Never, ever get US citizenship if you plan to live abroad at any point in your life. The US tax regime has become oppressive and punitive for expats. It's a sad state of affairs.

AFAIK U.S. is the only country that makes you pay tax even if you are tax resident of different country.

Ironically it does not apply to corporations that fail to pay billions in tax.

>> makes you pay tax even if you are tax resident of different country

It's not that someone is tax resident of different country.

The disgusting part of this IRS racket is that US forces people to pay taxes to US even if they no longer live there. Eritrea is the only another one like US in this aspect.

The US and Eritrea.

I knew this was a thing, but I had always assumed a US citizen living abroad only ended up paying tax to the IRS if the tax they paid to the foreign government was less than what they would have paid to the US, and only the difference is paid.

But it seems that’s not the case, and you get an exemption for “only” the first $108,700 of your earnings.

As with everything the IRS does, it seems complex and full of exemptions, but I have read that (badically) correctly? You could end you being double taxed if you earn more than that?

A friend of mine that is a Canada & US dual citizen got royally screwed by the IRS. Canada has tax free savings accounts (TFSA) that are essentially retirement accounts that are similar to Roth IRA in the US, except with a lot less restrictions. He had opened his TFSA account in Canada when he was 18 and was investing since then. Eventually he got a green card and became a US citizen. It was at that point he realized that the US doesn't consider the TFSA to be a retirement account and that it's fully taxable. This is an account he had prior to moving to the US / having anything to do with the US, and he had to pay taxes on it.

I can't remember if the amount was exempted under $108,700 but I don't think it was given how mad he was that he closed the account because the paper work wasn't work dealing with.

My dad's friend told me a horror story about his friend's mom who was born in the US while he parents were on vacation but she never lived there. The mother is currently retired and is collecting a pension, then she got a letter from the IRS saying that she owed back taxes because she's a US citizen and never filed.

>I can't remember if the amount was exempted under $108,700

Most unlikely, that's an earned income exemption. So basically salary or say invoices paid for consulting that year when the work was performed while physically on foreign soil (US taxes you 100% for any work done on the seas or in international air space)

Why person needs to go through the hassles and expenses to file tax return every year to the country where he/she doesn't not live in any longer?

What kind of state sponsored racket is this?

With the major caveat below, on the face of it, it doesn't seem much less arbitrary to tax by citizenship than by residence in certain cases. For instance, as someone that grew up in the US and went to public schools, I certainly used far more public resources there than in my current country of residence, and would also (as a citizen) have access to an indefinite further amount of resources such as consular representation, retirement benefits if retiring there, etc. It seems about as arbitrary to me to pay taxes in a country that I cannot unilaterally choose to continue living in, due to immigration obstacles.

However, given that the global consensus is to tax by residence, the US should absolutely change its policy to avoid the hassles due to this inconsistency.

It's possible to be a citizen of a country without having ever used any resources from it (it's also possible to have dual citizenship, which complicates things). Taxation isn't about retroactively collecting money for the resources you used during your childhood, it's about collecting money for the resources you're using today. Children, the unemployed, etc. are sponsored by the rest, they aren't taking a loan on their taxes.

The idea is that you receive the services and benefits of your US passport even when residing overseas.

Also keep in mind that you can write off any taxes paid to a foreign government so it's really just a tax on those who make lots of money in low-tax jurisdictions.

About those benefits of having a US passport, could you mention a few of them? Because I'm a US expat and wondering why I have to keep filing tax returns but receive no benefits whatsoever. A number of important examples:

Being a non-citizen in the country I live means I am at the end of the queue for vaccination, while the US State Dept says it won't arrange for vaccinations of US expats, but countries like France and China are doing it for their citizens.

I can't maintain a bank account in the US because without a US mailing address the banks simply refuse to provide me services. The US government could care less, has no requirement that banks provide services to US citizens overseas.

I'd consider the services provided by the US Department of State and the US Military to have some value for American expats.

The US is one of two countries that does it. California wants to levy a similar thing for people moving away from there

> The US and Eritrea.

And China, in theory and sometimes in practice.

https://www.bloomberg.com/news/articles/2020-07-10/china-sta...

It seems quite unusual to be double taxed according to what I could understand from the relevant laws. The first X amount of earned income is exempt as you noted. The amount above that, if a tax treaty is in place with the other country of taxation (i.e. your country of residence), is generally subject to the rule of paying the difference, although the details on this may vary by individual country and tax treaty.

Also Eritrea :) Jokes aside, there is a waiver if you are earning less than ~$150,000 as a single earner where you're not double taxed.

Well, that military won't pay itself...

Having a US passport entitles citizens to a lot of benefits globally, those benefits have to be paid for. It would seem odd that you can benefit from the US growing up, and once you make it, you can move to the Cayman Islands and not pay for the benefits you have received

Having a European passport entitles citizens to a lot of benefits globally too, but oddly enough I haven't paid taxes to any EU country since the day I moved out and nobody expects me to.

I'm not sure why the US thinks it is so special that it is entitled to tax people who happen to be born there even if they have nothing to do with the country any more. You aren't taking a loan on taxes during your childhood; that period is sponsored by everyone else. It goes both ways.

Americans are weirdly obsessed with the idea of rich expats not paying US taxes.

If you're talking about visa-free travels around the world than I have to break it to you: European passports are stronger than US. Just FYI.

Can you mention some of those benefits?

How high is the US income tax? And is it progressive?

Top end, which kicks in at a bit shy of $520k is 37%. Top end Long-term Capital Gains max rate is 20% at about $440k. These are numbers for individuals, they differ for married couples and households filing collectively.

I think you're underestimating. There are Federal AND state taxes and that math quickly adds up.

Not all states have income taxes.

State income taxes are usually pretty low.

Texas and Florida don't have an income tax.

Georgia ranges from 1% to 5.5%.

California goes all the way up to 13%.

The very wealthy can usually avoid paying anywhere near these amounts, though. Corporate owners can pay themselves a nominal salary and let the corporation grow. Capital gains are only due when stock is sold. So they avoid selling and borrow using their stock as collateral.

At least that’s lower than in many European countries. In case of the income tax at least.

(Helped by Google …)

In NYC, earning about $100k a year, the effective rate is ~28% tax (ie, you pay $28k tax a year), including federal (~15%) and state (~5%), social security etc.

In the UK, for £100k, it looks like it’s 27.4%.

So very similar levels.

$100k is £71k, you’d pay £21k in taxes on that which is 30%

Well our UK tax bands are marginal tax rates.

So you pay zero on the first £12,570 of earnings. Basic rate of 20% from £12,571 to £50,270 of earnings. And then 40% on £50,271 onwards.

(We have additional rate over £150,000 of 45%).

It's important to remember you don't pay a flat %age on your income. It's worked out as a precentage of income you earn inside the thresholds

That’s all irrelevant. I was quoting actual tax paid, not marginal rates.

You also forget a major part of tax levied on workers but not on owners - national insurance.

Don’t forget that you start to lose the personal allowance over £100k so there’s a point at which the marginal tax rate is around 60%.

Yup. That level is at 50k if you have two kids. Even higher with three kids.

> In NYC, earning about $100k a year, the effective rate is ~28% tax

That doesn't include VAT (or whatever it's called in America), tariffs, excise duties though, does it? It'd be curious to see a comparison between countries that would cover all those things (like how much you earn, and how much you actually pay for some average set of goods).

At the time of this writing (mid 2021), US tax breakdown for the highest income bracket in California is as follows.

# Federal

  * Long Term Capital Gains Tax         = 20%

  * Short Term Capital Gains Tax        = 37%

  * Earned Income / Ordinary Income Tax = 37%

  * Net Investment Income Tax           = 3.8%

  * Medicare Payroll Tax (W-2 Wages)    = 1.45%

  * Additional Medicare Tax (W-2 Wages) = 0.9%

# State (California has the highest rate)

  * CA State Income Tax                 = 12.3%

  * CA Mental Health Tax                = 1%

In summary, if you make "a lot" of money in California, you'd be paying combined Federal/State taxes of at least 37.1% and as much as ~55%, depending on the type of income. Deductions and credits mostly phase out at said income levels. In particular, Trump's doing away with the State and Local Tax (SALT) deduction meant that now you also pay both Federal and State taxes on the same income as if the other tax (Federal or State) did not exist.

You left out FICA, but it's also worth noting that the W-2 taxes have a maximum for the year, so the income bracket of 37% does not overlap with W-2 taxes.

Sure, but that's why you'll see that my summary totals aren't just a summation of all the enumerated percentages. The point is to illustrate what the total tax range is at the highest income levels.

Seen from over the pond in Germany:

It seems like the US were (compared to the rest of the world) at their best from 1860ish to 1970ish. When they had great education for he masses, public health, technological and economic progress, a certain naive idealism, and the most comfortable middle class in the world. Things were, if not already good, pointing in the right direction. After that, selfish and cynical elites took over and society stagnated and fragmented.

I mean 1860 is when the civil war happened, possibly the worst time in American history. And the 70s were the end of Vietnam, another terrible time. Cynical elites have been apart of American history at every point between those two dates. I don’t think you can pick a time where America was really great or perfect. The only real example I can think of is the end of WW2 where American industry accounted for a staggering 50% of the world’s industrial output.

I'm not an expert on US history, yes. I was aiming for "well before 1900, about the time of the first industrial boom" and "slightly before the mergers and acquisitions craze of the 80s".

The US had the or one of the best fed, healthiest, best educated populations in the world around 1900. That was a clear success and it didn't start then.

It was good around 1880-1900 while Reconstruction was going but got bad again for anyone non-white a bit after when eg they elected Woodrow Wilson who was absolutely insanely racist.

If you were white maybe. Black or Native American, not so much.

No argument about that.