An editorial with the headline “Stop treating American expats like tax cheats” has struck a chord with overseas United States citizens.
Written by Andreas Kluth, a member of the editorial board of the Bloomberg news organization, the editorial says that “an estimated nine million American citizens living outside the U.S. face a tax nightmare those at home can’t imagine and none should ever suffer.”
It explains that the United States is one of only two countries (the other is Eritrea) in the world that taxes its citizens even if they live abroad.
The obligation to file tax returns, even if expats don’t owe the United States government any money, is expensive and annoying and causes “needless anxiety,” Kluth writes.
He says that penalties even for innocent mistakes on filed returns can be “draconian” and that the United States treats citizens with foreign bank accounts as if they were likely tax evaders or money launderers.
Kluth, a dual U.S and German citizen, also notes that Americans with foreign assets must disclose them to both the Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network.
He claims that changes to American tax law have exacerbated the problems of the citizen-based tax system.
As a result of a 2017 reform backed by U.S. President Donald Trump, the editorial says, the IRS “now treats the American owner of a lemonade stand in Belgium like Google, forcing them to declare a new kind of income known – say it out loud to feel it – as GILTI.”
Kluth writes that while the original targets of the “harsh” tax regime were wealthy Americans with money hidden in foreign bank accounts, “the victims today are Americans abroad with ordinary incomes and no special tax expertise.”
They include “accidental Americans” – children born in the U.S. to foreign parents who were visiting, for example, or people who were born abroad to U.S. soldiers and continue to live abroad.
Kluth acknowledges that some U.S. expats give up their citizenship but notes that most don’t want to do that and even if they did, the process to do so is prohibitively expensive.
“At a minimum, the U.S. should simplify the rules for its expats and raise the balance thresholds so middle-income filers are exempt,” he writes.
“But the best solution would be even simpler: Follow the example set by almost every other economy . . . and base the personal income tax on residency, not citizenship.”
The November 26 editorial, which was republished by The Washington Post, received a warm reception on social media.
“Thank you for writing about the ‘tax nightmare’ that U.S. expats and accidental Americans must endure,” wrote Twitter user @zachexpat.
“Thank you for spending time to fully grasp this nightmare,” said @wisecroneknows.
“The tax treatment of U.S. citizens is both appalling and unnecessary,” Frank Sportolari, president of the American Chamber of Commerce in Germany, said on Twitter.
“It would take so little to fix the problem and would have virtually no impact on tax revenues.”