The Global Residence & Citizenship Handbook. Christian H. Kälin

      3 Giving up U.S. Citizenship or a U.S. Green Card

      By Professor Marshall J. Langer⁴⁷

      Some wealthy Americans resent being plucked like a goose. They feel that their federal, state and local governments tax about 50 percent of their income while they are alive and try to take the rest when they die. They are aware that it takes a lot of “other people’s money” to pay for a vast system of political featherbedding, to reward political campaign contributors and to pay for give-away programs designed to assure the loyal vote of grateful recipients.

      The debt of the federal government is astronomical. USA is the richest nation on earth and most of its states are essentially bankrupt. The U.S. social security system is a fancy Ponzi scheme. Anyone in the private sector who did what the government does every day would be sitting in jail for the rest of their lives.

      The U.S. legal system is also driving some people to take action. The trial lawyers are protected by Members of Congress who rely heavily on the lawyers’ massive political campaign contributions. Many businessmen and professionals live in constant fear that they will be wiped out by lawsuits and huge judgments. It is no wonder then that some U.S. citizens and long-term residents are seeking to protect what they have by moving themselves and their assets abroad.

      Taxation is not the only reason why Americans give up U.S. citizenship or terminate long-term U.S. residence, but it is frequently considered by wealthy individuals who are already living abroad or plan to do so permanently. Unlike citizens of Britain, France, Germany, Switzerland and other countries, U.S. citizens remain almost fully subject to U.S. income and death taxes even if they never intend to return to live in America. Despite tax treaties, they are often subject to at least some double taxation.

      Thousands of wealthy British residents have already left Britain to avoid the new maximum UK income tax rate which was raised from 40 to 50 percent for tax years beginning on or after 6th April 2010. They have tried to escape British taxes by changing both their residence and their domicile. They can retain their British citizenship and their British passports which are also EU passports. Most wealthy Americans do not yet realize that by 2013, they may be facing combined federal and state income taxes that may far exceed the 50 percent rate that has caused people to leave Britain. In some cases, the total effective income tax rates on U.S. citizens and residents may reach or exceed 60 percent.

      The U.S. applies all eight tentacles of the “tax octopus.” To escape U.S. income, gift and death taxes, you must consider each of the eight tax tentacles: