Americans have always enjoyed the freedom to travel without restrictions within the country and, for the most part, abroad. No, we still can’t travel to Cuba on vacation, only for business. How this makes any sense, I don’t know. The embargo against Cuba, enacted in 1960, was the result of a federal temper tantrum resulting from our humiliating inability to overthrow Fidel Castro’s communist regime sitting just miles from the US coast. I would think we’d be over it by now, considering how Americans can travel to just about any other crappy dictatorship on the planet. But that’s another story. This one is the flip side to my Pay to Stay idea for dealing with illegal immigrants.
Our freedom to life, liberty, and the pursuit of happiness usually comes without a price tag. Well, that is, aside from the cost of national defense and the loss of life required to defend it. We are even free to vote, thanks to the Voting Rights Act, without having to pay any kind of poll tax or anything else that smacks of a tax–even an ID card.
You would think, therefore, that we would also be free to leave the country without having to pay a tax. After all, taxes are financial barriers that can stop people dead in their tracks. If you can’t afford to pay a tax, your rights are effectively limited. This is one reason why it is so important that our founding fathers prohibited taxes on interstate commerce, thus ensuring free trade throughout the country. But are we really free leave the country? As long as you plan to come back, sure, but if you renounce your citizenship and try to leave for good, sorry but no, you can’t.
American citizens who give up their citizenship may have to pay an exit tax, depending on the amount of their assets. Green card holders (lawful resident non-citizens) also have to pay an expatriation tax. If you are a U.S. citizen or long-term resident who expatriated on or after June 17, 2008, the tax law treats you as having sold all of your worldwide property for its fair market value the day before you leave. Even if you don’t sell your assets, the IRS will tax you on what you would have gotten if you had sold everything. This, of course, is based on a complicated process that requires appraisals and additional out of pocket costs. If the theoretical gains add up to more than $651,000, it is subject to U.S. tax at the capital gains rate.
I guess we could call this the “kick in the pants on your way out” tax. I guess the idea is that we have to allow you to leave, but you can’t take everything with you. That doesn’t sound quite right to me. For wealthy Americans with dual citizenship, however, it is a small price to pay to avoid the estate tax that will drastically impact their heirs.
Obviously these taxes are not very well known since not many Americans give up their citizenship and move out of the country. But the first quarter of 2013 saw 670 Americans to date doing just that. This is the largest number since the IRS began publishing figures in 1998. Isabel Getty, daughter and heir to the Getty oil fortune, and Eduardo Saverin, Facebook co-founder, are some of the latest ex-Americans.
What does the IRS have to do with citizenship? They are the ones to tax you on the way out, of course. It seems that the leading reasons for giving up US citizenship are US tax laws, including the estate tax and the taxation of worldwide income instead of just income that is earned within the US.
The US is the only industrialized country in the world that imposes taxes based on citizenship, meaning worldwide income and assets. Of course, they don’t get double taxed by countries that have a tax treaty with us, so it isn’t as bad as it might seem. The IRS has been on a witch hunt to find Americans who earn money overseas and do not declare it, so some wealthy individuals who have dual citizenship or spend a lot of time overseas are just deciding that it isn’t worth the cost to continue to be an American. I know what you are thinking, good riddance, right? Why shouldn’t they pay their fair share just like the rest of us in order to enjoy the benefits of citizenship?
Good point. But wealthy citizens already pay far more than the average American and, when you already live overseas or are faced with the prospect of paying millions of dollars you otherwise don’t have to, the benefits of citizenship can start to fade. Do we really want to be the country that penalizes its’ most successful and wealthy citizens or do we want them to move to other countries that will not impose onerous taxes? I do believe that the wealthy can afford to pay more and that our country benefits from the use of progressive taxation, but there has got to be a reasonable limit. Some countries, like Canada, will not even let you in unless you have a million dollars in the bank or highly employable skills. The United States will let just about anybody in but will tax the wealthy on the way out.
Obviously, this is of no relevance to 99.9% of the country, because most of us don’t plan to leave and even if we did, there wouldn’t be much to tax. Why Congress has bothered to even impose excessive personal taxes on foreign earned income, but continues to exempt multinational business income that is not brought back into the US, I don’t know. We’d be much better off focusing on the non-paying people right here in the country who are currently getting a free ride. So, let’s propose a new tax plan to Congress called Pay to Stay, Not to Go Away!
In case this doesn’t work, I have a plan to establish a new nation on a rising volcanic island or a sea platform. It keeps looking better all the time. With a few wealthy sponsors, I should easily be able to fund its development and settlement. Anyone who is willing to pay a tax to leave the country probably has enough to invest in a better alternative. I’ll call my new nation Atlas and the national salute will be a shoulder shrug. When Elon Musk gets his rockets working a little more reliably, we’ll move it to a platform in orbit and then to Mars.
Atlas Stage 1: Sea Platform
Atlas Stage 2: Space Platform
Atlas Stage 3: Mars Colony