Watching the American election season from abroad is like slowing down as you pass a car accident on the highway. You don’t really want to see the damage, but you can’t seem to stop yourself from looking. It has nothing to do with you, yet you’re fascinated.Watching the American election season from abroad is like slowing down as you pass an accident. #expat Click To Tweet
The US presidential election
I gave up citizenship almost a year ago, so, officially, the US election is none of my concern. (Except to the extent that everybody who meets me and hears my American accent immediately asks me about Trump.)
Many Dutch people would argue that it does concern us because it will affect relations between the Netherlands and the US. It will also affect the global economy, which in turn will affect us.
What matters to overseas Americans
Like the American public, the overseas American community (estimated at 7-9 million people) is polarized about this election, but the issues are different.
Perhaps I should rephrase that: the issue (singular) is different.
For many overseas Americans, there is only one issue: FATCA and how they are treated by the US government, especially in terms of tax reporting.
For any readers who haven’t been following this issue, a number of things are wrong with how the US government treats overseas Americans.
Overseas Americans are required to report their account balances to the Financial Crimes Enforcement Network. This is only required of homeland Americans when they are specifically suspected of a crime.
At the same time, foreign banks are forced under international treaties to report the bank balances of US citizens abroad, presumably so that the two reports can be compared.
FATCA is the Foreign Account Tax Compliance Act, and is designed to help the IRS catch tax cheats: those who hide their money in overseas accounts. It requires that accounts held in foreign banks be reported to the IRS and threatens a 30% withholding on any American money going into any bank that does not comply with the law’s reporting requirements.
The basic problem with this situation is that overseas Americans’ regular, everyday bank accounts are in “foreign” banks, local to them.
Since the banks don’t want the expense of these filings to the US government, many are in the process of closing the accounts of US citizens. At the same time, US citizens with foreign addresses can’t open accounts in homeland banks.
Citizenship-based taxation vs. Residence-based taxation
Besides these reporting requirements, overseas Americans have to file US tax forms each year in addition to paying taxes in their country of residence. The US and Eritrea are the only countries that base their tax system on citizenship rather than residency. A citizen of the Netherlands who lives in the US and keeps his money in US accounts does not have to file Dutch taxes. He only files in the US. A US citizen living here in the Netherlands has to file in both countries.
US citizens living abroad who pay taxes in other countries can qualify for an exemption on the first $100,000 they earn. This means they often don’t owe any taxes at all to the US. However, the extra filing requirements are so complicated and nitpicky that many have to pay accountants to make sense of them. The compliance industry is the only party that benefits.
How overseas Americans will vote
So, getting back to the elections, many overseas Americans, if they vote at all, will vote for Trump.
Why? Not because they like him; most don’t. They’ll vote for him because they are single-issue voters, and the Republican platform includes a clear statement in favor of reversing the FATCA legislation and instituting residence-based taxation.
The Democratic platform still supports FATCA. Instead, the Democrats support a “same country exemption,” which would let overseas Americans not report their account balances in the country where they live. This, hopefully, would stop banks closing their accounts.
This half-solution has two problems. First of all, it would actually increase the amount of paperwork by adding another form to the pile. And it doesn’t address the basic unfairness of the fact that overseas Americans have to take so many extra steps and expense to prove their innocence of tax evasion.
Given that overseas Americans number in the millions, their vote could have a significant impact on the outcome of the election. While only 12.7% of eligible military and overseas voters took part in the last presidential election (according to the Council of State Governments), it would not surprise me at all if that number went up considerably this time around.
How expatriates have changed
In the past, overseas Americans generally considered their residence to be temporary. They would, for example, be transferred overseas by their employer. After a few years, they’d return. That meant that they identified with the US and felt represented by their Congressional leaders in their home state. They didn’t see a problem with filing taxes for the years they were away.
Nowadays, a side effect of globalization is far more contact between people of different countries and far more mobility. More and more Americans move overseas to stay, either because they work for a company in another country, or because they fall in love with a citizen of another country. For many, it’s a combination of both.
Their children, too, get US citizenship automatically. Sometimes these children have never been to the US, or only for short visits, and many don’t even speak English. Yet they still have to file the extended returns as adults.
My vote, if I could vote
I think I’m probably in the minority among overseas Americans in that if I could vote, I’d vote for Clinton. The Democrats are wrong about their “same country exemption” as a supposed solution to the problems arising from FATCA. Nevertheless, their platform is right about most other issues.
And, of course, there’s the character issue: I would be ashamed to have Donald Trump representing my country. Yes, he speaks his mind, but his mind is full of hate and divisiveness, sexism and racism.
Hillary screwed up big time on the email issue, but she’s smart and articulate and practical. The fact that she is inside the halls of power and knows how to make political deals is a good thing. Whoever is president has to work with Congress to get anything done. After all, they make the laws, not the President. I can’t see Trump doing the kind of negotiating, placating, and bargaining that would be necessary to push a bill through a severely divided Congress. Clinton would have trouble too, but would be better at it than a man who speaks before he thinks.
The election outcome
If Trump wins, America will suffer, at least on any international issue. Foreign governments do not respect him and will be unlikely to seek out opportunities for cooperation. Overseas Americans, however, will be filled with hope that FATCA will be repealed.
I doubt, however, that a repeal will happen. It may be in the Republican platform, but I suspect it will be the first thing traded away in negotiations over a new tax bill. It will be too easy for Democrats to accuse Republicans of being soft on tax cheats, and the Republicans won’t see overseas Americans as being an important enough constituency to resist that pressure.
If Clinton wins, foreign government leaders will be willing to work with her. As far as taxes go, it’ll be business as usual for overseas Americans. They’ll have to continue the expense and injustice of filing all those forms, whether a same country exemption goes through or not. They’ll find it increasingly difficult to do everyday banking, get a mortgage, or make investments. More of them will renounce citizenship, as I did.
As for me, I’ll keep watching the car crash, trying vainly to explain it to my students and pretty much anyone who hears my American accent.