I recently wrote a two-part series about the inadequate justification for the United States’ worldwide taxation of its nonresident citizens (Part I is available here; Part II is available here). Professor Michael S. Kirsch offers a different perspective in defense of this system. Instead of assessing the propriety of U.S. worldwide taxation on the basis of the legal benefits associated with U.S. citizenship, which lies at the heart of the “benefits rationale,” Professor Kirsch argues that, “it is reasonable to conclude that the retention of U.S. citizenship reflects a self-identification with the population of the United States (or the belief that the benefits of citizenship are worth the tax cost).”[i]
In justifying the worldwide taxation of U.S. citizens, Professor Kirsch relies on the psychological benefits of U.S. citizenship, namely, the ability of nonresident citizens to identify on an emotional level with the United States. Professor Kirsch advances the theory that a nonresident’s retention of his U.S. citizenship, despite having the ability to expatriate at any time, reveals a subjective “belief that the benefits of [U.S.] citizenship are worth the tax cost.”[ii]
According to Professor Kirsch, the failure to renounce one’s U.S. citizenship while living abroad reveals a person’s true, heart-felt intentions: “that the advantages to him of U.S. citizenship outweigh its tax cost, in terms of worldwide taxation of his income and assets,” as onerous as that might be.[iii]
I respectfully disagree. First, due to the U.S. government’s recent overhaul of the expatriation process, expatriation has not only become more cumbersome, but more expensive. Many find it to be “cost prohibitive.” Second, the tax liability incurred by two or more U.S. citizens living abroad may be radically different depending on the countries in which they live, despite the fact that they receive the very same benefits of citizenship.
At a primitive level, I do not disagree that the symbolic and emotional benefits of U.S. citizenship, referred to by Professor Kirsch as “self-identification,” are very real. One need look no further than the excitement and joy experienced by an Immigrant after taking the “Oath of Allegiance” at a naturalization ceremony (taking the oath completes the process of becoming a U.S. citizen).
At the same time, I agree with Professor Edward Zelinsky that as real as the psychological benefits of U.S. citizenship might be, they fall woefully short of justifying the global taxation of nonresident U.S. citizens. As so eloquently stated by Professor Zelinsky,
“There is a missing link between the major premise – the psychological benefits of U.S. citizenship – and the asserted conclusion – worldwide taxation of U.S. citizens. Why does the latter stem from the former? I respectfully suggest that Professor Kirsch (or anyone else) cannot supply the missing minor premise in this syllogistic chain.”[iv]
Although Professor Kirsch’s arguments help to clarify the debate, I remain steadfast in my opinion that the justification for U.S. worldwide taxation of its nonresident citizens is unpersuasive.
What do you think? I would love to hear your comments.
Endnotes:
[i] Michael S. Kirsch, Taxing Citizens in a Global Economy, 82 N.Y.U. L. Rev. 443, 481 (2007).
[ii] Id.
[iii] Edward Zelinsky, Citizenship and Worldwide Taxation: Citizenship as an Administrable Proxy for Domicile, Iowa Law Review, p. 1322.
[iv] Id, supra, Note (iii), at p. 1322.
2 Responses
Wow. Professor Kirsch is waaay off the mark.
First, the main reason people didn’t renounce was there was no need to.He seems not to understand that a huge percentage of expats do not file taxes (since they didn’t/don’t know about the requirement). I believe the number listed on a recent IRS Stats publication says something in the neighborhood of 450,000 returns filed.Just under 17% of 7.6 million (unknown how many would not have to file). So it’s quite a jump to say ” ….reveals a subjective “belief that the benefits of [U.S.] citizenship are worth the tax cost.” If anything, the increase in renunciations alone discount that idea as well as the number of forums discussing renouncing and so on.
I also do not think one can compare a born and raised American’s psychological state with that of an immigrant. A new immigrant to the US presumably does not have much experience of the US.There are so many conceptions of what the US represents. However, someone who has lived there knows differently. IOW, I may have the childlike, naive reactions to seeing the flag wave but I also know of many of the shameful things the US has done and so I will make some kind of judgement which may outweigh my emotional response.
I was born and raised in the US and lived there for 27 years. It was horrible to renounce my citizenship. But many factors came into play. Three years ago, all one heard about was FBAR penalties. Threats about being in OVDI. If IRS finds you first and so on. My parents are gone. I was in my late 50’s. All our income from my “alien” spouse. Nothing to indicate things would improve or work out in favor of expats. So I renounced. Bottom line is, you protect your family.
One more thing regarding this: “the ability of nonresident citizens to identify on an emotional level with the United States.” When you live abroad, you identify with your home country most strongy in times of tragediy. Things like 9/11 for example, make one feel that emotional connection more strongly than ever. And that really doesn’t change even after renouncing. Citizenship is a much deeper component of personality. Filing some paperwork making one no longer American really doesn’t put much of a dent in it. All it does is make you no longer able to move back, vote and so on. Those are only the outer indications of citizenship.
Of course it is emotional. Just as many foreigners living in the US remain French, Italian, whatever, many Americans remain attached to their birthplace.
But beyond love are practical aspects. You may love somebody but no longer be able, for your own good, to put up with their tantrums and eccentricities/abuse.
And it’s true that there is a spectrum of what people can put up with that is up to each individual. If you are 35 years old and have family and job opportunities in the US, and no retirement account, that’s one thing. File all you can and prepare for the American dream.
If you are 50 and firmly established in a wonderful country somewhere, where you pay high taxes, but get good services, your children are there, your spouse, your family, you have that citizenship, you have assets and accounts which may be double taxed. You think realistically there is a very low probability that you will leave. And should life give you the urge to roam, there are so many places on earth to discover, where life is good, other than the US. At this point, you need to preserve yourself and your family and begin to wonder if that blue passport is, indeed, worth keeping. Worse, you may feel the NEED to get rid of it in order to do some estate planning, retirement planning, investments, or start a new business. To the “love it or leave it” crowd one might answer: “If you love me let me go”