Perhaps some of the disaffected Hollywood elites who threatened to leave the country after Hillary's staggering 2016 election loss have actually followed through on their childish temper tantrums after all...
According to a Bloomberg note today, a record 6,800 Americans are expected to renounce their citizenship in 2017, a 26% increase YoY and nearly 7x the pace set just 5 years ago.
In the third quarter of this year, 1,376 Americans renounced their U.S. citizenship, putting the annual tally on track to top 2016’s record, data from the Treasury Department show.
If this year’s fourth quarter mirrors that of 2016, when 2,365 people chose to expatriate, 2017’s annual tally would be 6,813. That’s a 26 percent rise from 2016’s total of 5,411—which was itself a 26 percent jump from 2015.
Of course, the uptick, unfortunately, has nothing to do with disaffected Hollywood elites but rather 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.
As Fortune pointed 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." So, when all those sunbathing tax evaders had their Swiss bank accounts exposed in 2010 they started to renounce their citizenship in record numbers.
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."
And while we know many of you will be disappointed that our disaffected celebs aren't the key driver of the data above, we encourage you to keep an eye on this IRS list of American quitters...perhaps Lena Dunham's name will show up on there yet.