The New Berlin Wall: Heroes Earnings Assistance and Relief Tax Act 2008

Yesterday I sent my application for Canadian citizenship via registered mail to the Sydney, Ontario, Processing Centre.  An American citizen from birth, I’ve lived outside the USA, first as a student then as a permanent resident of Canada, since 1986.  I’ve never really felt that I needed Canadian citizenship.  My reason for applying now is that it is inconvenient being an American living in Canada.  So before my citizenship ceremony in a year or so, I will be renouncing my US citizenship.  Likely, for a few days while awaiting the ceremony, I will be a stateless person. [actually, I became a Canadian on February 28, 2011, and informed the US Consulate in Toronto of my relinquishment on April 7, 2011]

The United States is the only country in the world that requires that all its residents and all its citizens, even if living abroad, pay tax, though there is an earned income exemption of $70,000 [over 90,000 today] and foreign tax, dollar per dollar, credit.  The threshold for filing is ridiculously low.  As a married person filing a separate return, I must file if I make more than $2000; this despite the knowledge that as a resident of Canada, it is difficult to imagine very many scenarios where I might be liable for tax, since the rate here is higher than in the USA, particularly for lower income earners.  But it is a hassle to file every year, and it creates a lot of anxiety for me.  Last year, my accountant forgot a certain form and he was sick when I was required to send the amendment, and so I had to do it myself and that created a huge headache.

So I am not going to renounce my citizenship because I owe tax.  I am liable to the IRS for nothing.  I am doing it first of all because I am tired of filing a frivolous return to the IRS each year; frivolous because I owe nothing, and cannot possibly owe anything living here in Canada.

But there is another even more important reason which I call the “New Berlin Wall”.  Since 2008, the US has placed particular restrictions on wealthy people who wish to expatriate.  If I were to own 2 million in assets or if my average net income tax liability over the last five years were $139,000 , I would be a “covered expatriate” upon renouncing my citizenship.  The law penalizes these individuals with exorbitant expatriation tax that boggles the mind.  Why?  To keep them in the USA.  So it is a Berlin Wall designed to keep people from leaving the US.

I am long way from being a covered expatriate.  But with the devaluation of the dollar due to hyperinflation, I foresee being there soon.  Therefore, I’ve decided to leave before the law applies to me; because it was much easier to leave East Berlin before the Wall was built.

Oh and by the way, Go Canada Go!!!

[corrections, 20 April 2011]