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The US National Problem of Losing Residents

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ILLINOIS - January 15, 2019

The U.S. seems to not be so attractive for living lately. While plenty of tourists come, residents are fleeing to save money. High prices, for example, in New York are causing people to flee to other states, and sometimes even other countries.

According to the last data of U.S. Census, Illinois netted a loss of 114,000 residents in favor of other states in 2018, and there hasn’t been a resident increase in 3-5 years.

The US National Problem of Losing Residents

In total, Illinois has lost a net of 1.5 million people to other states since 2000.

And when compared to other states over time, it becomes obvious that Illinois’ problem is chronic. Illinois has consistently ranked as one of the nation’s biggest losers of residents each year since 2001. Its average rank over time is 4th in the nation, with 1st as the worst.

The US National Problem of Losing Residents

As for New York, it lost more residents on a net basis--about 180,000. Second place goes to California with 156,000 people. Then come New Jersey (-50,000) and Louisiana (-28,000).

Hawaii and Rhode Island rounded out the nation’s five-worst losers of residents to outmigration.

In contrast, 22 states netted resident gains from other states. The biggest winner in the nation was Nevada, which added 15 residents for every 1,000 it had in its population in 2018. Idaho, Arizona, South Carolina, and Colorado rounded out the nation’s best performers.

The US National Problem of Losing Residents

Iowa lost only one person for every 1,000 in its population, while Missouri and Wisconsin had even smaller losses. And both Kentucky and Indiana actually squeaked out small net gains.

What is going on? Why is this a chronic problem?

These census figures are reminiscent of the Great Depression. According to experts, the authorities keep statistics only on population growth, and there is no data on the number of those who leave the country. These measures have been taken to preserve the image of the country.

But what, in reality, is the main reason for this mass migration away from the United States?

Running from taxes

According to Internal Revenue Service data, the problems started in 2009 when the first mass flows of people came to renounce US citizenship. The main reason is the law “on taxation of foreign accounts” (FATCA), adopted by Congress in 2010 and entering into force on July 1, 2014. It requires foreign financial institutions and, above all, banks to report to US tax authorities the income of their clients. FATCA violators faced large fines and isolation from the global financial system, which for many of them is similar to death.

According to a survey commissioned by the consulting company deVere Group, three out of every four expats (73%) intended to hand over their passports. FATCA is directed mainly against wealthy Americans who don't want to pay taxes. However, this law has the strongest impact on the middle class.

For a century and a half, double taxation applied only to the rich--those whose annual income exceeds $106,000. Now the tax manifolds require that the taxes be paid by all Americans, regardless of income.

U.S. residents are by and large law-abiding. Perhaps that is why the government forces them to pay taxes regardless of where they live, i.e. twice. Such a system of taxation exists in one other country in the world -- Eritrea in East Africa.

The US National Problem of Losing Residents

Thousands of Americans living abroad responded to the introduction of FATCA with the power of renunciation and the widespread delivery of passports. The Department of State didn't remain in debt: it doesn't issue visas to "refuseniks" when they want to visit their former homeland.

"I'm very proud of the fact that I’m American,"said former US citizen Jane, who lives in France and who is now in the process of renouncing citizenship, “And I’ve never thought that it would come to this. If it wasn't for FATCA, I would never have gone for it. Never and never. Now it's difficult for me."

The process of citizenship renunciation, according to Jane, who lived in Paris for 30 years, humiliates human dignity. First, it takes place in the U.S. Embassy in front of other Americans, who refer to the "refuseniks" as traitors. Second, the names of all "refuseniks" are published in the Federal Register. And thirdly, it's the refusal of roads in the truest sense of the word. Five years ago, the cost of the procedure was about $450. Since 2014, it has grown to $2,350.

The U.S. government has collected $12.6 million from the "refuseniks" in a year and half, according to CNN. This is more than twice as much as was collected in the previous six years. Lawyers and accountants are needed to register all the necessary papers for refusal, and their services will cost at least another $200,000.

Thanks to FATCA, expats' lives have become not only much more expensive but also more complicated. For instance, many banks simply refuse to serve U.S. citizens, fearing trouble with fines from the authorities.

The example of a Parisian named Fabienne is illustrative in this respect. He is French and has lived all his adult life in France. Fabien doesn't speak English, he doesn't have any friends or acquaintances overseas. His father brought him to France when he was one and a half years old. However, because he was born in California, Fabien is automatically subject to FATCA. According to the 14th amendment to the U.S. Constitution, a US citizen is any person born in America, regardless of the status or nationality of the parents.

After the tax law came into force, the Bank demanded that Fabien either formally renounce his U.S. citizenship or obtain a social security number. He doesn't have either one or the other. Now he, obviously, will also have to officially renounce citizenship. At the same time, in addition to the cost of refusal, Fabien will have to pay taxes for two years and a substantial penalty.

According to statistics, expats make up less than 1% of the total number of Americans. Of course those who renounce American citizenship are much less. But the fact that those wishing to break with America forever every year are becoming more and more cannot but alarm the American authorities.

In 2009, the "refuseniks" number tripled compared to the previous year -- 742 and 231 people. In 2010, there were already 1.534 people. Another big jump was recorded in 2013 -- 3.000 "refuseniks". This is three times more compared to the previous year (2012 -- 933).

"Refuseniks" beat the third record in a row. The 2014 record of 3,415 people was broken last year. In 2015, according to the U.S. Treasury, 4,279 Americans gave up their passports. That’s 20% more than a year earlier and 18.5 times more than in 2008. Last year's data is shown above.

The main reason for citizenship refusal is not betrayal, but the overactive U.S. Tax Service that announced the hunt for tax evaders 8 years ago after UBS, Switzerland's largest Bank, admitted that it helped rich Americans hide money abroad. Swiss bankers eventually paid a fine of $780 million and gave the U.S. tax authorities information on 4,400 accounts of Americans and former residents of the country.

American tax collectors have something to be proud of. From 2010 to 2014, more than 43,000 tax violators were forced to pay more than $6 billion in into the Treasury in arrears, fines, and penalties. More than 100 cases have been brought against tax evaders. Take, for example, the case of the popular plush toys Beanie Babies inventor Ti Warner. He pleaded guilty to tax evasion, holding money in a Swiss Bank account.

Many expatriates, mostly middle class, resent not only the "ferocity" of tax inspectors but also the injustice, in their opinion, of the tax legislation. They have to pay more than millionaires who deftly use Tax Amnesty. Those who hide a modest undeclared $45,000 will pay almost 6 times this amount, while those who hide $7 million will pay only 3 times more.

From New World to Old

According to Eurostat data, EU countries issued 2.3 million residence permits in 2014. It would seem that there is nothing surprising in this, especially in light of past events with migrants from the Middle East, Africa and Asia.

The US National Problem of Losing Residents

Ukraine was in the lead in 2014 by a large margin for being the main supplier of “New Europeans” (302,800 people). Then comes immigrants from the Middle East, with third going to China (169,700). The U.S. comes in second, with at least 199,200 people leaving the “best” democracy for Europe that year. Almost 70% decided to live in the U.K.

Officially, 21,277 (10.7%) Americans went to Europe for family reasons. 36,508 (18.3%) went to study at highly-rated Old World universities. More than 40,000 (20.5%) Americans crossed the ocean in search of work. The remaining 100,620 (50.5%) are listed in the Eurostat report as having moved for unspecified reasons.

Forgotten Americans

A year ago, Syria also appeared as a hot spot on the map. Although the situation in the Middle East has always been alarming for Europe, 2016-2017 years have become particularly acute due to the next influx of refugees. The beginning of everything was the events in Yemen when the intervention of Saudi Arabia began in the South of the Arabian Peninsula and foreign states urgently began to evacuate their compatriots.

Unlike Russia, China, Pakistan, Somalia, Jordan and Turkey, the U.S. Department of State responded to the appeals and requests of its citizens with replies. At best, diplomats told them which countries' embassies should be contacted in order to quickly leave the hot spot, and at worst -- just advised to exercise maximum caution and vigilance.

As a result of the provision of such "assistance," 41 people appealed in court with a massive lawsuit against the Department of State and DOD. The plaintiffs accused the authorities of not helping them return home, leaving them in the midst of trouble. The defendants include Secretary of state John Kerry and Defense Secretary Ashton Carter.

The Department of State unofficially explained its decision by the fear that a large number of American citizens will provoke terrorist attacks, but the complainants' lawyers treated this explanation as an excuse. They recalled 2006 when during the war between Israel and Hezbollah, the Department of State evacuated more than 15,000 American citizens from Lebanon without a single terrorist attack.

Scandals such as in Yemen, according to experts, will occur more often. For developed countries, the main problem is not emigration, but immigration. We see this in the U.S. now. Of course, there are no rules without exceptions. In some rich countries, the problem of emigration is also acute, even against the background of hundreds of thousands of immigrants from Africa and Asia, who rushed to Europe in search of a better life. Countries such as France, Spain, Italy, Ireland and Portugal are actively working with their diasporas in other countries. They carefully keep records of the number of those who have left and persuade them to return. However, this is a separate big topic, and now judging by the events in some European countries, the authorities of these countries will soon have to leave their own country. The Italian government, for example, has greatly facilitated the possibility of obtaining citizenship for the descendants of Italians who left the Apennines. There are countries with individual characteristics. For example, Israel, Armenia and Taiwan maintain strong ties with their diasporas.

Immigration has long been a political problem in America. Republicans and Democrats are constantly discussing how many foreign citizens they can accept, which countries should be preferred, what should be their qualifications. President Donald Trump, for example, proposed to fence off Mexico with a wall and temporarily ban Muslims from entering the United States. Now we see what is happening in the US due to the lack of agreement between Trump and the government. While the President has shutdown the federal government, other disputes flare up around him, up to his impeachment.

Immigrants have received increased attention, and the emigrants are in the position of poor relatives. American authorities do not even know the exact number of people leaving their country.

There is also a confusion in terms: Diaspora technically refers to those forced to leave their homeland, expats are technically those who have not only moved but have renounced citizenship, and, finally, just emigrants.

Of course, the American diaspora is important for American culture, for promoting the American way of life, for the American economy, and for strengthening the US’s authority in the world. Millions of expats, as this term is the most common in the United States, are unofficial diplomats who can improve the country's image.

But if America still doesn’t want to lose residents, it needs to do some serious work and make some radical changes. While many state officials continue to ignore the massive turmoil they've created -- from the country's worst pension crisis to the nation's highest property taxes to lowest credit rating of any state--residents will continue to renounce their citizenship and leave the country. And along with this, the U.S. tax system will collapse.

You don't have to wonder what the wake-up call is going to be. If it's not the exodus of the United States, it's going to be insolvency. The country's tax base won't support all the debt that’s been built up.

Author: USA Really