The Economist reports an unfortunately timed sign on the website of the US Consulate in Hong Kong : " Please note that this office cannot accept renunciation applications at this time"
Pending legislation awaiting the President includes the Heroes Earnings and Assistance Act, to give tax relief to serving soldiers.It should be in force on the 16th of June. Buried in it is a provision that ex-pats surrendering their citizenship, with a net worth of $2 million plus, or a high income, must act as though they'd sold all their worldwide assets at a fair market price.That means paying capital gains tax on unrealised gains above $600k before they can renounce citizenship.
Currently they pay income tax for ten years on renouncing citizenship. The capital gains in many countries may well be enormous, given the growth in some markets and investments.It follows that those intending to relinquish American citizenship can be facing a severe cost.Americans who are heavily invested in plunging US markets may yet find this a good time to quit, while they have losses or smaller gains, compared to their prospective gains, to declare.
The new law is intended to stop people renouncing, but a young American abroad, with good career prospects,might find it sensible to quit now before their assets accumulate.
Other countries don't tax foreign income:they leave that to be taxed where it arises and have 'double taxation relief agreements' with other countries, to avoid the same gain or income being taxed twice.Americans, like North Koreans, are taxed on the basis of their citizenship, regardless of where their income or gains originate. That's patriotism enforced by the IRS !
Like other wheezes of this nature it won't necessarily raise a lot of revenue.The Congressional Budget Office estimates that the government will net up to $286 million over five years.
Is the President likely to find this provision unpalatable, whilst being unwilling to veto the bill itself?
Do Congress and the Obama camp have any more anti-rich provisions? Will they raise much?
