Obama warned everyone back in 2009 that "elections have consequences." Now, eight years later, we learn that apparently the "consequences" of running around the country for nearly a decade threatening to raise taxes, "spread the wealth around" and pursue any number of other socialist policies are a record number of people renouncing their U.S. citizenship.
As Fortune points out, the United States, unlike almost every other country in the world, taxes people on the basis of citizenship rather than residency. So even if you spend all of your adult, wage-earning years on a remote tropical island with a 0% tax rate, if you were born in the United States, you still owe Uncle Sam your "fair share."
The cause of the defections, which led the U.S. to say so long last quarter to everyone from Jonathan Abbis to Anna Zwirner, is primarily the U.S. tax system.
When it comes to taxes, the United States is an outlier because, unlike nearly every other country, it taxes people based on nationality rather than residency. While U.S. citizens can claim credits with the IRS for what they pay to foreign tax authorities, those amounts are not always enough to offset what they owe.
U.S. expats also face the burden of annual filings with the IRS with the prospect of stiff penalties if they fail to comply.
According to international tax attorney Andrew Mitchel, those who deliberately fail to report foreign accounts to the IRS can face a fine of $100,000 or half the value of the account—whichever is greater. Meanwhile, there are a range of other penalties for small business owners abroad and for those with assets of more than $30,000.
"The IRS has been very gracious in saying they won’t take more than 100% of your money," says Mitchel, ironically. "These people are terrified they will go bankrupt because of the United States. They just want to get out of the U.S. tax system."
All of which has led a record number of people to give up their U.S. citizenship completely. In fact, the number of published expatriates for 4Q 2016 was 2,365, bringing the total number for 2016 to 5,411, setting a new all-time quarterly and annual record. By comparison, the number of expatriates for 2016 reflects a 26% increase over 2015 and a 58% increase over 2014 (3,415).
Taking a more granular look at the past 20 years illustrates the staggering surge in the number of published expatriates that "coincidentally" corresponds with Obama's election in 2008. In fact, the 2016 list is over 22x larger than 2008, the year just before Obama moved into the White House.
Of course, the uptick corresponds with Obama's passage of a 2010 law requiring foreign banks to disclose U.S. citizens.
"To some degree it is President Obama’s fault. It was Obama and the Democratic Congress that passed a law in 2010 that forced foreign banks to disclose U.S. citizens," says Mitchel.
When the law was passed, it appeared to be aimed at fat cats who sought to hide money in secret Swiss bank accounts. But today, it could affect nearly any of the 7 million Americans, who Mitchel says live abroad—many of whom are people of modest means.
Meanwhile, per Andrew Mitchell of the International Tax Blog, despite Trump's vows to reform the U.S. tax code, all you "millionaire, billionaire, private jet owners" shouldn't expect to be able to avoid U.S. taxes simply by changing your residency at any point in the near future. While Congress may take up debate for a once-in-a-generation overhaul of the tax system, their primary focus, at least as it pertains to international entities, will focus on extra-territorial corporate taxes, not individual tax-payers.