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Emily Dutton,

Correspondent (Our World)

 

To migrants, an American passport is perhaps most universally desired. With it comes the key to unlocking the American dream. For some, that is the quiet life in a Californian suburb, while others go in search of a high profile job in the centre of Manhattan. For generations, the sunny American lifestyle has been portrayed in countless Hollywood pictures and consequently longed for by many. Enticed by the hope of better weather, bigger houses and more money, their reasons are understandable. The quest for citizenship begins with the infamously rigorous and painful visa application process, something that would likely scare off the half-hearted migrant. However, many battle through this pain staking practice with their American dreams in sight. With this in mind, it is difficult to believe that a significant number of Americans are considering giving up their US citizenship, but this recent trend is the decision that people from all over the United States are making.

So, what is the logic behind this seemingly odd decision? The answer is a three letter word which at one point or another has frustrated most people in their lifetime: tax. Under new laws, Americans who are living abroad but maintaining their US passports will be taxed as Americans as well, as paying tax to wherever they live. While this is aimed to crack down on those who may be bending the rules of the current law to dodge taxes, fears have arisen that it may unfairly burden the honest Americans, who will struggle financially when this new law comes into action. Some were so worried that they have decided to give up their citizenship and appear to have decided that the advantages of their citizenship are outweighed by these laws.

The number of expatriates to renounce their citizenship has risen significantly from this time last year. Only around 190 people made the decision to give up their citizenship in the second quarter of 2012, compared to the 1,131 cases in the same period this year. Although this may still seem like only a small proportion of the six million Americans living abroad, the rate at which figures have risen is significant and likely to continue.

The law, called Foreign Accounts Tax Compliance (FaTca), will take effect from July next year. Under new conditions, all financial institutions across the world will be required to directly report assets and incomes of its American citizens to the US Internal Revenue Service. Banks are strongly encouraged to comply with these terms and any organisation that fails to do so risks facing interest payments.

The decision to renounce citizenship is not one that can be made rashly. It takes time and careful consideration and for many was a tough decision to make. Expats are likely to still have friends and family in the US, it will be more difficult to visit loved ones if they are no longer classed as citizens. Also by losing their citizenship they are losing part of their identity. If they cannot afford to keep their citizenship under new regulations, this loss of identity seems extremely unfair.  Although the US authorities are no doubt planning to tackle the millions of unpaid taxes for overseas assets, they need to consider the cost to the majority of honest Americans living abroad.

Image Courtesy: By Jnn13 (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons

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Emily Dutton