My son Timothy is nearing his first birthday and our household is filled with debate and discord. Should I give him a U.S. passport? Is a U.S. passport his birthright or a curse? Should my son identify as a U.S. citizen, a Panamanian, or both?
Allow me to give you a bit of background. I am an expat American living and working in Panama. I spent 15 years in the U.S. as a tax lawyer and now call Panama home. Timothy was born in Panama, his mother is Panamanian, and he holds a passport from Panama. By filling out a few forms he can become a U.S. citizen and become subject to the laws of my home country.
As a Panamanian, he has no trouble visiting the U.S. We travel to San Diego often to see his grandparents. He and his mother both have 10 year U.S. visas and I don’t expect travel to become an issue.
A Panamanian passport is a solid travel document that gives him access to most countries. Had his mother been Cuban or Venezuelan we wouldn’t be having this debate…he’d have a U.S. passport. Likewise, if his mother was from the U.K. or an EU country, we wouldn’t have an issue…I wouldn’t burden him with U.S. citizenship.
My position on second passports for U.S. persons is that they provide wealth and lifestyle insurance. If you hold a second passport, you have the ability to give up your U.S. citizenship, stop paying U.S. taxes, stop reporting your income and assets as an expat, and become a more complete part of whichever country you have decided to make your home. You might pay a significant “exit tax” but you will be free and international banks will no longer report your transactions under the Foreign Account Tax Compliance Act (FATCA).
While that’s all fine and good for adults, what about a child who’s just starting out in life? Do I have a right to impose my biased worldview (all be it based on experience) by refusing him U.S. citizenship? Is U.S. citizenship something to be valued or a burden that he will have to carry in the years to come? Am I helping him to walk in my footsteps and to benefit from my experience?
Being the logical sort I made a list of pros and cons of giving little Timothy a blue passport:
- Easy access to U.S. schools,
- Can live in the U.S., as I did,
- College scholarships and aid are available to U.S. citizens
- Work in the United States during and after college,
- Right to renounce U.S. citizenship if he chooses… gives him the right to decide when he’s of age,
- Gives him a choice in where to live, go to school, and in the lifestyle he finds to his liking. My choice is to live in Panama and vacation in Colombia, but I spent 35 years in the United States. Without citizenship, Timothy wouldn’t have that opportunity.
- The U.S. could prevent Americans from renouncing their citizenships or make it more difficult. Since FATCA, expatriations have quadrupled and are expected to double again in 2015.
- U.S. citizens are taxed on their worldwide income, no matter where they live.
- U.S. citizens are a part of the U.S. tax, legal, and court system. He will always be subject to the whims of U.S. judges and politicians.
- U.S. citizens can be forced to return at any time for any reason.
- A risk of falling in to the U.S. inheritance and estate tax system if parents were to pass away unexpectedly.
- Costs of compliance with U.S. tax laws of about $2,500 per year on average.
- Costs of $10,000+ to expatriate.
* If you can think of arguments on either side, please post them as comments. This is obviously an area near and dear to my heart.
As I write them out, it seems most of the benefits apply through Timothy’s college days and then come the risks and costs of being an American. It becomes time to pay the piper, as it were.
As long as the laws don’t change, one might come to the conclusion that he should hold U.S. citizenship through college and then renounce if he so chooses before making any real money.
Of course, the risks of a law change are significant. Also, the risk that we as a family put off expatriation too long and he gets caught up in legal troubles or tax problems with the great collector is a concern thousands of expats, especially Canadians with U.S. parents, are dealing with today.
Let me take a minute to explain my thought process. We American expats wear a scarlet letter A on our chests, which is now stamped on any financial transaction or bank account application we touch. The majority of international banks, brokerages, insurance providers, and mortgage lenders don’t want to have anything to do with us. Since FATCA turned foreign banks tellers into unpaid IRS agents, we are persona non grata in many corners of the world.
And this will impact Timothy’s early life. It will limit his ability to get a “starter” job at most companies in Latin America. Almost no one is willing to hire an American citizen these days.
* Of course, as his mother points out, he can always work here at Premier!
Also, being an American means that the U.S. government will collect massive amounts of information on his life and financial history. Is it right to allow the American authorities to invade his privacy from day one? Is it preferable to keep him away from his unscrupulous and nosy Uncle?
And these issues extend to Timothy’s mother. Spouses of U.S. citizens with shared ownership of assets are subject to FATCA’s disclosure requirements. Because she chose an American (me), all of her personal data and banking information are likely to be shared with the United States. This may currently applies to joint accounts, but I expect Panama to take the conservative or CYA approach of sending all data. They will report on their own citizens if there is any risk of running afoul of the U.S. authorities.
Finally, if I don’t give Timothy a U.S. passport, is he at risk of being caught up in the U.S. tax system anyway? Will banks only consider clients with U.S. addresses or passports and send them to the IRS? Will they take the extra step of doing a forensic analysis of everyone’s account activity, legal status, and ancestry?
When you look at FATCA, a complete analysis of all customer data is what the law requires. How far the banks will go is to be seen.
So, there’s my dilemma. Do I give my son a U.S. passport? Our household is greatly divided on the issue. Your comments or suggestions are welcome.