(Noted News) — An expert who works in the sector says that he expects the amount of people throwing out their American citizenship is set to surge in the near future.
According to WealthBriefing, David Lesperance, an advisor for high net worth (HNW) individuals, the likelihood of sky-high taxes is chasing the wealthy away from the US amid government spending during the COVID-19 pandemic. The US taxes its citizens on a global basis, regardless of whether they live outside of the country. The US is the only country that follows this policy.
Lesperance notes that many offices that handle citizenship renunciation have been closed since the start of the pandemic, bottlenecking HNW individuals into big waiting lists.
“It must be remembered that since the start of the pandemic, many US missions (where one must renounce citizenship) have been closed or operating at a reduced capacity. For example, I recently received an email from the US Embassy in Berne, Switzerland, saying they had a waiting list of 400 people for renunciation appointments…and that is only one of 307 US foreign missions! So, in summary, the rate of expatriation will continue to accelerate dramatically,” he said.
Based on WealthBriefing’s numbers, 6,705 Americans gave up their citizenship in 2020, which was 260% higher than the year before, even with all the consulates being closed. The previous record was in 2016 when 5,411 people renounced their American citizenship.
The advisor notes that taxes are almost always on the list of HNW individuals’ reasons for wanting to get out of the US. Besides federal income tax, Americans pay hundreds of different taxes, including.
- State income tax
- Local income tax
- Property taxes
- State sales tax
- Federal telephone surtax, excise tax, and universal surcharge
- Cigarette tax
- Alcohol tax
- Federal gasoline tax
Still, Lesperance says tax is rarely the deciding factor in leaving.
“Tax is almost always a major factor but rarely the only one. Control over strategic philanthropy; disenchantment with political partisan paralysis; concerns over civil unrest and increasing societal violence amplified by widespread gun ownership are also frequently mentioned. Add to this a realization that the majority of wealthy people have successfully lived their entire lives without a US passport or full-time residence in the US, and you have a decent understanding of why expatriation is exploding.”
Lesperance notes that the trend of people leaving areas in favor of lower taxes could already be seen at a national level before the surge in citizenship renunciations.
“All of these drivers have come to light because the pandemic has forced many to overcome the inherent life inertia of their previously carefully curated lives. We all know the poster showing the island of Manhattan as the center of the world. Those people were driven out of NYC and discovered that they could survive and thrive elsewhere. This gave them the perspective to look at the tax future that the NYC Mayor; governor and federal politicians had planned for them. Since a body in motion tends to stay in motion, many decided to not only move to a low tax state but also equip themselves to legally and permanently leave the US tax system.”
Following the pandemic, some countries are proposing a “wealth tax,” which would take a flat, one-time tax from HNW individuals in order to stimulate the economy. In Canada for example, this proposed tax is 3%. Lesperance says that he and his clients have little faith that these taxes would ever end up being a one-time thing.
“There’s no such thing as a one-time tax. My clients are under the operating assumption that a wealth tax would be permanent.”