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Overtaxed and over here

21 November 2014 By George Hay

Boris Johnson has a point about his U.S. tax bill, but he should still cough up. The London mayor objects to the fact that his dual UK and U.S. citizenship means he has been issued with an American tax bill, and he says he won’t pay. Though many U.S. expats will share his frustration, it does not warrant civil disobedience.

U.S. tax law is highly unusual in its treatment of citizens who live overseas. Americans abroad are obliged to comply with prevailing tax rates and pay a top-up to the U.S. Treasury if the local rate is lower. This is particularly galling if – like the distinctively English, Eton-educated Johnson – you are American largely by accident of birth.

As it happens, Johnson’s case is not about income tax. The liability arises from the fact that the UK doesn’t tax capital gains on sales of primary residences. The United States levies a 15 percent charge.

Johnson is understandably annoyed about being handed a large bill on his London residence by the U.S. authorities. And, while these are not new rules and he could have renounced his U.S citizenship years ago, actually doing so could prove time-consuming and costly. U.S. law imposes what amounts to an exit tax on would-be ex-citizens. It would also come too late to sidestep this particular tax demand.

But it’s dangerous for a legislator – especially one who could one day become UK prime minister – to be seen breaking laws. It would be far better if Johnson used his public position and his personal predicament to campaign for change. Uncle Sam’s expat tax laws are worthy of reform. The costs of American taxes – both directly and in compliance terms – are excessive for both individuals and companies. The Foreign Account Tax Compliance Act, known as FATCA, places an absurd burden on foreign banks which hold U.S. citizens’ money.

The long arm of U.S extraterritoriality is a big global issue. If Johnson is motivated by anything more than the money in question, he should use his celebrity to highlight the problems. So far, Boris is going the wrong way about it.

 

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