In Obama’s America, renouncing citizenship and collecting freebies are rational behaviors

President Obama / Photo used under United States Government Work license
How great thou art / Photo used under United States Government Work license

WASHINGTON, June 19, 2014 — In Economics, rational choice theory says that individuals will take actions that they believe will be in their best interest. If that’s true then every time someone chooses to renounce their citizenship, or relocate their company outside of the U.S. or accept a handout, that reflects a rational decision.

This apparently is the fundamental change Barack Obama promised: Last year about 3,000 Americans gave up their U.S. citizenship. That number was more than six times higher than the average from 1998 to 2009. Since 2009 the number has increased rapidly (except for a dip in (2012). This year, we are on pace to exceed 4,000.

Why are so many Americans leaving when, at the same time, record numbers are entering, legally or not?

Each of those leaving has made a rational decision. Some feel that other countries provide a better alternative to life in America. This is especially true for those who have contributed significantly to the economy and have earned significant rewards. The thought of giving large portions of their income and wealth to a government that simply hands it out to those who have not earned it is reason enough to leave. Even with all of the wonderful benefits of American citizenship, the economic and freedom reducing policies of the Obama Administration subtracts so much from the equation, that leaving for another country is a rational decision.

For those who live in countries like Honduras, much of which is lawless, walking to the U.S. makes sense. Staying home means a terrible life where basic survival may be impossible. Because the Obama Administration has said that it will not deport children, tens of thousands of young children and mothers with infants have somehow managed to cross the most difficult terrain to arrive at the Texas border. They have made a rational choice. Before Obama’s announcement that he would not deport them, the choice to come was less clear; it was possible they could arrive in the U.S. and then be sent back. Once Obama changed the policy, the rational choice was now to come.

Many of those who complain that too much of their hard-earned money is being taxed away and given to others by transfer programs would say that freeloaders are taking advantage. They might further argue that freeloaders are not really making rational decisions to take the government handouts. This is because the programs are supposedly temporary. But Obama changed that equation, too.

After Presidents Reagan and Clinton fixed the welfare system to encourage people to become self-sufficient, Obama changed it, making welfare easier to collect. It is so much easier that the program is now viewed as long-term by welfare recipients. This changes the equation and reduces the incentive to leave the welfare roles. The rational choice is to stay on as long as possible.

The same applies to unemployment benefits. The intention was to pay unemployment benefits for a six to nine month period. That was considered a sufficient amount of time to find another job. Obama increased the benefit period to up to three years. Since the Obama economy was producing few or no well-paying jobs, recipients collected benefits for as long as they could while not even looking for a job until 30 days before the benefits were due to expire. This was a rational decision also, since working at a full-time job added little extra income, but required significantly more effort.

The problem is the distortion of the alternatives. Obama’s taxing policies distort the view of America for high contributors. His taxing and regulatory policies have distorted the view of the American marketplace for entrepreneurs. Obama’s social programs distort the view of self-reliance. With those distortions, Americans are making rational decisions to leave the country, to continue collecting freebies and even to avoid making domestic investments.

They need better, more traditionally American, alternatives.

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  • Gerard Pierce

    The only problem with this article is its basic dishonesty. There are probably a few 1%ers who are looking for the freebies, but a fair number of people who dumped their citizenship were ordinary people, without a lot of money, who found out that FATCA prevented them from having a bank account in their country of residence. The same country that refuses to tax the wealthy, is willing to search out ordinary people and grind their noses in the dirt.

    The guys with the money don’t worry about FATCA, they have trustees who pay their bills and manage their finances. And their name never appears on the books of the foreign company that refuses to provide services to ordinary US citizens.

    As far as the unemployed who wait until 30 days before their benefits run out, it IS a rational choice — when there are no jobs and the few companies hiring will not hire someone who is unemployed, it is a rational decision for the unemployed person.

    What is not rational is the attitude expressed by the author of this article – conservative double-think that ignores most of what is actually going on in these United States.

  • American Expat

    Agreed with Gerard Pierce: the author of this article pretty clearly doesn’t understand the issue.

    The context of this article strongly suggests that the author thinks citizenship is the same thing as residency: it starts out talking about how 3,000 people renounced their citizenship, but then refers to them as “leaving the country.” Leaving the US is NOT the same thing as renouncing US citizenship.

    The Americans renouncing their citizenship ALREADY live outside the US (a requirement for citizenship renunciations), almost always have dual citizenship (since they’d otherwise end up stateless) and are mostly middle class. A lot of these dual citizens have lived their entire lives in their other country of citizenship – think people who inherited US citizenship from a parent.

    Extraterritorial laws like FATCA and citizenship-based taxation are a huge burden on Americans abroad, hence the rising number of them renouncing their citizenship. Domestic policies like welfare and unemployment have almost nothing to do with Americans abroad. I’m glad to see the citizenship-renunciation issue getting some coverage, but I wish the author had actually researched the issue before writing an editorial like this (and at least understood the difference between citizenship and residency).

    • WhiteKat

      Thanks for your articulate, well thought out, factual comment. I am one of those who wish I could be included in the number of renunciations. My Canadian born parents were living in USA when I was born, and I returned home to Canada at one year of age with my mother. After 50 years of living as an average Canadian in Canada, I find out that USA considers me a delinquent tax payer on my Canadian earned income!

      I had no clue all these years that birth on US soil equated with US tax payer. If I had known US had such unique taxation laws, I would have made the decision to renounce decades ago, before doing normal Canadian things like saving for my children’s education and retirement in Canadian investment vehicles which are not compatible with the US tax system. Canadian mutual funds are the normal middle-class thing to invest in, yet are dreaded ‘Passive Foreign Income Corporations’ for someone who is also a US taxpayer.

      To renounce now, means I have to promise to get into the US tax system, acquire a SSN, and file 5 years worth of tax returns along with ‘Foreign Bank Account Reports’ for my local, Canadian bank accounts. Despite having a fairly average, typical financial life from Canadian standards, I would have a very complicated, expensive US tax reporting burden to catch up on the past 5 years.

      Not only would the reporting burden be complicated and expensive, it is always risky. Uncle Sam does not welcome ‘wayward US taxpayers’ back with open arms. One needs to figure out HOW to come back into compliance or which amnesty program to enter if any in order to minimize risk of penalties for prior non-filing.

      I think, I will just give US the big finger, and when/if I ever get tracked down, I will put that IRS penalty notice in a frame and hang it on my wall. Note, that I doubt I would owe much if any actual tax, just HUGE penalties for not telling FINCEN about my FOREIGN bank accounts, up the street from where I live, here in Canada.

      There are 100’s of thousands of Canadians living in Canada in a similar situation as me. Most are trying to stay undercover (there are ways). If US made it easy to renounce (i.e. dropped the 5 year compliance rule), there would be a lot more renunciations.

  • Sam Fuels

    It is Harry Reid who is refused to compromise.