Time for More Americans to ‘Unfriend’ the U.S?

Facebook Co-Founder Expatriates: America Losses another Entrepreneur…

eduardo saverin Crushing taxation encouraged Facebook’s Eduardo Saverin to expatriate.
Facebook, Facebook, Facebook. It’s been in the news constantly.
Putting aside Facebook’s initial price offering (IPO) flop of last Friday (which occurred because Morgan Stanley got greedy and issued too many shares), the OTHER big story was almost completely missed: wealth creators are shunning the U.S.
Facebook co-founder Eduardo Saverin repudiated his U.S. citizenship right before Facebook’s much anticipated IPO this month. While Saverin had already been living in Singapore, dropping his U.S. citizenship allowed him to escape millions of dollars in capital gains taxes that his higher-valued Facebook shares would eventually trigger.
He figured he’d just pay the taxes now and exit the U.S.
Atlas Shrugged Predicted This Nightmare… and More
If you’ve read Ayn Rand’s novel, Atlas Shrugged, or watched the 2011 movie by the same name (the sequel is begin filmed now), you’re familiar with the story.
As explained in Wikipedia, “In the world of Atlas Shrugged, society stagnates when independent productive achievers are socially demonized and even punished for their accomplishments… Society’s most productive citizens refuse to be exploited by increasing taxation and government regulations and go on strike by disappearing [and dropping out of everyday society].”
This is a work of fiction; however, the seeds are sown, and this theme is increasingly being played out in the U.S. today.
Economic Tyranny Rising: Good People Leave Rotten Systems
In a past Executive Bulletin, we reported how the average number of individuals who renounce their United States citizenship or terminate long-term U.S. residency, continues to accelerate.
Government numbers, according to Bloomberg, show “a record 1,780 gave up their U.S. passports last year compared with 235 in 2008.”
Based on current records, for the quarter ending March 31, 2012, nearly 460 individuals have expatriated and terminated U.S. citizenship. If this number stays constant over the coming quarters, 2012 will beat last year’s record.
It’s a loss for the U.S. to have many well-educated people who actually have a great deal of affection for America make that choice,” said Baker & McKenzie head of the global tax practice.
Overbearing U.S. Financial Police Are Squeezing Hard and Harder
The U.S. is one of the few countries where all citizens must report and pay income tax even if they no longer live in the U.S., and even if all their income is earned outside the U.S.
Facebook’s Saverin is a long-term resident of Singapore and plans on residing there for the foreseeable future. By dropping his citizenship before the Facebook IPO (his take of the IPO market capitalization is estimated to be as high $3.84 billion), he won’t be subject to IRS taxes once he’s ready to sell in the future. Singapore has zero capital gains tax.
Another benefit, by not being a U.S. citizen, he may have many more investment options abroad. For the past few years, U.S. regulators have put pressure on the international banking community by demanding all of them to hand over any and all information they have on their U.S. customers.
This is seen as a bully tactic by foreign owned banks. To avoid dealing with American bureaucrats, regulations, and the IRS, many foreign financial institutions are simply refusing to accept business from American citizens.
Saverin no longer has that baggage. The world of investment is now wide open to him. (Saverin was born in Brazil and retains his Brazilian nationality.)
Phony Patriotism: The Last Refuge of Crony Capitalism
Some detractors have criticized Saverin on grounds of patriotism. In the Bloomberg report, a University of Southern California (USC) tax law professor Edward Kleinbard criticized Saverin, “It’s plainly lawful and at the same time profoundly ungrateful to the country that provided these opportunities for him… He benefited from his U.S. education, the contacts he made at Harvard, and most important the extraordinary openness and flexibility of our economy that encourages startup ventures to flourish.”
Senator Casey
A vindictive Senator Charles Schumer (D-NY) went a step further, essentially issuing a “letter of mark and reprisal” against Saverin. Introducing what he has styled the “Ex-Patriot Act” to permanently ban folks like Saverin from ever setting foot in the U.S. again, Schumer said, “Eduardo Saverin wants to de-friend the United States of America. Sen. Casey and I have a status update for him: Pay your taxes in full or don’t ever try to visit the U.S. again. This is a small, narrow group. And they deserve to get the treatment we’re giving them.”
Never mind all the hard work Saverin put in to achieve his success – and the risks he took. There was absolutely no guarantee whatsoever that his U.S. education, Harvard contacts, or the openness and flexibility of the U.S. economy would have turned out the way it did. He could have easily ended up as one of the millions of well-educated, unemployed, and highly indebted college graduates. Instead, he helped create thousands of U.S. jobs and enriched the lives of millions.
The fact is politicians and our tax system are profoundly ungrateful to (and abusive of) the entrepreneurs and job creators in our midst. It’s downright unpatriotic how our politicians have racked up $15 trillion dollars, tarnished our country’s AAA rating, and created onerous regulations and tax structures that strangle innovation and drive off our entrepreneurs.
You may not have any intention, nor any need, to renounce your U.S. citizenship to protect yourself from the heavy hand of the IRS or to take advantage of opportunities overseas, but this American brain-drain is a trend you should be carefully watching. If it continues to escalate, it could affect how you handle your financial affairs in the future.
The soon-to-be-released subscription-only June edition of Independent Living newsletter, which I am proud to publish, has an important article on the surprising facts behind the extreme step of renouncing one’s citizenship. Keep an eye out for it.