I
just put the finishing touches on my US tax return today and stuck it in the mail to Austin, Texas.
Yes, that's my US tax return. Of course, as
everyone in the States knows, the deadline for filing federal income taxes is
April 15th, a date marked with hectic last-minute form-filling and inevitable
anti-tax protests – also a date that we passed a few weeks ago. Luckily, us Americans
living overseas get an automatic two-month extension, which I almost always
take advantage of, since, well, why not?
Now,
some folks might wonder why someone who has not lived or worked in the US for
over thirty years would be subject to American income tax. Good question. This
is why the United States often gets mistaken for Eritrea, the only other nation
that requires its citizens to pay tax, no matter where they call home. It’s another
example of American exceptionalism.
In
reality, for Americans here in Finland, the possibility of having to pay tax to
Uncle Sam AND to the Finnish verokarhu (“tax
bear”) isn't necessarily that high, thanks to a tax treaty between the two countries. In practice,
American expats here have to pay US tax only on income over a certain threshold, which is high enough (for 2013 it was $97,600) that I can essentially scratch US taxes from my list of things to worry about.
But,
I still have to file a return. In my case, this has always been relatively
simple. I am, after all, a simple man with a simple financial existence. In
addition to the normal 1040, the only other tax form I need fill out is one (2555-EZ)
to show that I qualify to have my income excluded from US taxes, in other
words, that I really do live outside the US full-time and didn’t make over $97,600 last
year (damn it!).
It’s
always been an easy, though pointless, process. This year, it’s all becoming a
bit more onerous. The reason is a new form called FBAR, the result of a new law
called FATCA. They couldn’t have picked a more appropriate acronym than “FBAR”,
which stands for “Foreign Bank Account Report”, but instantly brings to mind
(my mind at least) the old Army slang, “FUBAR”, which – as I remember from my
days of watching “Saving Private Ryan” – has a meaning that is completely different, but uncannily
apt in this case. Look it up.
The
basic idea behind FBAR is that, not only do Americans have to report their overseas
income; we also must report all the money we have parked in overseas accounts. As a
liberal, happy to pay taxes myself and happier for rich people pay even more, I
applaud the motivation here, which is to ferret out secret offshore stashes of
untaxed cash.
However,
there are other consequences, unintended to be sure, that have driven many
American expats to renounce their US citizenship. And I’m not talking about cases of tax avoidance like Facebook’s co-founder Eduardo Saverin, who ditched his US
passport and jumped ship, so to speak, allegedly to avoid paying capital-gains taxes on
his huge wealth. (Or for that matter, former Frenchman Gerard Depardieu, who
did the same when he fled, figuratively, to the tax haven of Russia. I guess that may be slightly off-topic.)
It’s
one thing for middle-class Americans who happen to reside in another country, living
ordinary lives, working at ordinary jobs, drawing ordinary salaries, to have to
fill out one additional form in order to provide details about their local bank
accounts to the Treasury Department. It wasn’t a big deal for me, though others
surely have more financially complex lives that make the task actually
burdensome.
But,
declaring your accounts at the local banco,
banque, or pankki is only part of it. The banks holding your accounts are also
required to comply with the new law. Imagine the joy of a small-town bank in Poland
when it is confronted with the need to file paperwork with Washington just
because an American living down the street chose to open an account there.
You
wouldn’t necessarily think this was a problem, but I have seen reports of some
banks, faced with this unwelcomed hassle, turning away American customers or closing their accounts, no doubt causing all kinds of everyday aggravation.
This is not a case of some Master of the Universe being unable to open a hidden
account in the Cayman Islands (I’m all for that!), but rather some average wage-earner
being unable to use the ATM at his local grocery store. The good news is that I’ve seen no
indications of this happening in Finland. Not yet, anyway.
As
I see it, a clear problem with what might otherwise be a reasonable law is
the threshold for reporting. Americans must declare any bank account that has
held $10,000 or more at any time during the year. That’s currently a little
over 7,000 euros.
When
I was living in Georgia in my 20s, working as a lab tech or studying, I couldn't imagine having that much money in my checking account. In the context of living in Finland, however,
you don’t have to be Donald Trump to have a saldo
of 7,000 euros, at least for some brief transitory period.
It’s
as if, in order to catch tuna, you designed a net that also catches all the
shrimp. It’s unfortunate that such a well-intentioned law might be forcing some average
Americans rooted on foreign soil to choose between giving up ordinary bank services or
giving up their US passport. Whether coincidentally or not, last year after the
law took full effect nearly 3000 Americans chose the latter, a record increase
of 221%.
That’s
a drastic rise in Americans taking an equally drastic step. It’s a step I could
never contemplate taking myself – at least, not as long as I’m able to deposit money
somewhere safer than my own mattress.