Latest / IMI Podcasts / It Isn’t the UK: Why a US Tax Hike Won’t Cause Millionaire Exodus

Transcript

It Isn’t the UK: Why a US Tax Hike Won’t Cause Millionaire Exodus · IMI Podcasts

• 0:00
  SPEAKER_00: President Trump once claimed that taxing the wealthy would make a lot of the millionaires leave the country.
• 0:06
  SPEAKER_00: In reality, few, if any, would go if the government raised taxes.
• 0:11
  SPEAKER_00: U.S.
• 0:12
  SPEAKER_00: millionaires can't simply leave.
• 0:14
  SPEAKER_00: The United States is one of only two countries in the world, Eritrea is the other, that taxes based on citizenship rather than residency.
• 0:24
  SPEAKER_00: In most countries, you pay taxes where you live.
• 0:28
  SPEAKER_00: Don't like the rates?
• 0:29
  SPEAKER_00: Move.
• 0:30
  SPEAKER_00: Americans don't have that option.
• 0:33
  SPEAKER_00: Even if they settle in the United Arab Emirates, where personal income tax doesn't exist, they still owe the Internal Revenue Service.
• 0:41
  SPEAKER_00: The only way to escape U.S.
• 0:43
  SPEAKER_00: taxation is for Americans to renounce their citizenship.
• 0:48
  SPEAKER_00: Expatriation is a drastic, often irreversible move, one most Americans aren't willing or able to make.
• 0:56
  SPEAKER_00: For many, renunciation feels unpatriotic.
• 1:00
  SPEAKER_00: Others can't imagine leaving home.
• 1:03
  SPEAKER_00: And plenty work in fields like medicine, law, or government contracting that require licenses or opportunities only available in the United States.
• 1:14
  SPEAKER_00: Even those willing to renounce face major hurdles.
• 1:17
  SPEAKER_00: Many may even struggle just to get a renunciation appointment.
• 1:21
  SPEAKER_00: They must also already hold another citizenship to expatriate.
• 1:26
  SPEAKER_00: If they don't, they'll need to get one, typically through ancestry or citizenship by investment, also known as CBI.
• 1:35
  SPEAKER_00: But most CBI passports don't compare.
• 1:39
  SPEAKER_00: People who are used to traveling the world visa-free on a U.S.
• 1:43
  SPEAKER_00: passport rarely trade it in for one that requires a visa almost everywhere.
• 1:48
  SPEAKER_00: Then there's the exit tax.
• 1:50
  SPEAKER_00: Most wealthy individuals qualify as covered expatriates, those with a net worth of$2 million or more, an average annual income tax bill exceeding$206,000, or unresolved tax compliance issues.
• 2:06
  SPEAKER_00: That classification applies to most millionaires by default.
• 2:10
  SPEAKER_00: The exit tax has two components.
• 2:13
  SPEAKER_00: First is a mark-to-market tax on unrealized gains.
• 2:17
  SPEAKER_00: You're taxed as if you sold everything the day before renouncing.
• 2:21
  SPEAKER_00: There's a gain exclusion of$890,000, but that doesn't go far for most high net worth portfolios.
• 2:30
  SPEAKER_00: Second, the government taxes deferred compensation, such as IRAs, as though fully distributed the day before expatriation.
• 2:40
  SPEAKER_00: It gets worse for the heirs.
• 2:42
  SPEAKER_00: U.S.
• 2:43
  SPEAKER_00: citizens who receive gifts or inheritances from a covered expatriate are generally hit with a 40% gift or estate tax.
• 2:51
  SPEAKER_00: If a parent renounces citizenship and their child doesn't, the child could lose nearly half of whatever they inherit.
• 2:59
  SPEAKER_00: And finally, U.S.
• 3:00
  SPEAKER_00: source income, like dividends, interest, and partnership income, remains subject to U.S.
• 3:07
  SPEAKER_00: tax.
• 3:08
  SPEAKER_00: Most millionaires, even those who could afford it, won't expatriate.
• 3:13
  SPEAKER_00: The cost to themselves and their heirs is simply too high.
• 3:17
  SPEAKER_00: The United States may be the only country in the world that can raise taxes on the wealthy without driving them away.
• 3:25
  SPEAKER_00: Whether or not raising taxes is a good policy, it won't spark a mass millionaire exodus.
• 3:33
  SPEAKER_00: This episode first appeared as an article by Jimmy Sexton on IMIDaily.com.
• 3:39
  SPEAKER_00: Subscribe for free to the IMI newsletter for breaking news and updates from the investment migration industry.
• 3:46
  SPEAKER_00: And upgrade your membership to IMI Pro to get access to our exclusive professional community, citizenship catalog, investment migration company Rolodex, private briefings, and more members only content.