This story may unnerve you… It’s the story of how Eritrea, a small, mostly unheard-of country in East Africa, and the United States, do the same awful thing.
Nearly every country in the world bases its tax system on residency rather than citizenship. If you’re an Italian citizen, and you leave Italy to live and work in Dubai, you don’t have to pay taxes on the income you earn abroad to the Italian government.
But Eritrea levies a 2% flat tax on its citizens who live abroad. If you’re an Eritrean citizen, you have to pay taxes to the Eritrean government, no matter where you live and work.
The media has condemned this as “extortion” and a “repressive” measure by an “authoritarian” government.
The UN has even weighed in. In Resolution 2023, the UN Security Council condemned Eritrea for “using extortion, threats of violence, fraud and other illicit means to collect taxes outside of Eritrea from its nationals.”
You might be wondering, “What’s the controversy? Eritrea is getting criticized, and rightly so.”
That brings us to the only other country on the planet with a similar tax system… the United States.
The U.S. also taxes its nonresident citizens, no matter where they live or work. This is the exact same thing Eritrea does, except the U.S. does it on a much bigger scale and with absolutely draconian penalties.
Eritrea’s paltry 2% tax is a mere fraction of the top 39.6% federal tax rate that expat Americans have to pay—even if they earn that income abroad and never set foot in the U.S. (The U.S. does exempt a limited amount of foreign earned income if you meet strict requirements.)
Also, Eritrea is a poor country with a very limited ability to actually enforce its 2% expat tax. Many Eritreans who live abroad have never even heard of it. Few are frightened by it.
The U.S., on the other hand, can enforce its byzantine tax system literally anywhere in the world. When you consider its global reach and the penalties—which can only be described as cruel and unusual—it’s no surprise U.S. expats are terrified. And they should be… or they aren’t paying attention.
The U.S. government threatens American expats with prison and outlandish fines merely for not filing a litany of complex forms correctly—even if no taxes are due in the first place.
When you consider all this, it’s not actually fair to compare poor little Eritrea and its relatively modest expat tax to the monstrous U.S. system.
Eritrea is hounded, ostracized, and sanctioned for using—according to the UN—“threats, harassment and intimidation” to “extort” taxes out of its citizens living abroad. You’d think someone would offer at least a peep of criticism for the only other country doing the same thing. But, if you listen for it, you’ll only hear the crickets chirping.
Even though it’s clearly a double standard, it’s easy to understand why it exists.
As the world’s sole superpower and issuer of the premier reserve currency, the U.S. is not accountable to anyone. It’s a heck of a lot easier to push around some small, impoverished African country than it is to stand up to the U.S. juggernaut. Just ask Canada.
A few years ago, the Canadian government took the drastic step of expelling the head of the Eritrean consulate in Toronto because he’d been involved in levying the 2% expat tax on Eritreans living in Canada.
It seems Canada doesn’t like foreign governments shaking down Canadian residents. That is, unless the foreign government is the United States.
Somehow I don’t expect the Canadian government to give any U.S. officials the boot… even though they regularly shake down far more Canadian residents for much more money.
Curiously, Canada’s reaction to the U.S. expat tax is the exact opposite of its reaction to Eritrea’s. Rather than taking action to prevent the U.S. government from harassing U.S. persons living in Canada, the Canadian government facilitates it by complying with the odious FATCA law—even though it contradicts Canadian law.
The Uncomfortable Truth
It’s always better to face reality than to ignore ugly truths. And the story of Eritrea’s expat tax highlights a big one: Americans live under one of the worst tax systems in the entire world.
The government treats its citizens like milk cows… to be milked until the last drop to pay for welfare, warfare, and other untold waste.
For Americans, there’s almost no escaping the tax farm. I call it the “new feudalism.”
It’s ironic, when you look at U.S. history. In not much time, Americans went from revolting over a comparatively small tax on tea to thoughtlessly submitting to an ever-growing tax monster.
Still, don’t hold your breath for positive change. As long as the U.S. dollar remains the world’s premier reserve currency, no other country will stand up to the U.S. forcing its abhorrent tax policies on the rest of the world.
Positive change through the U.S. political system is just as unlikely. Most Americans passively accept the current tax system as “normal.” And, insofar as they want change, many Americans want more people to “pay their fair share.”
“It seems to me that both the United States and Eritrea are following the same principal of taxing their citizens who live abroad. One we call extortion, the other we assist by handing over information. We say Eritrea uses threats, harassment and intimidation; the Americans only threaten the full sanction of U.S. law. Does the word hypocrisy ring a bell?” – Jim MacKay from Markham, Ontario