It’s Official. Trump’s policies are repairing wealth flight damage faster than Obama increased it.

It's official! Trump cuts Obama wealth flight in half in 3 years and media is silent.It’s official! Trump cuts Obama wealth flight in half in 3 years and media is silent.
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It’s official! Trump cuts Obama wealth flight in half in 3 years and media is silent.

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It’s official! Trump cuts Obama wealth flight in half in 3 years and media is silent.

In the last three years of Obama’s bungled attempt at governing, 2,408 of our most prolific taxpayers renounced their US citizenship, thus depriving the USA of a tremendous amount of vital tax revenue. By contrast in the first three years of the Trump Administration, renunciations among this same elite group dropped by 3,338, meaning that Trump is fixing Obama’s failures 39% faster than Obama caused them!

The latest Quarterly Publication of Individuals, Who Have Chosen To Expatriate, along with data from earlier such lists, leaves no doubt that it was Obama’s “Soak the Rich” policies that were at the heart of the 2,342% increase in costly, but mostly unreported wealth flight that occurred during Obama’s tenure in the Oval Office. It should also be noted that those policies are almost exactly the same kind of misguided policies that AOC, “Sleepy” Joe Biden and, for that matter, all of the Democrats in Congress, want to impose on US taxpayers. This would lead to even more loss of critical tax revenue.

Note: We chose to delay publication of this article for a couple of months, due to Wuhan Virus news sucking the air out of the room, concerning all other news. As a result of this delay, the government has had time to release a new quarterly report, showing numbers that are not within the predictions of this article. As we do every quarter, another article will be forthcoming that will cover the new data, as soon as we have had time to analyze it and determine it’s impact.

But look at what happened, as soon as Trump became President. He began rolling back Obama-era attacks on wealth and, as the above chart shows, we began to see an immediate slowing of renunciations among the wealthy. Just as we predicted, the slow down was somewhat tepid, at first, since those affected were unsure of how successful President Trump would be. But the slowing of renunciations among the wealthy became more marked in Trump’s second year in office, as Trump began to establish a track record. Now that Trump has been in office for more than three years and a second Trump term is a virtually certainty, the wealthy are no longer worried about losing all they have worked for, to an over-zealous government and renunciations are now dropping faster than they rose.

Certainly, some of those renunciations would have happened, anyway. After all, before Obama took office, formal renunciations among this group of our most prolific taxpayers ranged from a high of 762, to a low of just 231 – that low was in the year before Obama took office. But it is the cause of the marked increase, during the Obama era and the cause of the drop in those same numbers, since Trump has been President, that is no longer in doubt. This is now far beyond coincidence.

There are no more excuses.

Liberals initially claimed that the increase in renunciations under Obama was Bush’s fault. But when it continued at a previously unbelievable rate, they had to find another excuse. So they said the increases were the result of changes in reporting, though when questioned, they could not identify any such changes. When that excuse would no longer fly, they claimed that the rise was coincidental, being caused by non-political stimuli and that it would have happened regardless of who was in office. Moreover, since they expected a Hillary win in 2016, they told us that such increases would likely continue, till the Democrats could pass more laws to prevent the wealthy from leaving, with their wealth intact. But now, there are no more excuses.

The above numbers now prove that it was Democrat “Soak the Rich” policies that were driving this dramatic rise in renunciations of those taxpayers who pay the vast majority of taxes actually collected by the IRS. Yet, listening to the Democrat debates and listening to their congressional leaders, it’s abundantly clear that the Democrats, as a group, are still determined to “Soak the Rich” into oblivion. The only difference is in how fast each Democrat may want to achieve that goal. But the goal is, nonetheless, the same.

Fortunately, Trump’s election has proved how wrong they were. In fact, as we predicted long before Trump even secured the GOP nomination, renunciations among the wealthy dramatically turned around, as soon as Donald Trump took office. At first, the nay-sayers tried to say it was just a blip. But the blip kept going down throughout Trump’s second year in office. Even so, the Democrats kept trying to come up with excuses. But now, the final numbers for President Trump’s third year in office are in.

These numbers prove, beyond any doubt, that President Trump’s policies are working and that it was Obama’s policies that caused the rise in renunciations of the wealthy, in the first place. In fact, Trump’s policies have now reversed well over half of the wealth flight damage done to our economy by Obama’s “Soak the Rich” policies.

It’s important to note that the numbers have moved exactly as we and others predicted throughout the Obama years and now through the first three years of the Trump Administration. This is just one more reason why the Democrat “Soak the Rich” crowd has no more excuses. Both the rise and the fall in formal renunciations were accurately predicted. We only needed to see the fall reach this point, to prove beyond a doubt what we have been saying for 11 years.

It’s now clear that attempting to “Soak the Rich”, as the Democrats are promising to do, should they regain control of both lawmaking branches of government, will not only will fail to increase tax revenues, but will actually reduce tax revenues. There is no doubt that, should the Democrats regain control, the tax base would drop again, because our most prolific taxpayers would again be forced to take refuge in the form of citizenship in more wealth-friendly jurisdictions.

When a wealthy taxpayer renounces his US citizenship, he no longer owes any tax to the US government on non-US-sourced income.

However, simply slowing renunciations of our wealthiest taxpayers is only half the job. We must turn these numbers around. In other words, we need to entice some of those past expats to return.

There are several hurdles to overcome, in order to make this happen. But the most significant hurdle to overcome, if these numbers are to ever reach pre-Obama levels (231 renunciations in 2008) is the Obama-era Foreign Account Tax Compliance Act (FATCA – Title V, Subtitle A, of the HIRE Act of 2010) (FATCA). That law must be repealed. Many US citizens who renounce are already living and working abroad or maybe retired abroad. The problem with this is that FATCA has made it extremely difficult for these people to live outside the USA and remain US citizens.

That’s because, to avoid FATCA repercussions, many foreign banks simply choose not to deal with US persons or companies. You see, foreign banks, like US banks, value their reputation for privacy. But dealing with US persons means that those banks would have to violate their clients’ privacy, by reporting US client transactions to the US government, if they wanted to stay connected to the US banking system. (Please note that what FATCA requires of foreign banks would be considered un-constitutional, were the same rules applied to US banks.)

So this leaves many US citizens, who live outside the USA, without a local bank account. But without a local bank account, a person can’t pay his rent or utility bills. The result is that many US citizens, who were working at lucrative jobs in another country, married to a foreign citizen, or who had other good reason to stay abroad, took the only option left open to them. In order to not have to move back to the USA, they renounced their US citizenship, in favor of another nation’s passport. Sure, most of those people were probably not counted among the extremely wealthy. But this points to one major reason for renunciation of the wealthy, as well as those US citizens of average income.

But the problem is not related to those of average income, who renounce. It’s that the ultra-wealthy make up a disproportionately high percentage of formal renouncers. It doesn’t sound like much, but the effect is huge. The highly respected, HSBC Expat Explorer Report (see page 4), indicates that expats who earn more than $250,000 a year (a group, which makes up just 3.5% of U.S. citizens), makes up at least seven percent of renouncers or More than double their percentage of the US taxpayer population!

But the US taxpayer population makes up only half of the total US population. According to the Joint Committee on Taxation, 51% of tax units (roughly households) don’t have enough income to incur any tax liability. In other words, more than half of Americans don’t owe any US income tax or they receive back all of what they paid in tax during the year. In fact, some even get rebates for money they never paid into the tax coffers, to begin with. So this means that this top 3.5% of taxpayers actually represents the top 1.75% of all Americans.

The end result is that this very elite group of extremely prolific taxpayers are renouncing at a rate that is four-times their representation within the US population in general. They make up around 1.75% of taxpayers, but make up 7% of expats.

Eight years of Obama’s policies driving wealth out of the USA and the last three years of Trump policies decisively turning that wealth flight around has proven that Soaking the Rich is a recipe for disaster. Yet the Democrats, both in Congress and their presumptive nominee for President, are still determined to not only resume, but build on Obama’s “Soak the Rich” agenda, should they regain power.

We’ve already seen how much damage can be done in just eight years. And we’ve seen that President Trump has had great success in reversing this dangerous trend. But even if Trump gets the renunciation rate of the wealthy down to pre-Obama levels, that’s still not enough. Remember that just slowing this wealth flight down would still leave the 21,163 wealthy former U.S. taxpayers, who fled Obama’s attacks on wealth, outside of U.S. tax jurisdiction. Furthermore, those people are unlikely to return, with their thick checkbooks in tow, without some sort of additional motivation. Also consider that, although the number of formal renunciations continue to fall, there will still be those who will continue renounce, due to Obama policies that are still in place, under Trump, such as FATCA.

The point is that, to return to a pre-Obama tax base, we must either convince those wealthy renouncers to return or replace them with new equally wealthy (legal) immigrants. Otherwise, Obama wins and this part of the damage he did to our economy will be permanent. But whether it’s getting wealthy expats to return or attracting new wealthy immigrants, it’s going to require legislation that will create a motivation for such people to want to become U.S. citizens, either again or for the first time.

The problem with getting wealthy foreigners, be they US expats or foreign-born immigrants, to move to or back to the USA, is that our tax system is so easy to change that they can’t depend on the law remaining stable, after Trump leaves office. In fact, our current income tax code, being based on income, is fertile ground for special interest manipulation. President Trump has successfully fought off the special interests, who have long influenced members of Congress, both Democrat and Republican. But, if we’re to have any chance at enticing wealthy US expats to return or attract new foreign wealth, we have to begin by changing our method of taxation to one that does not involve taxing income.

Fortunately, such a plan already exists as a bill in Congress. H.R.25, The FairTax Act of 2019, is currently sitting in the Ways and Means Committee. It would replace the income tax with a progressive national retail sales tax and abolish the IRS. Since the FairTax is a sales tax, it would be impossible for the special interests to use it to play favorites.

The FairTax is built on the fact that, Only People Pay Tax.

Every other form of taxation allows the government to hide taxes from less attentive taxpayers. For example, many people who rent their residence think that they don’t pay property tax. But they do. It’s just embedded in the cost of their rent. Similarly, many people who do not earn enough to owe any federal personal income tax mistakenly think that they don’t pay any income tax. But they do. It’s embedded in every purchase they make. A loaf of bread, a gallon of gasoline, a shirt, and even a kilowatt of electricity all have embedded income tax.

In fact, no business pays any form of tax! NONE!

Every business that wants to make a profit simply passes along to their customers, every penny that they pay in every kind of tax. So when you buy a head of lettuce, you are paying the lettuce farmer’s income tax, the income tax of the trucker who took the lettuce to the packager, the packager’s income tax, the income tax of the trucker who took the lettuce to the grocery store, and of course, the grocery store’s income tax.

But it’s actually worse than that. You’re paying the taxes of the oil company, whose fuel ran the trucks that took the lettuce to market, the taxes of the electric company, whose electricity kept the lights on and equipment running at the packaging plant. To a lesser degree, you’re also paying the taxes of the company that built the drilling equipment used by the oil company and the taxes of the company that made the coper wire that delivered the electricity to the packaging plant. It goes on and on.

Not a single company in the supply chain pays a penny of tax. Every last one just passes that cost along to the next customer in the supply chain. In the end, it’s the consumer who pays 100% of all taxes.

But the problem with that scenario is that it obscures from all but the most diligent of economists, just how much tax we are all actually paying.

A retail sales tax, by comparison, is totally transparent. Under a sales tax, the total amount of tax collected remains essentially the same. But the difference is that the consumer sees every penny of tax that he is paying on each and every receipt or invoice. With an income tax, it’s easy for the Tax and Spend crowd to raise taxes, because most people only see the small portion of tax that they pay and never stop to think that raising taxes on “the other guy” is actually raising their own taxes. But with a sales tax, there is no way to even pretend to tax someone else.

But before someone tries to argue that a sales tax is regressive, let me point out that the army of economists who created the FairTax already thought of that. Through the use of a rebate system (called a “prebate” because it is paid before money is spent and the tax is collected), the FairTax achieves true progressiveness. The true effective tax rate for the desperately poor will be very close to zero, while the tax rate for the very rich will approach 23%. That’s more progressive than the income tax, since even the desperately poor have a 7.65% payroll tax taken from their pay checks.

But the real draw of the FairTax, as far as U.S. expats is concerned, is that they will see the FairTax as a huge benefit for companies operating in the USA and that the FairTax, being collected only at the point of final retail sale of new products and services, cannot be used to punish the rich or, for that matter, to punish any political enemies, regardless of political leanings.

Under the FairTax, the USA would become a huge jobs magnet.

Wealthy former U.S. citizens, along with foreign-born investors will flock to the USA, to invest and build in the USA, where there would be no corporate income tax and no way for Congress to play favorites.

The FairTax would be a WIN-WIN-WIN situation. It would be a win for the poor, who would for the first time since 1916, pay little or no federal tax, while at the same time creating more jobs. It would be a win for the rich, who would be able to build products in the USA that could be sold for less than their foreign counterparts. And it would be a win for the middle class, because there would be fewer people out of work, to have to be supported by their tax dollars, meaning that those dollars could be invested in their future.

Just slowing down the damage caused by Obama is not enough. It must be reversed. The FairTax is the key to making that happen.

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Trump continues to crush the Obama legacy of failure!
8-years of skyrocketing wealth flight cut in half, in less than 3 years!

Trump cuts Obama wealth flight in half in less than 3 years.Trump cuts Obama wealth flight in half in less than 3 years.
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Trump cuts Obama wealth flight in half in less than 3 years.

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And so it continues… With each new quarterly release of IRS wealth flight statistics, we see more evidence of how President Trump is systematically reversing the damage done to our economy, by the failed Obama presidency. The latest release of “Covered Expatriate” data shows that wealth flight has dropped by more than half, since Donald Trump became president.

The most recent Quarterly Publication of Individuals, Who Have Chosen To Expatriate, covering the third quarter of 2019, was released this month and it shows that a mere 183 wealthy US citizens and wealthy long-term residents formally renounced their citizenship or long-term residency in the third quarter of 2019. Contrast that with the 2,364 renunciations of wealthy taxpayers in the last full quarter of Obama’s term in office. Or even compare it to the quarterly average rate for the whole of Obama’s last year in office, which was 1,352. Aw, what the heck. Compare it with the quarterly average of renunciations of wealthy taxpayers for the entire eight years Obama was in office, which was 661.

The legacy media won’t talk about this, because there is just no way to spin these results to look anything less than yet another spectacular success for President Trump, in reversing Obama’s failures. Obama’s “Soak the Rich” agenda drove away more than 21,000 of our most prolific taxpayers, over eight years. But, in less than three years, Trump has cut the Obama wealth renunciation rate by more than half.

Let’s look at the data.

Under IRC section 6039G of the Health Insurance Portability and Accountability Act (HIPAA) of 1996, the IRS is required to publish quarterly, in the Federal Register, a list of the names of all wealthy taxpayers (and wealthy long term permanent residents) who renounced their U.S. citizenship (or permanent residency) in the prior quarter. The above chart represents the count of names appearing on all four quarterly lists for each year. The only exception is that the 2019 actual count for the first three quarters, is represented in blue, while the straight-line projection for the fourth quarter is a semi-transparent, light salmon color.

Under Obama’s “Soak the Rich” agenda, the USA was losing our most prolific taxpayers at an alarming and skyrocketing rate. We are still losing wealthy taxpayers at a disproportionally high rate, though that rate is dropping rapidly, as a result of corrective actions taken by President Trump.

To put all of this into context, let’s look at what it takes to have your name appear on one of those lists. Those whose names appear on those lists are people who fit the definition of a “covered expatriate”. The short version is that a renouncer must either be in the top one-half percent of taxpayers, which is the top one-quarter percent of wealthiest citizens, or be extremely stupid.

I’ll get to the last part of that statement in a moment. But first, let’s look at the financial side. The term, “covered expatriate” is actually defined in law.

The exact definition of a “covered expatriate” has changed slightly, over the years, but it has always been tied to wealth. Since 2008, the net worth specification has remained at two million dollars and the income specification has been tied to the cost of living. Each year, you can find the current definition on the IRS website page titled, “Expatriation Tax“. Here is what that page says, today. (Note: The numbers in orange come from different sources, explained below.)

If you expatriated on or after June 17, 2008, the new IRC 877A expatriation rules apply to you if any of the following statements apply.

  • Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($151,000 for 2012, $155,000 for 2013, $157,000 for 2014, and $160,000 for 2015) ($161,000 for 2016, $162,000 for 2017, $165,000 for 2018, and $168,000 for 2019).
  • Your net worth is $2 million or more on the date of your expatriation or termination of residency.
  • You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.

If any of these rules apply, you are a “covered expatriate.”

Explanation for the orange text, above:
The specific tax liability requirement of $161,000 for 2016, can be found in paragraph 3.30 (page 19) of the IRS publication “Rev. Proc. 2015-53”, concerning 2016 Adjusted Items. Beginning in the first quarter of 2017, the tax liability requirement for a covered expatriate was $162,000 and it can be found in paragraph 3.32 (page 21) of the IRS publication “Rev. Proc. 2016-55” concerning 2017 Adjusted Items. Beginning in the first quarter of 2018, the tax liability requirement for a covered expatriate was $165,000 and it can be found in paragraph 3.32 (page 19) of the IRS publication “Rev. Proc. 2017-58” concerning 2018 Adjusted Items. Beginning in the first quarter of 2019, the tax liability requirement for a covered expatriate was $168,000 and it can be found in paragraph 3.37 (page 22) of the IRS publication “Rev. Proc. 2018-57” concerning 2019 Adjusted Items.

If we take the minimum amount of tax that would place a person’s name on the lists for 2017 and work backwards, we find that to have your name placed on one of the lists, you would have to have an income of around $617,000. That would put the taxpayer in the top 1% of taxpayers. Let’s look at how we determine this.

According to the latest IRS Collections Data (Tax Year 2017), the top 1% of taxpayers paid U.S. income tax at an average rate of 26.73%. That percentage is pretty similar for other nearby higher and lower income groups, so it’s a good starting place. We simply divide the lowest tax load by 26.73%.

$165,000 / 0.2673 = $617,284

Next we note, from the same IRS data, that the income floor, to make it into the top 1% of taxpayers in 2017, was $515,371. That means that someone who earned $617,284 should be safely in the top 1% of taxpayers in 2017. We could get a little more detailed. But the result would still place the taxpayer in the top 1% of taxpayers. The whole point is that to be a covered expatriate, one almost certainly has to be in the top 1% of taxpayers.

Using the same IRS data, we find that the top 1% of taxpayers paid 38.47% of all US income tax collected in 2017. Let’s put that a different way. Well over a third of all personal federal income tax collected in the USA, is paid by just the 1% of wealthiest taxpayers.

Then consider that, according to the Joint Committee on Taxation, 51% of tax units (roughly households) don’t have enough income to incur any tax liability. In other words, over half of Americans either don’t pay federal income tax or receive back all of what they do pay. What this means is that the top 1% of taxpayers represents the wealthiest one-half percent of all U.S. citizens and long-term permanent residents.

So what all of this boils down to is that to be included on one of the lists that have become popularly known as the “Taxpatriot Lists” or just “Taxpat Lists”, one most likely has an income that places him in the top one-half percent (1/2%) of wealthiest Americans and that income group is responsible for 38.47% of all U.S. income tax actually collected. Moreover, that very tiny group of very wealthy taxpayers is also the same group of people whose investment dollars underwrite most job creation in the USA.

During the Obama years, the wealthy were leaving at a rate DOUBLE their proportion of all U.S. taxpayers, in general.

Data from several reliable sources, including the highly respected, HSBC Expat Explorer Report (see page 4), indicates that those who earn more than $250,000 a year (a group, which makes up just three percent of U.S. citizens), makes up at least seven percent of renouncers or double their percentage of the U.S. population! Let me rephrase that. Although the 7% cited in that report doesn’t sound like much, that’s a number that should be only 3% percent, were expatriation proportional across all income groups!

Looking back at the IRS Collections Data, we see that in that year (2014), a person who earned $250,000 was in the top 3% of taxpayers. So, were expatriation proportional, expats earning more than $250,000 should make up roughly 3% of expats, not 7%. But that was in 2014. Obama was in office for two more years. Look at the chart. Things got almost 60% worse, between 2014 and 2016.

But the important thing to remember is that these people make up the income group who pay the lion’s share of taxes and whose investments are responsible for funding the lion’s share of jobs in the USA!

These extremely prolific taxpayers are the people who are still fleeing the USA in disproportionate numbers. Sure, President Trump has those numbers dropping fast. But Obama did so much damage, over eight years, that Trump still has his work cut out for him.

As you can see from the chart, the last year that George W. Bush left office, there were only 231 formal renunciations of “covered expatriates”. The last year that Obama was in office, there were a whopping 5,409 such formal renunciations. That represents a 2,342% increase in wealth flight, during Obama’s eight years of “Soak the Rich” policies. Here’s the math. Simply divide the 2016 number by the 2008 number and multiply by 100, to convert from decimal to percent.

The Obama Increase in Renunciations:

( 5,409 / 231 ) * 100 = 2,342%

But in less than three years, President Trump has managed to steadily reduce the number of formal renunciations of the rich to a point that is more than half of the Obama increase. Using a straight-line projection, the total renunciations of the rich, for 2019 should be 2,413. That’s a cut of 58% of the Obama increase. Here’s the math, to get the reduction number.

To determine the numerical decrease, we begin by subtracting the 2019 projected total (2,431) from the 2016 total (5,409). This leaves us with the numerical drop in renunciations in 2019.

Trump Numerical Cut in Renunciations

5,409 – 2,413 = 2,996 Difference

Next, it wouldn’t be fair to Obama to use just the 2016 total, when calculating the Trump decrease. That’s because the Obama increase was based on a starting point of 231, in 2008, so we must assume that Obama was not responsible for the first 231 of that 5,409 renunciations in 2016. This means that we have to subtract out the 2008 number (231) from the 2016 number (5,409).

Obama Numerical Rise in Renunciations

5,409 – 231 = 5,178 Difference

This shows that, of the 5,409 renunciations in 2016, Obama was responsible for 5,178 of them. So, now that we have both numbers, we just divide the first result by the second result and multiply by 100, to convert from decimal to percent.

Trump Cuts in Renunciations

2,996 / 5,178 * 100 = 58%

Of course, you should notice that I used a straight-line projection, to determine the likely number of renunciations for the whole of 2019. But consider that in almost every fiscal quarter since Trump took office, the actual reduction in renunciations among the wealthy was even better (the total was lower) than the straight-line projection from the previous quarter.

Those of you who have followed my tax articles know that, whenever there is any question about what set of numbers or methodology should be used, I always choose to err on the side that least benefits my thesis. I chose to use a straight-line projection, because it is the method that is least likely to help my thesis. Had I chosen to use “exponential smoothing”, “moving averages”, or any number of other projection methodologies, the projection would be even more incredible. But even using the least beneficial projection method, the results are still phenomenal.

Just three months ago, when the second quarter data was released, a straight-line projection placed the estimated total for the year at 3,254. But that number, as expected, turned out to be high. Last quarter’s projection was based on an average of 814 taxpats per quarter, for the first two quarters. But this quarter, that number is down to an average of just 603 expats per quarter, for the first three quarters.

In fact, this three-year drop in renunciations among our most prolific taxpayers is so palpable that it defies all expectations. It’s quite likely that no other president could have achieved anything close to this level of success in two full terms (eight years), let alone, in less than three years and all the while, being blocked and stonewalled by the “Swamp” at every turn.

But it’s not enough to simply slow the bleeding. Since the beginning of the Obama Administration, through last quarter, there have been more than 32,000 Very High Net Worth Taxpayers renounce their U.S. citizenship or long term permanent residency. This means that more than 32,000 of our most prolific taxpayers have legally ceased to owe U.S. income tax on non-U.S.-sourced income, since Obama assumed office. Furthermore, all indications indicate that most of those wealthy expats have dramatically reduced their investment footprint in the U.S. market, as well. In fact, many of those “covered expatriates” no longer have any financial interests in the USA, which means that they have zero U.S. income tax liability. It also means that the jobs that their investment dollars used to fund, no longer exist.

Losing more than 32,000 of the taxpayers who pay the vast majority of our taxes, along with all the jobs they create, is a massive hit to our economy. But it’s even worse than it may, at first, appear.

It’s On-Going!

So it’s not just 32,000 people, who if they were still U.S. citizens and taxpayers, would contribute more than $400 million in taxes to the U.S. tax coffers this year. But were they still citizens, they would continue to pay such substantial taxes each and every year, going forward. Let’s put that into more meaningful terms. That’s an additional $400 million in taxes that has to be paid every year by those of us who remain! Have I got your attention?

When a wealthy taxpayer renounces his citizenship, it’s not just a one-time hit to our economy. It’s continuous. In fact, due to the Bush Exit Tax, the first year is actually not as bad for the U.S. as the following years. You see, under the Bush Exit Tax, wealthy expats must pay, at the time of renunciation, a mark-to-market capital gains tax on their worldwide estate. To be clear, a mark-to-market tax is a tax on the estimated un-earned capital gains of the expat. So, before they can renounce, wealthy expats are being required to pay tax on income they have not yet earned!

This does tend to soften the blow to the U.S. economy, in the year of renunciation. But after that, it’s a loss that contributes to that $400 million in lost taxes, each and every year.

But think about what this means. Since a wealthy person has to pay a huge penalty, before he is allowed to renounce, it means is that all those wealthy expats (covered expatriates) felt that it was worth paying what is often a very hefty penalty, just to get out from under the punitive U.S. tax regimen. They saw the Exit Tax as the least offensive option.

This is why it’s not enough to simply slow renunciations of the wealthy. We have to turn it completely around. We need to encourage many of those who have already renounced to return and that isn’t going to be easy, even for President Trump. But there is a way to make it happen.

Before going on, I should note that more than a few of the expats on those lists were, in fact, already living offshore and continuing to pay U.S. taxes, before deciding to renounce. But those people, regardless of wealth, had an additional reason to renounce. As a result of the onerous requirements of Obama’s Foreign Account Tax Compliance Act (FATCA – Title V, Subtitle A, of the HIRE Act of 2010), even those U.S. citizens living abroad, who do their very best to comply with all US tax laws, are finding it increasingly difficult to do such common things as rent an apartment (or buy a home), buy a car, maintain a bank account, or pay routine utility bills. This applies to U.S. taxpayers from all income groups. Even those who simply take a temporary job offshore, as a resume-booster, are finding that simply living offshore has become extremely difficult… but only if you’re an American.

While trying to “Soak the Rich”, Obama laid yet another egg, when he signed FATCA into law. Many foreign banks have chosen to tell their U.S. citizen customers that their money is no longer welcome there, rather than adhere to the onerous, anti-privacy reporting requirements of FATCA. For the record, FATCA places reporting requirements on foreign banks that are far more invasive than is legally allowed to be required of U.S. banks.

Of course, this doesn’t even consider things like FBARs (Foreign Bank Account Reports) that only U.S. citizens have to file. The whole point is that being a U.S. citizen living abroad has many hurdles that expats from other countries don’t have to overcome. But if that U.S. expat happens to be wealthy, it’s even more difficult. So regardless of how much a person may cherish his U.S. citizenship, if his work keeps him abroad, he may find renouncing his U.S. citizenship to be advantageous enough to make formal expatriation the only “tolerable” option. If he happens to be wealthy, he may find it to be the only “acceptable” option.

We know that FATCA was a significant driving force in the dramatic increase in wealth flight, during the Obama years. But for others, it was Obama’s “Soak the Rich” policies, right here at home. So it’s reasonable to conclude that if a covered expatriate renounced, to achieve better tax treatment from other countries, he might be enticed to return, if the USA implements a tax regimen that is more fair and equitable and one that creates a better business environment than in his new country.

As it turns out, such a tax bill already exists and is currently languishing in the Ways and Means Committee. The problem is that the House Leadership is currently blocking it from consideration. The bill is H.R.25 – The FairTax Act of 2019.

That bill would completely replace our whole income taxation scheme with a progressive national retail sales tax that would be collected only at the cash register. The implementation of this system of taxation would turn the USA into a giant wealth magnet. Wealthy U.S. expats and foreigners alike, would rush to invest their money in the USA. Jobs would be created in record numbers, thus creating more taxpayers. It would be a win-win scenario for everyone… except the Swamp.

Our tax base would increase dramatically. There would be thousands of new wealthy citizens and long term permanent residents, who would be buying new homes and the necessities for their new homes. There would be more ordinary people employed at jobs and those people would have more money to spend on retail goods and services. Those people would all be taxpayers who don’t exist today.

But best of all, under the FairTax, it would be virtually impossible for the taxation system to be weaponized against the political enemies of the party in power, as the IRS is weaponized, today. There would be no way for those in power to play favorites.

If you are not aware of the FairTax or how it works, you should learn more by reading “The Rich Don’t Pay Tax! …Or Do They?” or by visiting

President Trump has done an outstanding job of slowing down renunciations, up to now. But slowing down the damage is only half the work. The only way to not only slow down the damage done by eight years of Obama’s “Soak the Rich” policies, but to actually reverse that damage, is to repeal FATCA and pass the FairTax.

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