Gregory Swanson
Jul 14 · 11 min read

The United States government is the only government in the world that not only taxes their residents but also forces nonresident citizens abroad into their tax jurisdiction.

What does that mean?

It means that as an American citizen living abroad, you are the only citizen in the world, other than Eritrea, that falls under two tax codes.

That is not fair to Eritrea.

Eritrea will tax their expats 2% of their earned income (flat-rate). The United States government forces the entire tax code of the United States on Americans abroad. The US Government adds some unique and complicated rules that define what they want to call “foreign.” Some of those are meant to promote behavior that they like. On top of this far-reaching approach by the US Government, the American abroad also has the same tax local obligations as other people in their resident country.

So, the US is the only country in the world that forces two complete tax codes on its citizens abroad.

The Civil War punishment weaponized after 9/11

Since 9/11, our policymakers and policy influencers have decided to weaponize the old Civil War law that was already designed to punish people for leaving the US. Nearly every major legislation passed in Congress since 2002 had some clause to punish expats.

Why the punishment? On the surface, there seem to be two schools of thought. One school of thought is that all expats are wealthy. All expats are laying on some exotic beach, sunning themselves and feeling proud about US tax avoidance.

The other school of thought seems to be that expats are nothing but unpatriotic scum. How dare these people to move away from the US? They believe that our expats should especially be obligated to pay for American exceptionalism and anything that the US does that even smells “international.”

Some people think that this war declaration of the US Government on Americans abroad started from the case of a social media founder who renounced citizenship before his payout. Some others believe that 9/11 created a cognitive brainwash of hate in the US for anything international.

I believe that expats are used as a fictitious revenue source for Congress to pass tax cuts and spending without having to raise taxes.

One thing is sure. Our policymakers have forgotten that we are American citizens. Our presence abroad helps the US. We deserve policymakers that understand us. We do not need a bunch of theoretical zealots or game players that refuse to even talk to us to find out what negative impact their policies are having.

Policymakers are incredibly ethnocentric

Other countries set up their systems to work for their residents — considering the standard of living, the cost of living, etc. They are not obligated to adjust their systems to the US system.

When a country sets up its retirement programs, it considers how much people will need to retire (in its currency). The US Government wants to judge that system for Americans abroad based on what happens in America. Then they want it all calculated back into US dollars so that they can interpret it in their terms. Forget currency exposure. Forget the differences in that country. Sorry, this is the definition of ethnocentric. Our policymakers believe that the US is the center of all truth and standards for everything. Anything else does not exist.

The ethnocentricity leads to stupid decisions

Our policy folks seem not to understand that the US system works differently than how other countries operate. Therefore, there is an inherent conflict in overlaying two tax codes on top of each other.

The lack of compatibility leaves the expat with an unavoidable lack of clarity. The complexity is overwhelming.

There is no real solid answer to questions. Even the IRS often doesn’t understand how to handle the complexity. Policy people come up with these ideas, Congress passes them, then dumps them on someone to figure out. The result is that your highly paid tax preparer can make a lot of costly, even criminal mistakes. And the US wants to financially penalize the hell out of the citizen for making those mistakes. Put the speed limit to 2 mph and take your car and your spouse’s car as a penalty for going 3 mph.

Should the average US citizen abroad be forced into that level of complexity? We are not Google or Apple. We do not have full-time accounting advice for every little issue. Assuming that your bank would let you open a savings account, is it a good idea or not? What would be the impact that this savings account would have on both your US filing requirements and your US and local country tax exposure? How about an insurance policy? Is it illegal for me to get one? What happens if I die? What extra tax exposure will my kids have? What happens when your non-American spouse needs to have signatory rights on your account? What happens when you need access to their account?

The most simple questions are incredibly complicated.

What happens when your non-American spouse doesn’t want to sign your US tax forms? They have nothing to do with the US other than being married to an American. Most are always under the impression that they are breaking some obscure law from a country thousands of miles away, even for the simplest of things.

Can the policymakers be that stupid, or are they doing this because they hate us?

Many organizations, as well as both party platforms, have called out for changes in the US tax policies towards Americans abroad. Congressman Holding of NC, introduced legislation last year to fix these problems.

But some other people have come out, quite loudly against fixing these problems.

There is no doubt that many of these policy people have considerable disdain for us. Maybe it is because we don’t lobby. Perhaps it is because we don’t donate. If we were as rich as many try to make us out to be, we would have been able to donate our way out of this problem a long time ago.

Could it be that some policy people want to keep the expat community fully in the tax system, in order to calculate higher scores on spending bills? After all, it is the one area where you can say that there is an untold revenue source. It is unknown how many of us exist. We are not part of the census. They can make up how many of us are living abroad. They can also say that all of us are wealthy. Make up your own number.

I could imagine some policy people advising Congress:

“Do you want that tax cut? I have just the thing (to make up) to get this through PAYGO. We can come up with something else on the expats. We can say that there are 9 million of them and they are all unpatriotic gazillionaires. We can take their money. Don’t worry, they can’t touch us.”

They can even make false claims that their new expat attack will bring in hundreds of billions in revenue as they did for the Hire Act (and FATCA). They are not accountable if the estimates do not come out correct. Nobody reports that FATCA didn’t bring in even a fraction of the original view. For most, FATCA still represents a shot back at the wealthy slimeballs trying to cheat the USA.

The reality is that it did anything but that. The only people that got hurt by FATCA were the low-income people who got denied financial services or splits that it caused in family finances. There are dozens, if not hundreds of these cases documented. Some examples are heart-wrenching.

Even the anti-1%ers in the US would change their minds on FATCA if they knew the devastation that it caused and who was devastated. Do you think that the 1%ers hurt? Nope.

But some policy influencers still present us as the bad guys.

They have learned that we are an easy target. Far away. Build public opinion against us. Call us unpatriotic or wealthy tax cheats. And they do not care if you renounce. Maybe they know that this will never end, and they think that they are doing us a favor to force us to quit.

The biggest problem that policymakers ignore

Part of the reason why I make that accusation is that there have been surveys. There have been articles. Testimonials. There have been several attempts to inform policymakers of the issues that we are having. There is a ton of information out there about:

  • The double taxation of retirement.
  • The double taxation of other countries’ social systems, like unemployment, (as passive US income) and the fact that this is simply stealing from different countries and using expats to do it.
  • Foreign exchange impact on capital gains tax.
  • The tax treaties out of date.
  • Married / separate filing if “Alien” spouse does not have anything to do with the US.
  • The unfairness of the Windfall Elimination Provision.
  • Transition tax devastation on small businesses, even forcing liquidation.
  • GILTI. Let’s just make sure that the American small businessperson has no chance.
  • The complexity of the system and filing costs a fortune. A recent survey quoted 97% of Americans abroad having extreme trouble.
  • Many, many more.

The problem that gets the least attention could be the biggest. Beyond the complexity, is the limitation that having two tax codes puts on your life. Certain jobs are off-limits because of bank reporting requirements and risk associated by being a marked person. Even some employers wonder about their own future US tax and admin obligations having an American citizen employee. It doesn’t matter if the employer has anything to do with the US. Remember, we are the only ones doing this stuff, and the US Government has astounding reach.

This one is tough to get across because it is not openly discussed.

Dealing with an American abroad is increasingly looked at as risky. You do not know what kind of law that the US government will come up with next. It is blind, dumb and ethnocentric. Will they require some special reporting? Will they find something new and unexpected to tax? Will they create some fine for someone else for dealing with us and not reporting us to the Treasury?

We are walking time bombs waiting for the next anti-foreign hyperbole to cause some crazy extraterritorial legislation (i.e., TCJA, FATCA).

You are a dual citizen living in your home country. You didn’t live in the US but for a couple of years. You didn’t even think about yourself as American until you went to your local bank and they demanded your US SSN. They cancel your bank account because you don’t have an American SSN. What is worse is that your country hangs its head in shame that they can’t find the courage to protect you from the big, bad USA — even though they know it is wrong.

The US policymakers do not care if what they do to you is illegal in the country where you live. The EU’s GDPR and Canada with the FATCA privacy violation are perfect examples.

Our policymakers have learned that they do not need to respect the laws of other countries.

So…

How about another tax cut to be paid for by those zillions of dollars overseas with these wealthy American expats? How about that spending bill without having to raise taxes at home? All those evil guys abroad, take it from them. Create another rabbit hole that the IRS cannot even figure out. We want those tax preparers and the compliance industry to be able to charge more. We want ordinary income Americans abroad to be forced to use them and pay thousands per year that they don’t have. We want the US citizen’s employer to wonder what the US Government will do next.

Our policymakers seem to like that power. And since they are so far away, the expat can’t touch them. And they do not have to talk to them either. Most Congresspeople don’t even begin to understand the issues, and they don’t look into it. Ignore it. So, the policy buffs are the ones who get to play with it, unchecked.

And when we complain, they say, “oh — it is really no big deal, why are you complaining?”

It hurts a young American’s career chances. It hurts older Americans ability to find work. We are the only citizens in the world that have uninformed policymakers somewhere else forcing their override of any local country interest.

But this theoretical, flavor of the month policymaking in the US determines lives abroad much more than even an American at home. That is the reason why most people renounce.

It is no different than if the former East Germans replaced the wall with trackable ankle bracelets with built-in electroshocks that are operated remotely.

There is enough documentation on those topics. So much so, that I find it amazing that some policymakers and Congress are still finding excuses not to change these unjust laws. Wouldn’t they have the interest to change it? On the contrary, they are motivated to keep it the way that it is.

So, you ask, why don’t we come back to the US or renounce our citizenship?

To the first question; many of us have families where we live. Do you want to force child separation? Do you want to force divorces? Do you want to eliminate the fundamental human right of freedom of movement? If so, I will renounce, because if you represent America, then America has lost all of its humanity. Do you want the US to be the least free country in the industrialized world?

Therefore, my answer to you is that it is none of your business.

Renounce? Without mentioning the 400% increase in cost to renounce, and that paying $2350 per person in a family is a pretty big hit, I want you to know that we are Americans. What does that do for the US if we renounce? For every renunciation, there are generations afterward that will not be American. Does that do something for you? Do you get something out of it if we are forced to renounce? You may see us as being un-American, but it is not your job to do that.

And before you say it, it is not that I enjoy any exclusive benefit of being American. I have three nationalities in my direct family, and all of them enjoy the same benefits. My wanting to hold on to my citizenship results in the fact that I still help my country, nearly daily. I can help with trade. I can support benchmarking education. I can provide information about healthcare.

I do care what happens back home. Like a lot of us, we provide the US with benefits, much more than we take. Every day, all of us represent the US to the world — in the flesh. Daily, we get confronted with explaining what the hell the Americans are doing. We usually answer to try to keep us in the best light. That is the meaning of soft power, and it is vital.

It is not just a benefit for us to be Americans; it is a benefit to America to have us.

If you do not like that, go to hell. I take that back. I am worried about your ever-increasing dumbness. You seem to believe that you can determine who should be American and who not. Maybe I am here to remind you that you can’t. An American abroad is just as American as you are.

If policymakers are going to stay in their bubble, they should not be policymakers

Despite it being evident that this system is nothing but discrimination, many policy people have found a myriad of excuses to keep the punishment of Americans abroad in place. And that is what they are communicating.

They are obsessed with:

1) the theory that if the US treated expats like all other countries treat their expats, millions of rich people would move money from the US and hide it or

2) the United States has an entitlement to take money out of other countries’ tax base because of American exceptionalism.

I will explore these topics more intensively in Part 2.

Gregory Swanson

Written by

Sales and Marketing management veteran and a father of two. He lives in Switzerland. Greg runs Swanson Global Marketing https://www.swanson.ch

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