Tax Foundation: Here’s How Much Taxes on the Rich Rose in 2013
This recent report is worth reading to better understand what has happened to U.S. individual taxpayers since the tax rates were modified.
A nice graph is included, which shows how once taxpayers reach US$500,000 of income or above, their effective tax rates increased, compared to taxpayers with incomes below these amounts. This, of course, is to be expected and was part of the planned tax increases in the federal law (including the 3.8% tax on net investment income).
Once the incomes reached US$1M, the effective tax rate increased more substantially, per the excerpts from the report:
” . . . Americans making between $1 million and $2 million saw their effective income tax rates rise from 24.2 percent to 28.6 percent between 2013 and 2014; on average, these taxpayers paid $53,050 more in taxes.
For the highest-income taxpayers, rates spiked by even greater amounts. Taxpayers with over $10 million of income saw their average rates rise from 19.8 percent to 26.1 percent, equivalent to an average tax hike of $1.52 million. . . “
Ironically, the super wealthy (those earning over US$10M) had a substantially lower effective tax rate than those earning between US$1M and US$10M.
Many policy makers are of the view that only these wealthy individuals (e.g., those earning US$500,00 or more) are those who are renouncing U.S. citizenship.
The author’s experience is that many individuals without significant incomes and assets are choosing to renounce U.S. citizenship for the various complications they experience in their lives. They include the following for U.S. citizens who reside outside the U.S.:
- Incurring the costs and time required to comply with U.S. tax law requirements – even if no U.S. income taxes are owing (i.e., FBAR filings annually, IRS Forms 5471, 3520, 8864, 8858, etc.).
- Being forced to close their bank accounts in their home country of residency, since the financial institution no longer accepts U.S. citizens as customers.
- Risking violating their residency country laws (sometimes with severe consequences) that prohibit dual nationalities as a matter of law.
While some of the negative consequences of U.S. citizenship have probably been exaggerated by those who gain to benefit from the exaggerations, there are indeed real world consequences to many in their day to day lives.