Will Congress Move to Tax “Ex-Patriots”?

by Peter Spiro

We should have known that it would take someone on the Hill about ten minutes to go after Eduardo Saverin and tax renunciants after all the play his exit has been getting.  Charles Schumer and Bob Casey are introducing legislation entitled the Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy Act to make renunciants pay more dearly for their inconstancy. (Yes, that’s the “Ex-PATRIOT Act”.  How about a moratorium on forced legislative acronyms? I hereby propose the Legislative Acronyms Mitigation and Elimination Act.)

From Schumer’s press release, the operative heart of the proposal:

If the individual has a legitimate reason for renouncing his or her citizenship, no penalties will apply. But if the IRS finds that an individual gave up their passport for substantial tax purposes, then it will prospectively impose a tax on the individual’s future investment gains, no matter where he or she resides. This would eliminate any tax benefit and financial incentive from renouncing one’s citizenship. The rate of this capital gains tax will be 30 percent, in keeping with the rate that is already applied on non-resident aliens for dividends and interest earnings.

So long as the individual avoids these taxes, they would be inadmissible to the United States forever.

In other words, pay up, indefinitely, or you’re never coming home again.   (This time, apparently, they mean it – as I suspected below, the current exclusion provision is apparently not enforced.)

My instinct is that this isn’t going to become law, if only because it’s about enforcing taxes and Republicans in the House will be skeptical.  (I wonder what Grover Norquist thinks.)  If it did, I think it would pose an interesting international law question.  Article 15 of the Universal Declaration of Human Rights asserts that “[n]o one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality,” a norm arguably reflected in customary law  Would capital gains for life be “arbitrary”?  Perhaps.  There’s also this from US law, under the so-called Expatriation Act of 1868:

Whereas the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness; and whereas in the recognition of this principle, this government has freely received emigrants from all nations, and invested them with the rights of citizenship; and whereas it is claimed that such American citizens, with their descendents, are subjects of foreign states, owing allegiance to the governments thereof; and whereas it is necessary to the maintenance of public peace that this claim of foreign allegiance should be promptly and finally disavowed; Therefore,
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That any declaration, instruction, opinion, order, or decision of any officers of this government which denies, restricts, impairs, or questions the right of expatriation, is hereby declared inconsistent with the fundamental principles of this government.

Obviously, the Schumer proposal is to different purposes.  I guess expatriation isn’t so natural and inherent a right when folks are going in the other direction.

http://opiniojuris.org/2012/05/17/will-congress-move-to-tax-ex-patriots/

One Response

  1. Notice the emphasis on emigrants right in the period after the Civil War.  I suspect there is a twist here that relates to worries about losing white emigrants at a time when black non-emigrants (i.e. freed slaves) were being counted more fully as citizens.

    What if Singapore makes it a crime for someone to pay taxes to a state to whom a person has renounced citizenship.  That sets up an absolute defense I suspect to guys like this.  Schumer is seeming to think this is just an American game.  I am sure that Singapore is happy to make such a law to incentivize these people coming to  Singapore.  That does not minimize for me the point that this guy has acted in a pretty shmucky way in bailing when he gets the payoff. 

    It gets interesting with questions about where he holds his shares etc and whether when he makes a sale he could be subject to 30 percent tax withholding.  He probably just borrow on the value of the shares and live the life of Riley or so try to.

    Best,
    Ben

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