Record numbers of wealthy Americans are leaving the country permanently -- but why?
James Cameron, director of mega-hits such as Titanic and Avatar, is moving to New Zealand. His plans were revealed late last week when New Zealand's Overseas Investment Office showed Cameron was granted permission to purchase two separate properties, totaling 2,634 acres, in a region called Wairarapa, northwest of Wellington. "I grew up working on my grandfather's farm in Canada and my wife Suzy's family own a farm in Oklahoma," said Cameron. "We want to raise our kids with the values we had when we were growing up, close to the land and with a strong work ethic." Some posit the director's departure "fits the trend of wealthy Americans pulling their money out of the country and reinvesting it to buy land in the southern hemisphere, escaping spiraling tax rates and protecting themselves against the potential for widespread social dislocation." Is such an assessment a conspiracy theory, or is there any truth to it?
Certainly, there is an ominous sound to the fact that, according to the INS/Census Bureau & Zogby International, the top one percent of U.S. taxpayers are leaving at the highest rate in history. But the numbers relative to the general population are fairly small. The troubling element here? The trend is straight upward. According to an Internal Revenue Service (IRS) report, from 2008 through the first quarter of 2011, the number of people who have given up their citizenship, or terminated their long-term, permanent residency status has increased nearly nine-fold. Quarterly averages in 2008 and 2009 were 58 and 186, respectively. In 2010 the average jumped to 384 per quarter, and in the first quarter of 2011, 499 ex-pats bid America a permanent adios.
Why are they leaving? The IRS offers no explanation, but lawyers who specialize in helping people re-locate have two prevailing theories. Theory number one is taxes. “I think this is coming to the forefront because of offshore reporting and banker reporting issues,” said Peter Connors, a tax attorney in New York. “There is a price to being a citizen of the U.S. and at a certain point the price may not be worth it.” This likely reflects the efforts of a three-year push by the Department of Justice (DOJ) to target wealthy Americans who avoid taxes by keeping their money out of the country. Last July, three Swiss bankers and an executive were indicted on conspiracy charges. The theory behind such indictments is to go after those who facilitate alleged tax cheating, as opposed to just the cheaters themselves. Apparently it's working. As of September 2011, the IRS had collected nearly $3 billion in taxes, interest and penalties from 30,000 taxpayers.
Currently, a Report of Foreign Bank and Financial Accounts (“FBARs”) must be filed by any U.S. person who has a “financial interest” in, or “signature authority” over, any “financial account” in a foreign country, if the aggregate value of the account or accounts exceeds $10,000 at any time during the calendar year. Penalties for failing to file an FBAR can be severe: as much as $10,000 for each violation, and the greater of $100,000 or 50 percent of the balance of the account for "willful violations." Furthermore, America is the only industrialized country that requires citizens to pay income tax on offshore earnings.
Yet there may be unintended consequences. After Reuters ran a story on the subject, they were contacted by several people "with tales of woe," claiming IRS penalties for failing to file paperwork are "drastically out of proportion" to the amount of taxes owed. For example, Marvin Van Horn, a 62-year-old U.S. citizen and permanent resident of New Zealand, first heard of the requirement in 2009 during a visit to the States. Despite owing less than $20,000 on six years of back taxes, he was looking at penalties totaling $172,000. After 26 months of offers and counter-offers, the penalties were reduced to single "non-willful" FBAR penalty of $25,000. "Why the hell couldn't the IRS devise a method to separate the minnows from the whales at the beginning of the process?" asked Van Horn.
He won't be the only one asking. Five to six million Americans living abroad, along with 39 million immigrants in the U.S., should theoretically be filing an FBAR. Yet in 2009, only 534,043 were filed, according to the Treasury Inspector General for Tax Administration. "They built the program for criminals, and they just can't figure out how to deal with all these innocents who've been caught up in it," says Mark Matthews, a tax partner at Morgan Lewis & Bockius in Washington, D.C, and former top IRS official.
Unsurprisingly, some of those who spoke to the newspaper said they were considering expatriation as soon as they got their tax affairs in order.
Theory number two for renouncing one's citizenship? “There is growing concern, particularly among the wealthy, about the future financial direction of the country,” said Paul L. Caron, Charles Hartsock Professor of Law at the University of Cincinnati College of Law. “This President constantly demonizes the wealthy, who undoubtedly are concerned about the tax policy that would emerge in 2012 if a re-elected Barack Obama, unconstrained by re-election concerns, finally confronts the budgetary train wreck that he has done so much to exacerbate.”
Budgetary train wreck indeed. Despite last Friday's "rosy" jobs report, the utterly deceptive nature of which is explained here, there are other more important factors to consider. The latest report by the Congressional Budget Office (CBO) projects economic growth of only 1.1 percent in 2013--and an unemployment rate once again climbing to 9.2 percent. Furthermore, the 2012 deficit will break $1 trillion for the fourth consecutive year, the economy's growth will slow in 2013 as spending cuts take hold, and unemployment will stay above 7 percent through 2015. The housing market is equally dismal. Patrick Newport and Erik Johnson of IHS Global Insight note that home construction numbers over the past three years have been the worst since record-keeping began, declining to the lowest level since World War II. The median price of houses continues to fall, and December marks the 13th straight month of declining values.
Throw in the Federal Reserve's record low interest rates (lower longer than the Great Depression), the monetary crisis in the EU, and president Barack Obama's obsessive determination to promote class warfare--including his latest, and rather unseemly, attempt to use Jesus Christ as a rationale for raising taxes on the wealthy--and one can understand why some of those wealthy Americans see a dark picture getting darker.
Why Hollywood director and noted leftist James Cameron is "really" moving to New Zealand is anyone's guess. But there is no need to guess why this president and his fellow leftists continue to promote class warfare. The alternative is to run for election or re-election based on the dismal results of their agenda over the past three-plus years--including two years when they controlled both chambers of Congress and the White House. Perhaps the most stunning aspect of the left's continuing attempts to vilify successful Americans is what must surely animate it: leftists apparently believe economic incentives and government coercion are interchangeable terms. They're not, and successful Americans know it, far better than most. Why are the wealthy abandoning America in ever-greater numbers?
Because they can.
Freedom Center pamphlets now available on Kindle: Click here.