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Wednesday, May 23, 2012

U.S. Tries to Build Its Own Berlin Wall

I mentioned a few days that Eduardo Saverin's renunciation of U.S. citizenship has ruffled a few feathers back in the homeland.  Didn't take long for the politicians to take up the cause in the name of "justice" for the American people.

Two Senators,  Charles Schumer (Democrat-NY) and Bob Casey (Democrat-Pennsylvania), have proposed a nifty new law called the Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy Act (aka the Ex-PATRIOT Act).  Catchy title - must have taken them hours of meetings to come up with that one.  I would have preferred that they had spent that time thinking a little harder about the impact and the potential consequences of such a law.

What does their bill propose?  It would "amend the Internal Revenue Code of 1986 to provide that persons renouncing citizenship for a substantial tax avoidance purpose shall be subject to tax and withholding on capital gains, to provide that such persons shall not be admissible to the United States, and for other purposes."  It would assume that anyone renouncing citizenship who had over 2 million USD in assets or a tax liability of 148,000 USD is guilty of tax evasion until he or she proves his or her innocence.  So much for "Ei incumbit probatio qui dicit, non qui negat."  And who gets to decide the merits of their case?  The Internal Revenue Service.  Brings to mind the old saying about putting the fox in charge of the henhouse.  But that's not all, once these "covered expatriates" have been scolded and found guilty, they will be forever barred from traveling to or living in the U.S.  This proposed law is retroactive which means that they could unleash the IRS to go after anyone who renounced U.S. citizenship in the past decade. You read that correctly - they are proposing to go after people who legally renounced in the past but who could now be judged guilty based on a law to be passed in 2012.

Just a quick glance at the particulars reveals all sorts of things that are just plain wrong about the Ex-PATRIOT Act:  presumption of guilt, lack of due process (shouldn't the courts be deciding guilt, not a government bureaucracy?) and the idea that you can turn perfectly legal past behaviour into a crime that can be punished today.   For the edification of homelanders, the U.S. already has an Exit Tax passed by Congress in 2008 which Eduardo Saverin paid for the privilege of renouncing his U.S. citizenship.  Rest assured, folks, the U.S. government got its cut of his wealth as he walked out the door.  The only new thing about Schumer and Casey's law is that it would punish Saverin for his cheek by keeping him out of the U.S. and ensuring that they get even more money out of him after Facebook goes public.  This isn't about Saverin evading taxes so much as it's about punishing people who dare to do something that Americans don't like and don't want others to do.  That may make some Americans feel better about being divorced but it has some real consequences they need to think about before cheering Schumer and Casey on:

Barrier to Naturalization:  Look at this from the perspective of a potential citizen who is being invited to the "land of opportunity" to inject his human capital (forged in another land) into something that may or may not pay off.  This is a huge risk - not every immigrant is successful and failure is a real possibility.  If this immigrant has the good sense to look before he leaps, he will see that becoming a U.S. citizen is fraught with peril.  As a citizen or Green Card holder not only will he be taxed on what he earns in the U.S., he will have to pay (or at least report) on everything he owns and earns outside the U.S. even if none of those assets or income came from the U.S.  Does that sound like a good deal to you?  No other country does this which makes the U.S. very uncompetitive in the global citizenship market.  On top of that, if said immigrant does actually make some money and wants to return home (reverse migration) or move on and tries to renounce, he is going to have to pay out a considerable amount of what he earned in the U.S. just to exercise his right to expatriate.  You know, the right that was confirmed by the U.S. Congress in 1868 when they said, "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"?  

Anyone with a lick of common sense can see the solution to this little dilemma;  just don't become a U.S. citizen.  Ever.  Nothing prevents anyone from coming to the U.S., living there for years, enjoying almost all the benefits of citizenship (except for voting) but never pledging allegiance.  This will increase the number of resident aliens in the U.S., people who may be very fond of America but who are not willing to see their ability to work where they like, live where they please, and to participate in business ventures and to build enterprises outside the U.S. (all the goodies of globalization) compromised.

Increases renunciations:  Look at this from the perspective of an overseas American who is debating whether or not to renounce.  This proposed law sends an important signal to them:  get out while you can. Today the threshold is 2 million USD.  What will it be tomorrow?  200,000 USD?  A Congress that is capable of making a law like the ex-Patriot Act retroactive sounds perfectly capable of deciding one day in the future that every expatriate will have to pay an onerous exit tax no matter what level of income or assets.  This is what many of us suspect is going to happen if those renunciation figures get so high that the U.S. starts to get queasy and finds itself embarrassed in the national and international media.  Jumping now is starting to look like a very good idea.  Could Congress lower the threshold and make that retroactive?  Sure they could but renunciants could fight back in the courts and just might have a better case that says, "Look, what we did was perfectly legal at the time.  Not cool to play "gotcha" now."

Punishes Homeland Americans:  The inability of renunciants to return to the U.S. to visit may turn out to be a heavier burden on the people they left behind in the homeland.:  their families.  One reason many overseas Americans have for not renouncing has nothing to do with the U.S. and everything to do with aging parents and other family members still living there.  People who would otherwise have no reason or desire to be American citizens are nevertheless concerned that their families will bear the brunt of their defection.  This is a bit of collateral damage that Schumer and Casey probably didn't consider.  The reality is that potential renunciants may also have family outside the U.S. that they need to protect from U.S. citizenship-based taxation and the new FATCA laws.  What a terrible choice:  aging parents in the U.S. versus spouses and children outside the U.S.  Where parents and grandparents are in ill-health and unable to travel, this will prevent them from ever seeing their children again and potentially their grandchildren.  All potential renunciants are aware of this.  Given the current situation, I think many will renounce anyway because they feel they must act now to protect immediate family.  If this law passes, expect some interesting headlines like "U.S. government prevents daughter from visiting dying mother in Houston because of U.S. exit tax laws."

Aside from this short list of potential consequences, have homelanders thought for two seconds what this law says about the United States of America in 2012?  Is the U.S. so desperate for citizens, so eager to prevent people from leaving, that it must do everything in its power to discourage it?  Since when did Americans have so little confidence in themselves and their country that they have to build a wall to keep people in?  I understand that Americans feel angry and out of sorts when people renounce, but, you know, that's what countries who invest in their citizens and watch them pack up and leave for the U.S. often feel.  Most have the good sense to be gracious about it and some even welcome back the descendants of their emigrants with open arms.  Now that the shoe is on the other foot, Americans find that they don't much care for the rules that have benefitted them for over 200 years.  

Here are a couple of radical ideas:  if Americans think an Exit Tax is such a great concept, then why don't they ask every immigrant at every U.S. citizenship ceremony to cut a check for 30% of their assets earned in the States to be sent back to their countries of origin with a note of thanks signed by the head of the USCIS?  Or if they are so convinced that Saverin owes something to the countries that "made" him, perhaps they would share what they have already collected from him in taxes with Brazil, his other country of citizenship?

I don't care much for that idea and I think most Americans wouldn't like it much either (the Brazilian government, on the other hand, would probably be tickled pink to get a check from the U.S. Treasury).  So let's stop with the petty small-minded rubbish coming out of Washington .  To do otherwise would clearly give credence to what a lot of Americans inside and outside the U.S. have been wondering about:  that the "land of the free' has become something else altogether.


Anonymous said...

Hello Victoria
Well spoken, thank you.
I am so terribly sad. This is not the country I knew and loved. I can only surmise that such attitudes stem from a lack of self confidence or perhaps great immaturity. It is unfortunate that elected representatives should set such an example.
The toys have been thrown out of the pram. Will anyone pick them up?

Berliniquais said...

What a terrible, terrible piece of legislation. Everything about it is misguided beyond belief. Even the "catchy" name which, to me, make it sound more like a parody than something real (come to think of it, maybe that was the purpose of it). It is a very sobering reality check to hear that this scary proposal is the brainchild of two Democratic Senators, for those of the not-too-well-informed public (including me) who naively believed until recently that the "Republican Right" enjoyed a total monopoly in that kind of hysterical patriotism. Duh, no.

Calling this iniquitous legislation as "US's very own Berlin Wall", as you did, is a very apt analogy. East-German defectors were barred from ever re-entering the country they risked their lives leaving behind. This fact possibly made the Iron Curtain so formidable and efficient in keeping people in, as much as the minefields, the barbed wire and the miradors did. The Berlin Wall "fell" on the very day when GDR officials made the fateful decision to allow people to go West through a few designated points and to come back. That was the key, actually. Ah, also, needless to say that the relatives of these defectors, who stayed behind in the workers' paradise, were also "punished" by the state repression apparatus...

So these two fellows are taking a leaf (or many more indeed) out of former East-Germany's book. They should be ashamed.

I hope that this dangerous proposal never becomes legislation. But it's worrisome enough that experienced politicians went as far as just draughting such absurd and unfair legislation in the first place.

Victoria FERAUGE said...

@Anonymous - Thanks very much for the comment. I agree with you - it's pretty damn sad.

@JM - Alas the Democrats and Republicans (who disagree on just about everything) have found common ground here. Makes it very hard to know who to vote for this year. Thanks for the additional information about the Berlin Wall. It looks like it is indeed a fitting analogy. Makes one wonder about that "electric barbed wire fence" some US politicians want to erect to keep immigrants out (or is it actually to keep U.S. citizens in?)

I appears too that this legislation may indeed pass. Here is a very good article (hat tip to Peter Dunn at Isaac Brock)

His analysis?

"I think there’s a very good chance that in the current political atmosphere, the Ex-PATRIOT Act could pass. Think of it this way: if you were a politician in Washington, D.C., and wanted to get re-elected, would you dare to vote against it?"

He's probably right....


P. Moore said...

Terrific explanation. Unfortunately the US Congress has created some pretty poor legislation in recent years, including this idea, FATCA and of course the Patriot Act.
They should try to do something constructive and maybe they can get back to double digit approval ratings.