Is the US a sort of Roach Motel?
- Posted by Jeff Carter
- on April 19th, 2010
Immigration is a big hot button issue in some states, especially those along the southern border of the US. However, does anyone ever look at emigration from the United States? Now that we are on the road to western european style socialism thanks to the
DemocraticSocialist party, perhaps we should take a look at it.
People used to flee from Europe to the US for many reasons. In the early 1900’s, it was for economic opportunity, and it still is the primary driver of immigration from all over the world today. Latin Americans, Indians, Asians come here for the same reasons Europeans came, the streets of the US are paved in gold compared to where they came from. That may have been true, but in a socialist republic, that will not necessarily be the case.
What if you become a citizen here, and then want to leave? Or suppose you were born a US citizen, and want to change your US citizenship for a different country? I think it’s important to recognize that under European style socialism, economic incentives will be changed. Freedom in the US will go down relative to freedom in other countries. People might make different choices regarding immigration to the US.
There are extensive volumes written about the trials and tribulations of getting into the US. Green cards, visas, interminable waits. Gary Becker has proposed a pretty ingenious solution of supply-demand economics with regard to immigration. Less has been written about what it’s like to give up American citizenship, and the price you pay to do it. With the passage of the American Heroes Act in 2008, it got a lot more expensive.
Let’s say I see greener pastures in another country. I am a US citizen. If I decide to leave, and renounce my US citizenship, I have to file a form 8854 with the IRS. Then they look at your income and assets. If you make $139,000/yr, and/or have assets of $2,000,000; you will be taxed. The government will mark to market all of your world wide assets. Capital gains and income taxes are charged to everything, even if you haven’t sold the assets. If you bought a home in France for $100,000 that was now worth $200,000; you get taxed $15,000 (or $23,900 under the new Obama cap gains tax that starts in 2011). If you had deferred compensation, your compensation is marked to market. The tax on it is the highest rate, 35% (going to 39.5% after 2011, thanks Obama!). Any IRA’s, 401(k)’s that you have; marked to market and taxed. Any trusts or gifts, marked to market and taxed at the highest rate. Oh, you also get to pay any social security taxes too! It’s a pretty massive tax bill.
In the last quarter of 2009, over 500 people gave up their American citizenship. It’s not a big number compared to the amount that want to get in. But with all the tax increases, I think it’s a number we ought to watch. Currently, most are dual citizenship holders. They elect not to become Americans. Some are green card holders, and have lower rates of taxation at home. American ex-pats living abroad make up a lot of the number as well. In 2006, taxes on ex-pat American workers living abroad were increased heavily. That has other more severe repercussions than just taxes in a global economy.
Many natural born American citizens will begin to do the math. Suppose you are young and just starting out? You have no assets, no retirement, no income. The cost/benefit analysis becomes a lot different. If you have accumulated an extremely large nest egg, and want to avoid heavy expected taxation in the future, you might want to pay and go. I don’t see a rush to the exits by existing Americans in the work force. But, I certainly would watch the kids that are in college today and younger. Currently, the job market here isn’t too pretty and might have them searching for other places to live with better opportunity.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)