Why is the US taxing expats 39.6% who are living abroad?
Why are the US and Eritrea the only countries in the world taxing expats living abroad? Although 39.6% is the top federal tax rate that expat Americans have to pay, I am still genuinely curious.
I knew about this from an American friend who has been living abroad for many years. But while reading http://www.zerohedge.com/news/2014-09-17/appalling-practice-used-only-two-nations-which-us-one I started getting seriously curious of why the US (and Eritrea) has this policy and the rest of the world does not. I can tell you the justifications I've heard. They include - it's a sort of insurance, in case things go sour and the US needs to rescue its citizens from a war zone / plague / etc. - it pays for overseas embassy operations for citizens living overseas, including registration of overseas births and renewal of a passport while overseas - it's the price to pay for having one of the most widely accepted passports - Americans living overseas were educated in the US, by the US taxpayers, so they shouldn't have the right to steal all that free education and live somewhere else. - Paying taxes is quite simply an obligation of citizenship. None of these (except the last) make sense to me, and feel instead like post-hoc justification. For example, if the first couple were true then we would also be charging overseas tourists for their trips abroad, should they need to be rescued. For another example, if you are born in the UK, though with a US mother, then by US law you are a US citizen, and consequently are subject to US taxes - even if you have never stepped foot in the US. Yet the UK passport is more widely accepted (visa-free) than the US passport, and the US paid for none of your education. (Should someone in that not-that-hypothetical case want to get rid of US citizenship, the renunciation fee is currently $2350, and likely subject to an exit tax unless that person had been reporting/paying taxes the previous 5 years.)