Perspectives on Compliance with Citizenship-Based Taxation

I've thought more about taxation in the past year than in all my 47 years combined. For most of my life taxation has been a no-brainer. When I lived in the U.S. and worked my way through university, I was subject to local and federal taxes and I always paid up. The only time I ever really gave it any thought was at election time when I was asked if I would be willing to fund this and such. Sometimes I said yes and sometimes I said no but after checking the appropriate boxes, I let it go and went on with my life.

When I moved to France many years ago I brought that attitude with me.  I firmly believe that taxes are the price of civilization.  If I want healthcare, good roads, firemen, teachers, public transportation, museums and all the goodies that government can provide then I need to haul out my checkbook and fund these things.  

When I talk to my fellow Americans abroad that's pretty much their take on it as well.  I hear very few complaints from Americans living in France about the high rate of taxation because they (and I) perceive that being able to live in a well-run modern country under good government is worth the price.  

So given that most us of don't object to being taxed, nor do we have a problem with government, why then do Americans abroad have a problem with U.S. citizenship-based taxation?   Many of my friends back in the U.S. ask me in all sincerity, "What's the big deal?  Just file the damn forms already. " Take the exemptions and those foreign tax credits, they assure me, and you won't actually have to pay anything.

I listen to these arguments attentively and I have to wonder if they've really thought this one through.  Do they really want all 6-7 million of us to flood the U.S. government with millions of useless pieces of paper (tax forms, bank account and asset reports) that will cost U.S. taxpayers money to process but that they themselves believe will not generate a dime of revenue.  

Aside from the fact that they are fundamentally incorrect and that, yes, Americans abroad can end up paying U.S. taxes even if they take all the exemptions, are homelanders really saying that they are so determined to get us to comply that they are willing to divert their tax dollars away from things like interstate highways, national parks and the defense of the nation to ensure that a few folks living abroad aren't getting away with something?

The answer, strangely enough, seems to be "yes."   I'm starting to believe (and please feel free to disagree) that it's not really about the money, it's about the very uneasy relationship that homeland Americans have with the Americans who live abroad.  Homelanders don't know much about us and so we are a blank screen upon which they can project their fantasies (good and bad).

Some seem to feel that we've done a marvelous and very courageous thing by "escaping America" and wish they could do they same.  How else to explain the popularity of all those books about quitting one's job, buying a plane ticket and moving to France to restore a stone farmhouse or live it up in Paris?  Others are rather suspicious of us and our loyalties.  They don't understand why anyone would leave the U.S. and even when do see a reason for it (a job or marriage to a foreign national)  they seem to feel that such choices should have consequences.  I was once told by an older American gentleman in an airport that my marriage to a Frenchman and our decision to live in his country should have meant that I lost my U.S. citizenship.  He was dead serious and a bit hostile about it but it was his point of view and I have to thank him for stating it so clearly.  And, yes, there was a time when that would have been true - marriage, long-term residency in another country or acquiring another citizenship would have resulted in the loss of one's U.S. citizenship.  The law may have changed but attitudes and feelings about this sort of thing remain and may take generations to catch up.

So from the homelander perspective (a perspective I am trying desperately to understand) asking those of us who live abroad to participate in the national ritual of filing U.S. tax form 1040 every year seems (to them) such a small thing to ask.  It irritates and hurts them that we are not happy about it.  I was reading through the comments following a recent media article on this topic and I winced when I read one homelander's words:  it's the least you can do, he said, after having abandoned us.

I have no control over other people's thoughts and feelings.  The best I can do is to try and understand the other perspective and have some empathy for it.  But empathy can only take us so far.  On some level real understanding isn't possible.  Homelanders who have never lived outside the U.S. can't know in their bones what it's like to live abroad.  And those of us who did leave for distant shores will never know what it's like to live in just one country for one's entire life.  These are two radically different experiences and they are mutually exclusive - you can't live both.

Best I can do is give my perspective as an American who chose to leave the U.S. and who up until very recently was rather proud of being an unofficial ambassador from my home country to my host country.          I come from one of the most beautiful and congenial parts of the U.S., the Pacific Northwest, and there was never anything to "escape."  I could have spent my entire life in the Puget Sound region and I think it would have been a very good life - not better than the life I've lived abroad, just different.  I don't think I've done any harm by living outside the U.S. and when I've seen an opportunity to do some quiet good on my home country's behalf, I stepped up and did my best.  I may not have agreed with the decision to go to war in Iraq but when I was faced with a group of angry Frenchmen and women questioning me about it over lunch, I tried to convey an American perspective on it.  That Americans themselves have changed their minds about the whole business does not in my mind change anything and if I had to do it over I would do it again in a heartbeat.  I truly believed it was my job to make that effort at mutual understanding.  In some ways living outside the U.S. made me much more aware of what it means to be an American.

So I get a bit testy when I feel that my loyalty is being questioned and that the burden is on me to prove that I'm not a tax evader or a drug lord or a money launderer.  For the record, I work in IT and I think the most nefarious thing I've ever done is be a foot soldier for international capitalism (perfectly legal but morally dubious).  The presumption of innocence seems to be suspended for those of us who have done something that, from our perspective is quite normal, but is viewed with enormous suspicion by our compatriots back in the home country:  live, work, and raise families outside the U.S.  And I guess I fail to see the link between filing a 1040 or a bank account report and love for my country of origin. As a loyalty test, let's face it, it's rather ridiculous.

The bottom line is that I, like many others, simply don't agree with the basic premise of citizenship-based taxation.  We don't see this as an effort to evade our responsibilities or to abandon the homeland.  It's about the fact that we already pay taxes where we live, earn our income and save for retirement and we don't think we should have to pay taxes or file complicated paperwork to two or more countries on the same income and assets.  If I had moved from Washington state to Texas instead of France, I doubt any homelander would argue that I would owe taxes to Washington state for the rest of my life.  What we want is that the basic principle, territorial taxation, be extended to those of us who move, not just across the U.S. continent, but across countries as well.  Tax us on our U.S. assets, tax us if we move back to the U.S., but don't go after our savings earned elsewhere that has already been taxed in the country in which it (and we) reside.

One last word.  Do not underestimate how strongly Americans abroad feel about this.   I have yet to meet one American abroad who is non-compliant with the U.S. tax and reporting requirements who believes in his or her heart that he is a "tax evader."  And all the yelling and efforts by the homeland aren't going to change that and I would even go so far as say that I don't think the much touted new IRS Path to Compliance is going to help much.  Yes, a 5% penalty is better than a 27.5% penalty but many view even that as an admission of guilt.  Psychologically I don't think Americans abroad are willing to agree and pay out that kind of money because they don't think they've done anything wrong.

You could hire 10,000 new international IRS agents (proposed number is actually around 800) to enforce citizenship-base taxation around the world and all that will do in my honest opinion is expand the scope and size of the U.S. government, generate enormous ill-will among those who are in a position to do the U.S. some good in their host countries, create a new class of Closet Americans (those who have tossed their passports in a drawer, avoid the U.S. and hope for better days), and radically increase the number of U.S. citizens seeking second citizenships and renouncing.  And all of these lovely outcomes paid for by taxpayers living in the U.S. to the detriment of other homeland priorities like education, infrastructure, national defense, parks and the like.

Two different perspectives and we seem to be at an impasse these days.  I first started writing many months ago about what I call the Diaspora Tax War of 2012 and I regret to say that today the situation has not fundamentally changed.  I'm even seeing some signs that really disturb me -  the development of an "us" versus "them" mentality where once upon a time it was simply Americans at home and Americans abroad.  From the perspective of the former, the latter just need to get with the program, do their duty, and comply with the law that requires all U.S. citizens to report their personal finances and submit for taxation regardless of where they live or earn a living.  Well, Americans abroad don't agree with the program, don't see that this has anything to do with loyalty to, and love of, the U.S., and they feel the laws (FATCA and citizenship-based taxation) are fundamentally unjust and unreasonable.

The way it stands right now nobody is going to win this one.  To the division between Red and Blue States, we can now proudly add a divide between "homelanders" and Americans abroad.

Does kind of look like that grand American experiment is fracturing into smaller and smaller pieces.  So what are we all willing to do to fix it?  Does anyone these days (at home or abroad) even care enough to try or is this a lost cause?  I really have to wonder....