Are You Ready To Pay More To The IRS? New Wealth Tax Proposal Seeks To Penalize Ultra Rich Expats And Make Renunciation Costlier

Senator Elizabeth Warren (D-MA) has reintroduced legislation aimed at imposing new taxes on America’s wealthiest households. This proposed Ultra-Millionaire Tax Act (“UMT Act”) (similar to the first bill she introduced in 2021) would impose a 2% annual tax on the net worth of households and trusts exceeding $50 million, along with an additional 1% tax on billionaire wealth. The legislation also includes a significant deterrent aimed at high-net-worth Americans considering expatriation: a proposed 40% “exit tax” on individuals worth more than $50 million who choose to renounce their US citizenship.

While the political debate in Washington centres on fairness and wealth inequality, many US citizens living abroad are asking a different question: Why are Americans overseas still expected to carry the financial burden of policies that provide them little or no benefit?

The Unique Burden of US Citizens Living Abroad

The United States remains one of the only countries in the world (the other being Eritrea) that imposes tax based on citizenship rather than residency. That means American citizens living permanently in Canada, Australia, the UK, Europe, Asia, the Middle East, or elsewhere are still tied to the US tax system regardless of where they live, work, invest, or raise their families.

For affluent Americans abroad, proposals like Senator Warren’s UMT Act create an added layer of uncertainty and financial exposure.

Many expatriates have spent decades building businesses, purchasing homes, saving for retirement, and creating financial stability entirely outside the United States. Yet under current and proposed tax frameworks, their worldwide assets remain subject to US reporting obligations such as FBAR and FATCA, and they continue to risk exposure to future taxation.

This becomes particularly concerning for expats who no longer maintain meaningful ties to the US. Many individuals who do not use the US healthcare system, benefit from US infrastructure, or maintain personal or professional ties to the US, wonder whether there is any benefit to maintaining their US citizenship, when doing so exposes them to a political system increasingly focused on expanding taxation of global wealth.

“Tax the Rich” Policies Often Reach Far Beyond Wall Street

Supporters of progressive tax policies argue that higher taxes on wealthy households are necessary to fund social programs and reduce inequality. But for Americans abroad, the issue is often less ideological and more practical.

Senator Warren’s proposed Ultra-Millionaire Tax Act signals a broader trend toward heightened financial scrutiny, expanded reporting obligations, stronger anti-avoidance measures, and an increasing tax burden on US expatriates. The UMT Act provides an additional $100 billion in funding for the IRS, which would be used to hire new agents and implement more rigorous auditing procedures.

Furthermore, the proposed UMT Act includes what Senator Warren characterizes as “systematic third-party reporting” that will build on existing tax information exchange agreements enacted under FATCA. Even if this specific proposal is not enacted, other Democrats have shown similar enthusiasm for stronger tax enforcement measures, such as the 2022 Inflation Reduction Act, which allocated $80 billion in supplemental funding to the IRS. In essence, the UMT Act could be just the tip of the iceberg.

For many expatriates, this raises serious concerns, including:

• Will future administrations continue expanding global tax reach?
• Could foreign retirement accounts or family trusts face additional scrutiny?
• Will compliance costs continue increasing?
• How much financial privacy will remain?

Even Americans abroad who are not directly affected by a wealth tax today often recognize the long-term trajectory of US tax policy.

Americans Abroad Often Subsidize Systems They Rarely Benefit From

One of the most frustrating realities for many US expatriates is that they continue contributing to a system from which they receive little practical benefit.

US citizens living overseas frequently face a range of financial and regulatory challenges, including the risk of double taxation, complex annual IRS reporting requirements, and mandatory foreign bank account disclosures. Many also encounter FATCA-related banking restrictions that can limit access to financial services abroad, along with expensive cross-border accounting fees needed to remain compliant with both US and local tax laws. In addition, expatriates are often unable to benefit from investment vehicles such as Exchange Traded Funds (ETFs) in their country of residence due to unfavourable US tax treatment, making long-term financial planning more complicated.

At the same time, many cannot fully access the social programs their taxes support.

As lawmakers continue discussing large-scale federal spending initiatives funded by increased taxation, Americans abroad are increasingly questioning why they remain financially tethered to a country where they no longer live, vote, work, or intend to return.

Why More Americans Abroad Are Considering US Citizenship Renunciation

For many Americans living abroad, renouncing US citizenship is no longer an emotional or political decision. Increasingly, it has become a strategic financial decision shaped by growing concerns over double-tax exposure, invasive IRS reporting requirements, and the ongoing stress of maintaining compliance with a complex and constantly changing tax regime.

In particular, the net worth reporting requirements needed to enforce a wealth tax would subject taxpayers to a heightened degree of intrusive financial disclosure. For many expatriates, proposals such as the UMT Act reinforce a difficult reality: remaining tied to the US tax system may continue exposing them to evolving financial obligations long after they have established permanent lives elsewhere.

Under current law, individuals who give up their US citizenship or long-term residency status may face an expatriation or “exit tax.” These “covered expatriates” generally include individuals with a net worth above $2 million, those exceeding a specified annual tax liability threshold, or those unable to certify full US tax compliance for the previous five years. The exit tax can apply to unrealized gains on worldwide assets as though they were sold immediately before expatriation, with long-term capital gains taxed at rates of up to 23.8%, even if no actual sale occurs. To make matters worse, Senator Elizabeth Warren’s proposed 40% “exit tax” on individuals who renounce their US citizenship has heightened concerns among high-net-worth Americans living abroad.

Our firm fully understands the importance of renouncing our clients’ US citizenship properly. If your US citizenship or green card is not terminated correctly, you can be subject to tens of thousands of dollars in failure-to-file penalties, as well as an exit tax and covered expatriate status. The US has many pitfalls and landmines (exit tax, inheritance tax, disbarment from the US for life, loss of benefits, etc.) that one must successfully navigate. Our firm can work with you and ensure that these pitfalls are avoided.

Make The Right Decision For You and Your Family

Each year, our team of lawyers help 1200–1400 US citizens successfully terminate their US status – more than any other firm in the world. We’ve helped thousands of US expats and green card holders successfully terminate their citizenship status – but, again, it must be done the right way.

If you or a family member is a US citizen or green card holder considering renunciation, we invite you to visit our dedicated webpage for more information. This page contains links to register for our upcoming renunciation webinars. You can find one tailored to your geographic location in our events listings.

These webinars thoroughly review everything you need to know about the US citizenship renunciation process, and available options should you decide to take the next steps.

Moodys Tax Law is only about tax. It is not an add-on service, it is our singular focus. Our Canadian and US lawyers and Chartered Accountants work together to develop effective tax strategies that get results, for individuals and corporate clients with interests in Canada, the US or both. Our strengths lie in Canadian and US cross-border tax advisory services, estateplanning, and tax litigation/dispute resolution. We identify areas of risk and opportunity, and create plans that yield the right balance of protection, optimization and compliance for each of our clients’ special circumstances.