Quick read: Ritholtz on math errors, leading to tax policy

He doesn’t go into wonk-ville, but Mr Ritholz hits on a topic very much on my radar these days: US tax policy vis-a-vis expats.

As a newly-naturalised dual British/American citizen, I now have a legitimate choice whether to give back my US passport.  Why would I do this?

Well, the answer is mainly around taxation: the US’s IRS is unique among developed countries in not giving a *&^% where the US citizen is or how he makes money; the IRS gets its share.  Thanks to a double-taxation treaty between the US and UK, I only pay the higher of the two tax bills each year; that ends up being the UK (but surprisingly, not by much; and for the extra tax, I get free healthcare!!).  However: what if, someday, I end up wanting to live in a nice island community; perhaps one with a super-low tax rate?  Don’t worry about low taxes; you’ll still owe the full US rate to the IRS.  Some of these same islands may not have double-tax treaties, in which case you’ll owe both countries.

The UK is much more sensible with taxation, at least in terms of only taxing citizens if they’ve UK earnings and/or resident in the UK.  If you’re a Brit living in America, you don’t owe the UK Inland Revenue for your US earnings.

So…maybe one day I’ll have a great passive income stream.  Maybe that income stream will pay the bills for living in a low-cost, high-sun environment.  Then I’d consider giving up my US passport.

End soapbox.

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