The Obama Administration yesterday backed down from its plan to tax the earnings on 529 savings accounts, a kind of saving account for higher education under section 529 of the tax code. At Bloomberg, Richard Rubin and...
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Outraged By Facebook Expatriate, Sens. Schumer and Casey Propose Steep "Exit Tax"
Facebook.com co-founder Eduardo Saverin—the good guy from The Social Network—was allegedly muscled out of the company but sued to get a 4 percent stake. Since 2009, the Brazilian-born Saverin has lived in Singapore, and he's in the news this week because he's giving up his U.S. citizenship right before his stake in Facebook turns into real stock worth as much as $4 billion. The move may save Saverin $67 million in U.S. taxes, although he denies that was his motivation and now says that he will pay them.
Senators Chuck Schumer (D-NY) and Bob Casey (D-PA) reacted with outrage, holding a press conference where they proposed awkwardly titled legislation to expand the U.S.'s existing expatriation tax. This tax, enacted in 2004 and expanded in 2008, deems any capital exported by a high-net-worth individual who is renouncing his citizenship to be sold on his departure, thus requiring payment of the 15 percent capital gains tax. The proposal:
Schumer and Casey's bill is called the Expatriation Prevention by Abolishing the Tax-Related Incentives for Offshore Tenancy Act, a name designed to produce the acronym Ex-PATRIOT Act.
Anyone who renounces U.S. citizenship and has a net worth of at least $2 million or an average income-tax liability of at least $148,000 over the previous five years would be presumed by the Internal Revenue Service to have done so to avoid paying taxes.
People who could not prove another reason for renouncing citizenship would face a 30% tax on future capital gains on U.S. investments - twice the current 15% rate - and be barred from receiving a visa to enter the country.
The right to exit is commonly considered a key fundamental right, first recognized by the Magna Carta in 1215 and also guaranteed by the U.N. Universal Declaration of Human Rights and, of course, our own U.S. Supreme Court. I hope that the U.S. would be more cautious than Sens. Schumer and Casey in inflicting punishments on people who exercise the right to exit, as we would join some of the more unsavory regimes in history if we did so.
The real problem is that the U.S. is the only major country in the world that taxes based on citizenship rather than residency. (I'm told Eritrea is the other country to do so, but I haven't confirmed that.) To be a U.S. citizen living abroad is much more costly than to be a citizen of any other country. If we're suffering a brain drain of talented and wealthy people, we're doing something wrong that won't be fixed by building a tax-code Berlin Wall.
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