank accounts and speculates that many with dual citizenship will go underground or renounce their US citizenship.

However, Israel appears to have gone furthest in bucking the trend toward more liberal citizenship rules, with its  Supreme Court deciding last week that Palestinians who marry Israeli citizens may be categorically excluded from citizenship. Sound a bit … oh, well … hard to square with fundamental non-discrimination norms?  Israeli judge Asher Grunis will no doubt long be remembered for his pithy response:

Human rights do not prescribe national suicide.

Well, don’t they now? In a separate and fascinating survey of trends in citizenship law, Peter Spiro argues in the latest American Journal of International Law that perhaps they do. Sadly, the full article lurks behind a subscription-wall, but the abstract can be read here:

State practices relating to nationality and citizenship have historically been insulated from international law. That is beginning to change as citizenship moves into a human rights frame. Citizenship practices relating to naturalization, birthright citizenship, and dual citizenship are being measured against anti-discrimination and self-governance norms. These developments will expand access to citizenship, though the new international law of citizenship may also contribute to the erosion of state solidarities that are important to liberal governance.

In essence, Spiro argues that human rights norms are inexorably curtailing the the traditional prerogative of states to ‘self-define’ their membership through the discretionary grant of citizenship. Given that human rights advocates have focused on forbidding the arbitrary denial of citizenship to long-term residents, liberal theory would ordinarily hold that those eligible for citizenship under such terms would likely have integrated over time and made the type of “conscious decision to live in a country and abide by its rules” the Economist lauds (above) in promoting tax residence as a sort of contemporary proxy for what citizenship has been.

However, Spiro cites the scale of current migration and the nature of globalization in questioning whether such bonds can still be said to automatically result from residency. Ultimately, he raises the question of whether “internationally mandated membership” may not only reduce the levels of solidarity in states, but also – and as a result – their actual capacity to continue acting as the primary guarantors of human rights. Death of states? Not necessarily. Default devolution of some of the central attributes of sovereignty to supranational institutions that will hopefully have the legitimacy and capacity to pick up the slack by then? Well, stay tuned.

So where do my loyalties (or at least my sympathies) lie? I pay taxes and consume services in Sweden, and enjoy a quality of life here that would be the envy of a vast proportion of my fellow global citizens. I participate most emphatically in the culture of Finland, or rather Åland, at least since I got involved in the slightly manic ritual of wrestling the annual midsummer pole up along with the other (and better qualified) yeomen of my wife’s ancestral village. And whenever I get back to the  States again, its like I’ve woken up from a dream. Not a bad one, mind you, but one that has you scratching your head because it seemed so plausible at the time, but could it really have been like that?? I guess a bit of cultural vertigo is the sign of our times.