A reduced renunciation fee comes with an admission of government failure: Congress did this and needs to fix it

Dear Congress,

This week’s news that the U.S. State Department has finally cut the fee for renouncing U.S. citizenship to $450 (from $2,350) came as welcome relief to the “accidental” Americans who demanded it. But it also represents an official acknowledgment that the current U.S system of double taxation, combined with FATCA and FBAR and other reporting hassles, harms Americans abroad so much that they are virtually being driven to give up their U.S. citizenship.

The rule does more than lower a fee that no American should ever want to pay in the first place. It lays out, in the government’s own words, why growing numbers of Americans abroad feel cornered into giving up their citizenship simply to live normal financial lives where they reside.

That matters because the real problem was never the fee alone. The underlying issue is citizenship-based taxation and the complex web of enforcement and reporting rules that accompany it. In the final rule, the Department states that it considered “not insignificant anecdotal evidence” of the tax-related difficulties faced by U.S. nationals abroad, “including in part because of FATCA.” At the same time, the Department makes clear that it cannot change the tax laws that create these problems.

Consternation with double taxation

The comments summarized in the rule are striking. Out of 910 comments submitted, 880 expressed frustration with the U.S. system of worldwide taxation and the cost of complying with it. Many reported spending hundreds or even thousands of dollars each year on professional tax assistance even when they owed no U.S. tax. This is not a system narrowly targeted at tax evasion. It is a system that imposes ongoing compliance costs on ordinary Americans living ordinary lives outside the United States.

The rule also confirms what Americans abroad have long reported: FATCA and related reporting rules interfere with basic financial life. Commenters described difficulties opening bank accounts, obtaining mortgages, investing in local funds, and saving for retirement in their countries of residence. Many also cited the burdens associated with FBAR, PFIC, and GILTI rules. The Department noted that these concerns echo findings already identified in the Government Accountability Office’s 2019 report on foreign asset reporting burdens.

Perhaps most revealing is the Department’s acknowledgment that many people seeking to renounce do not actually want to stop being American. In the rule’s cost-benefit discussion, the Department notes that many citizens pursue renunciation because their U.S. citizenship has become an obstacle to their lives and livelihoods abroad. Many commenters said they wished to remain U.S. citizens but no longer believed the benefits of citizenship justified the tax-compliance costs and financial barriers imposed by the current system.

That should be a flashing red warning light for Congress.

Citizenship or bank account?

No American should have to choose between citizenship and a bank account. No American should have to choose between keeping a passport and saving for retirement. No American should have to choose between maintaining their ties to the United States and building a stable life with a spouse, family, or business abroad.

Lowering the renunciation fee may make exit less punitive. But it does nothing to address the underlying problem. In fact, the final rule implicitly acknowledges that renunciation has become more accessible because the existing tax and reporting regime has become too burdensome for many people to bear. That is not a success story. It is a policy failure.

Congress now has both the evidence and a viable path forward.

Residence-Based Taxation way forward

The Residence-Based Taxation for Americans Abroad Act, introduced by Rep. Darin LaHood, would allow qualifying Americans abroad to elect nonresident tax treatment without renouncing citizenship. Under the proposal, they would continue to pay U.S. tax on U.S.-source income and gains, but would no longer be taxed by the United States on foreign-source income simply because they live permanently in another country. The framework also includes a certificate of nonresidency for FATCA purposes, relief from certain foreign-asset reporting requirements, prior-compliance certification, and anti-abuse guardrails including a departure-tax regime.

Reforming the system in this way would strengthen the connection between Americans abroad and the United States. Americans living overseas promote U.S. business, trade, and investment around the world. They raise families, build careers, and maintain deep ties to the country. They should not face unique financial barriers simply because they live outside U.S. borders.

At its core, this issue is about a simple principle: citizenship should never function as a financial penalty.

The State Department’s rule makes clear that the current system is driving some Americans to conclude that renunciation is the only way to escape the burdens imposed by citizenship-based taxation. Making renunciation cheaper does not solve that problem. It simply makes the exit door more accessible.

Congress should address the reason people feel compelled to leave in the first place.

That means bringing the U.S. in line with the international norm of residence-based taxation.

Tax Fairness for Americans Abroad urges lawmakers to treat the findings in this rule as what they are: further evidence that the current system is no longer defensible. Americans abroad should be able to keep their U.S. citizenship without sacrificing their financial lives, retirement security, or family stability.

The government has now acknowledged the damage. It is time to fix the system that caused it.

Sincerely,

Tax Fairness for Americans Abroad