Awful Tax System Causing a Growing Number of Americans to "Go Galt"

Being an American citizen is an honor in many ways, but it is a huge millstone around the neck for highly successful investors and entrepreneurs because of an oppressive and complex tax system. This is particularly true for those based in and/or competing in global markets. Indeed, because the tax system (and regulatory system) is so onerous and because it is expected to get far worse in the future, a growing number of Americans are actually giving up citizenship and "voting with their feet." The politicians view these people as "tax traitors" and are trying to erect higher barriers to hinder economic migration, particularly in the form of confiscatory "exit taxes" that are disturbingly reminiscent of the totalitarian practices of some of the world's most unsavory regimes. The Wall Street Journal recently reported on this issue:

The number of American citizens and green-card holders severing their ties with the U.S. soared in the latter part of 2009, amid looming U.S. tax increases and a more aggressive posture by the Internal Revenue Service toward Americans living overseas. According to public records, just over 500 people world-wide renounced U.S. citizenship or permanent residency in the fourth quarter of 2009, the most recent period for which data are available. That is more people than have cut ties with the U.S. during all of 2007, and more than double the total expatriations in 2008. An Ohio-born entrepreneur, now based in Switzerland, told Dow Jones he is considering turning in his U.S. passport. Mounting U.S. tax and reporting requirements are making potential business partners hesitate to do business with him, he said. "I still do dearly love the U.S., and renouncing my citizenship is not something I take lightly. But more and more it is seeming like being part of a dysfunctional family," said the businessman, who asked that his name not be used for fear of retribution. "The tax itself is only a small part of the issue," the Swiss-based entrepreneur said. "It's the overall regulatory environment." ..."Fifteen or 20 years ago there was a big rush to make sure your kids became U.S. citizens, for access to U.S. schools for example," said Timothy Burns, a tax lawyer at Withers law firm in Hong Kong. "Now we're seeing just the opposite." Last month, the Treasury Department announced more rigorous requirements for Americans living abroad to report information on foreign bank accounts. The reporting requirement has been in place for years, but only in the most recent couple of years has the IRS gotten tough about enforcing penalties. ...Others are giving up their U.S. nationality to avoid tax increases in the U.S., as the government struggles under huge budget deficits. The top marginal tax rate is set to rise to 39.6% from 35% at the end of this year. A proposal to tax fund manager pay at ordinary income rates, instead of the 15% capital gains rate, is gaining currency in Congress. "Everybody sees the tax rates are going up. At a certain point, it gets beyond people's pain threshold," said Anthony Tong, a tax partner at accounting firm PricewaterhouseCoopers in Hong Kong. Unlike most jurisdictions, the U.S. taxes the income of citizens and green-card holders no matter where in the world it is earned.