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Fugitive Slave Law

March 24, 2009, 9:35 am

I often discuss government actions in terms of one's theory of government.   Here is a good example:  What does one's theory of government have to be to justify this:

The American Jobs Creation act of 2004, passed by the Republican-controlled government, amended section 877 of the Internal Revenue Code. Under the new law, any individual who has a net worth of $2 million or an average income-tax liability of $127,000 who renounces his or her citizenship and leaves the country is automatically assumed to have done so for tax avoidance reasons and is subject to some rather unbelievable tax laws.

Any individual who is declared to have expatriated for tax reasons is forced to pay US income taxes on all US based income for 10 years following expatriation, regardless of the country in which the individual resides. Additionally, in the 10 years following expatriation, if a qualifying individual spends 30 days in the United States during any year, he or she is taxed as a US citizen on all income derived from any place in the world. To make matters worse, if an individual happens to die in a year in which he or she spent at least 30 days in the United States, the entire estate is subject to US income tax law.

The only relationship I can think of that justifies this is master to slave.   When slaves run away, the master feels that he has suffered a financial loss that deserves recompense.  I guess it is somewhat comforting to see Republicans consistent on this issue -- they typically  are strong supporters of having to get government permission to enter this country, so I guess it is no suprise they want to assert government rights on individuals when they exit as well.

Tags: ,
Category: Taxes
  • morganovich

    this has been further altered since then. for those w/ assets over $2mm, giving up your citizenship is now a taxable event. all your assets are taxed as if sold. you will pay gains on your house, your stocks, options, you name it. you need to pay out before they will let you leave.

    indentured servitude seems like the correct label. you must buy your freedom.

    the simple fact is that we have one of the most far reaching and repressive tax codes in the world. the only country that taxes global income as thoroughly as the US is north korea, which is not really the company you want to be keeping.

    these laws are specifically targeted at mobile capital (like me) that could relocate myself and business to virtually anywhere.

    citizenship you must pay to be rid of certainly smacks more of obligation than privilege. targeting it just at the wealthy smacks of class warfare and the use of a populist railroading to keep the engines of tax paying in yoke. with the top 1% of taxpayers paying 40% of taxes and also comprising the most mobile segment of the population, this is a ring fence, pure and simple.

    a nation that is focused on keeping people in and preventing "defection" as opposed to attracting them by making it a place the WANT to live is a nation in decline.

  • Iain

    I always found the US government taxing a US citizen who is abroad on their income abroad a strange thing.

    After all, we'd already be taxing a US person working and earning in London with British taxes...

    Unless...

    This would make sense if I, as a UK citizen (hypothetically) working and living in New York didn't have to pay US taxes on my income? Anything else would be sheer hypocrisy, and I'm sure that's not likely...

    Iain.

  • DKH

    "Any individual who is declared to have expatriated for tax reasons is forced to pay US income taxes on all US based income for 10 years following expatriation..."

    I don't understand why one wouldn't expect to pay US taxes on US-based income. Is there something I'm missing?

    I agree that a lot of this regulation is unreasonably restrictive, but that clause in particular does not seem outside of expectations.

  • sabril

    I don't see a problem with it. If somebody enjoys all of the benefits and protections of US citizenship while becoming wealthy, it's only fair that they contribute more once they have that wealth.

    Anyway, for most Americans it would seem easy enough to avoid this. Just emmigrate when you turn 18 before you have significant income or assets.

  • morganovich

    sabril-

    people do contribute while they get wealthy. they pay taxes all the way up. the top 1% of taxpayers pay 40% of taxes. that's quite a share, no? how do you figure that is "not contributing"?

    how do you emigrate before 18? who would take you? where would you get permission? what about your parents? are most ready to make a choice like that at that age?

    also, most americans are over 18 and to emigrate, you need assets and income. other countries don't take you without them (at least not the ones you'd want to live in). what are those of us over 18 to do? though, in reality, these rules are targeted at a small group. your first $2 million in assets are free and clear, but after that, it gets nasty. why are the rich being subjected to different treatment? because they are cash cows. they need to be kept. they pay virtually all the bills.

    i agree that it's reasonable to tax people for the benefits of citizenship, but what if the rules change? if, in response to changes in law or tax policy i want to leave, why should i have to pay? the bargain can be changed without my consent and the cost/benefit of tax vs opportunity can be altered dramatically.

    based on current proposed taxes, my effective tax rate will more than double. that's not a typo. double. (look into the changes in carried interest taxation).

    that is not the deal i signed up for, and it will have large retroactive effects on me. because only a small group are affected, we are unable to defend ourselves democratically. the only defense i had was to leave, and now the price of that is very high. i can't even move my business, as global income is taxed here.

    by what rationale is it OK for a government to demand a massive fee for me to leave? if your employer reduced your salary and you decided it wasn't worth it, you'd get a new job. you would not expect to pay for that privilege.

    if your town or state raised property taxes to a level you didn't want to pay, you'd move. if they demanded continuing tax afterward, wouldn't you see that as unreasonable?

    are we to be simple tax producing oxen yoked to the nation? no other country does this. it is pure and simple a ring fence to prevent the prized tax base from leaving in response to the disincentives of new policy. they want to be free of the consequences of their actions.

    adding to the stupidity, such a policy encourages me to take all my assets with me when i go. how is that a good idea?

    i like living in the US, but the simple fact is that if current proposals will hurt me too much, i'll leave. i am currently looking at options. lots of countries are anxious to get someone who comes with their own successful business and will treat me better. it may be worth just paying up and doing it.

    would you rather work somewhere that will incentivize you to come or that millks you and punishes you if you try to leave?

  • K

    re: morganovich. "if your town or state raised property taxes to a level you didn’t want to pay, you’d move. if they demanded continuing tax afterward, wouldn’t you see that as unreasonable?"

    Ambiguous. If you still own the property after you move then of course you will keep being taxed. And you can be taxed on the profit from selling selling it.

    But that is quibbling about your meaning. California did continue taxing people who had left.

    A few years back California was taxing the pensions of people who had moved away if they had previously earned pensions while living in CA.

    CA eventually lost in federal court. IMO correctly. I believe they might have prevailed if they had worded the law differently. But who knows?

    The fact that a Republican Congress and President passed the restriction in 2004 just illustrates how Washington works. Politicians seldom read what they vote upon, so a few members of a committee usually decide what becomes law.

  • Bob Smith

    I don’t understand why one wouldn’t expect to pay US taxes on US-based income. Is there something I’m missing?

    Yes, there is. Non-resident aliens don't pay US taxes on many kinds of US-source income. The US is the world's largest tax haven if you're a non-resident alien.

  • morganovich

    k-

    just to clarify, what i meant to convey by "move" was "sell your house and move". obviously, if you still owned it, they would be quite justified in taxing you (so long as one accepts that property tax is reasonable, which i mostly do).

    california will also try to keep income taxing you if you leave. they were astoundingly difficult to get free of when i moved my permanent residence to the nevada side of lake tahoe because i still keep an apartment in san francisco. (though rent it)

    however, just because they DO it does not make it reasonable, just, or fair. we can always find numerous examples of poor and unjust behavior. they do not justify other such behavior. arguing that such policies are OK because California does it is logically the equivalent of arguing that it's alright to cheat on social security because your neighbor does.

  • K

    morganovich: Yes, I realized you meant sell and move. That is why I said I was merely quibbling about your meaning.

    However I did not realize you were a fellow escapee from the CA taxation prison.

    My own meaning was unclear when I said CA might have prevailed in federal court if they had worded their law differently. My intention was not to argue their intent was OK. I only meant we don't know how another wording might have fared.

    So we agree. Sorry for any poor wording.

  • Frank

    "that is not the deal i signed up for"

    No? What deal did you sign up for?

    If the craven choose to exploit the American economy for gain and then reject their duties and birthright, it seems to me that taxation on them should be more than something that might be viewed by the greedy as unreasonable.

    By all means possible a punitive tax should be imposed.

    It's the country's fault when someone would reject American citizenship for monetary gain? It astounds me that anyone does not see such an action as plainly un-American and just as plainly undeserving of compassion or consideration.

    As to the top 1% paying 40% - that represents what portion of their wealth?

  • Douglas2

    You know, some people leave the country of their birth and settle elsewhere and never permanently return. I've met lots of people who have home, career, and family outside the US and no desire to come back. Yet the US keeps taxing them on all world income. For someone with no intention of returning, living in a stable country, and with acquired citizenship there -- it makes perfect sense to me that they might begin to wonder what the point of this forced support of their old country is. On the expat forums, it was worked out years ago that the debt of US tax arrears was largely unenforceable outside the US, so many stopped paying. In response the US (in a dramatic instance of the left hand actually knowing what the right hand was doing) stopped issue of new US passports for people with tax arrears, thinking that when people came to the embassy to renew their passports they could then collect on this foreign income. In response many expats stopped renewing their passports. If you've already got another, how much do you really want to pay every year for a blue one with an eagle on the front?

    But if you want to say to them "you toil and work and earn bread, and we'll take it and have the benefit of it here, because you were born here and are therefore permanently obligated" then that must be right....right?

  • R

    As to the top 1% paying 40% - that represents what portion of their wealth?

    If you pay 40% of your income every year? My instinctive response is to say that paying 40% per annum represents a loss of 40% of one's income, but tax codes are convoluted, and thus I could easily be wrong.

    If the craven choose to exploit the American economy for gain and then reject their duties and birthright, it seems to me that taxation on them should be more than something that might be viewed by the greedy as unreasonable.

    Well, answer a couple questions. First, by "exploit the American economy for gain", do you mean "conduct business"? Secondly, by "reject their duties and birthright" do you mean "acquire citizenship in another country"?

    If so, can you explain why having run a business profitably means that an individual should be penalized for deciding to renounce American citizenship?

  • R

    In any case, taxation should be based on the country of residence, because the purpose of taxation is to fund services rendered by a government (police, infrastructure, schools, health care, whatever) to the residents of the area in which it claims jurisdiction. A person should only be paying to the government which is rendering him or her such services. A New Yorker living in London, Paris, or Tokyo is not receiving the benefits of the functions of the U.S. government and thus should not be paying for them.

  • R

    If I decide to acquire citizenship in another country, I would be renouncing my rights as an American - but in return for not being granted the rights and privileges of American citizenships, I expect not to be held to the duties of an American citizenship. They go hand in hand.