We are in year five of the Obama administration’s attempt to drag the citizens and residents of other countries into the U.S. tax net. To put it simply through FATCA (“exciting new changes in Canadian law”), a Media blitz (“Are you a U.S. Citizen, it’s time to check”), and the compliance industry (“Welcome to the U.S. Tax System”), millions of people with a “U.S. place of birth” are worried. Why are they worried?
Facts are stubborn things – The simple FATCA of the matter is:
1. Those born in the United States begin life as U.S. citizens.
2. All U.S. citizens are subject to the provisions of the U.S. Internal Revenue Code which has the practical effect of taxing people based on “place of birth”.
3. We live in a world where people have multiple citizenships and commonly change their residence from one country to another. This includes moving from their country of birth.
4. Because the United States employs “place of birth” taxation, the United States has the ability to impose direct taxation on the citizens and residents of other nations (who happen to have been born in the United States).
5. By imposing “place of birth” taxation on the citizens and residents of other nations, the United States is perfecting the art of transferring the capital of other nations to the United States Treasury.
6. The cumulative effect of this state of affairs is that U.S. “place of birth” taxation coupled with FATCA has developed into a severe interference with the sovereignty of Canada and other nations.
7. Sooner or later (probably later) the world will understand that U.S. “place of birth taxation”, is being used to extend the U.S. tax base into other nations. Should those nations object, the United States would refer to the “savings clause” in the Tax Treaty, which guarantees the right of the United States to impose taxation on those “residents and citizens” of other nations who were “Born In The USA”.
8. In other words, over time, the effect of U.S. “place of birth” taxation enforced by FATCA could be to allow the U.S. to “colonize the world”.
Leaving aside the “geopolitical implications” of this (which will eventually affect immigration policy and more), let’s consider this from the perspective of the unsuspecting individuals who are having their “Oh My God”, “Oh My Gosh” and “Oh My Golly Gosh Moments”. (This is the truly life altering moment where they learn that they are subject to U.S. tax jurisdiction over their lives.) Some will even learn how the acceptance of that jurisdiction disables them from the normal financial and life planning opportunities that are available to normal people. The restrictions imposed on citizens of the “Land Of The Free” by the U.S. Government are quite extreme. (But, that was the subject of another post.)
Not born in the USA, then not an “Accidental American” …
At least the way I am defining “Accidental Americans”. The provisions of the FATCA IGAs make it clear that the United States is focusing on those with a U.S. “place of birth”. That doesn’t mean that Green Card Holders are not U.S. persons (they definitely are). This doesn’t mean that people born outside the U.S. to U.S. citizen parents are not “U.S. persons” (they may or not be). It means that for the purposes of this post, I am restricting the definition of “Accidental American” to those with a U.S. place of birth.
What unites “Accidental Americans” …
An “Accidental American” is generally understood to be someone who was born in the United States and left the United States at a young age and has had no further connection to the United States. The concept of “Accidental Americanism” is relatively new and is discussed out on the various blogs, websites and Facebook sites. “Accidental Americans” are found in all countries, religions, ethnicities, citizenships, economic classes, political affiliations and sexes. What unites “Accidental Americans” is the sentiment that “their common similarity” (U.S. place of birth) is more important than their differences. What unites them is their recognition of the profound injustice that they are subjected to the United States tax system based SOLELY on the “immutable characteristic” of a U.S. place of birth.
As I have written on many occasions:
“It’s unjust, it’s inhumane. I didn’t choose where I was born.”
The differences among “Accidental Americans” …
There is (I believe) a tendency to assume that the circumstances of all “Accidental Americans” are the same. Most rational people believe that “tax jurisdiction” should be based on some connection to the country. In all cases (including the United States) countries impose tax jurisdiction based on actual residence or physical presence in the country. The United States goes further. The United States imposes taxation on those with NO current residential connection or current physical presence connection (that triggers the “physical presence” test) to the United States.
In the case of “some” but NOT “all” Accidental Americans, the United States imposes taxation on those who (or their parents) NEVER had either a residential connection or NEVER met the “physical presence” test that would have EVER justified (assuming no U.S. citizenship) taxation under U.S. law.
Let’s consider the circumstances of two “Accidental Americans”
Person A was born in the United States while his parents had a legal residence or met the “physical presence” test for U.S. taxation. Let’s assume that he permanently left the United States as a young child. He is now 40 years old and the citizen and resident of another nation. He is outraged that the United States presumes the right to impose taxation on him.
In his case, there was a period of actual residence in the United States. The continued justification for U.S. taxation is based on a U.S. place of birth.
This is your typical Canadian “border baby”. A resident of Stanstead, Quebec who happened to have been born in Vermont, USA because it was the closest hospital. In this case the parent(s) did NOT reside in the U.S. and did NOT meet the physical presence test. In this case the ONLY justification for taxation is a U.S. place of birth.
The U.S. Government would say:
Well, the Stanstead “border baby” was born in the U.S and is therefore a U.S. citizen and is therefore subject to U.S. taxation. It is obvious that the “border baby” is not a citizen in any meaningful sense. The person does NOT consider himself to be a U.S citizen. The person has never lived in the United States. The “border baby” has not attempted to exercise any rights of U.S. citizenship. In fact, the “border baby” may NOT have many of the rights of U.S. citizenship. For example, …
1. “Accidental Americans” in general and border babies in particular will have no presumptive rights to U.S. Social Security and Medicare. Yet they are subjected to U.S. taxation and may even be required to pay the Obamacare Surtax to fund health care for Homeland Americans.
2. “Border babies” may have NO right to vote in U.S. elections. After all they never resided in the United States. (I would be interested in comments and research on the question of whether a person whose only connection to the United States was birth in a U.S. hospital has a right to vote in the U.S.)
Not all “Accidental Americans” are the same …
The taxation of ALL “Accidental Americans” is extreme injustice. But, the case of “border babies” is far worse. Neither “border babies” nor their parents have EVER resided in the United States. Yet the U.S. claims the right to impose taxation on them based on a claim of U.S. citizenship. By making this claim, the U.S. has degraded the meaning of U.S. citizenship to the point where it can no longer be understood to be “citizenship”. U.S. citizenship should be understood to be a claim of “ownership” of the individual based solely on being born on U.S. soil.
Barack Obama was reported to have said:
“In the United States the circumstances of your birth should not determine the outcome of your life.”