US taxing of American expats may tempt other countries to do the same to its citizens

Wednesday is the deadline for filing income tax returns in the United States, and Americans who live abroad are not exempt from this painful annual ritual.

Indeed, filing taxes from afar is a source of enduring bitterness for American expatriates, who are known to launch into spittle-flying tirades on the subject, and occasionally to renounce their citizenship, as Facebook investor Ed Saverin did just before the IPO.

“It’s absolutely outrageous,” said Boris Johnson, who had to pay a chunky capital gains tax on the sale of a London property, even though the New York-born London mayor hasn’t lived in the United States since he was five years old. Johnson is now in the process of giving back his American passport.

The US is the only OECD country to tax individual citizens on overseas income, a point advocates bring up when they lobby to abolish the practice. But in this age of fragmenting revenues bases and mobile and globalized revenues, one wonders if more governments will be tempted to try out this American idea.

For starters, overseas citizens are an easy constituency to squeeze. Their numbers tend to be small; in the case of Americans, less than 2 per cent of the population. And their political base tends to be amorphous – Americans abroad could be Democrats as easily as Republicans, and from any of the 50 states.

Secondly, it is perceived as a “soak the well-off” thing, since the first US$100,000 earned overseas is exempt from taxation. And finally, there’s a “too bad” factor. Other citizens may not be sympathetic to the burden of expatriate taxpayers because no-one asked them to leave the motherland to, say, work in a bank in Hong Kong that helps finance factories in China that take American jobs.

This is not to say taxing overseas citizens is fair. I find it particularly appalling that I am subject to US taxes yet iced out of the Social Security system. Americans abroad cannot even voluntarily contribute to the nation’s centralized pay-as-you-go pension programme.