Senators to Unveil the ‘Ex-Patriot Act’ to Respond to Facebook’s Saverin’s Tax ‘Scheme’
The Saverin fall-out, as expected, has begun:
Key quote:
The senators will call Saverin’s move an “outrage” and will outline their plan to re-impose taxes on expatriates like Saverin even after they flee the United States and take up residence in a foreign country. Their proposal would also impose a mandatory 30 percent tax on the capital gains of anybody who renounces their U.S. citizenship.
The plan would bar individuals like Saverin from ever reentering the United States again.
What does this mean? Can we never be free from these people? Is this implying that if you renounce citizenship now even with under the 2 million in assets that you will end up paying capital gains taxes anyway? And what is this about “re-imposing taxes on expatriates”? Does that mean that renouncing citizenship doesn’t do anything and that there would be no way to get out of the US net? Personally I couldn’t care less if they ban me from travelling there, but this has me very alarmed at what is going on. I just want to get rid of this unwanted, accidental citizenship and get about living my life in my own country!
It would seem that the only way to be not be a covered expat would be to have only the necessities of life at the time when you expatriate. But then if they can reassimilate you into their “Borg” like collective at a later date it would seem like renunciation/relinquishment would not ever be truly possible.
Of course this would seem to make us all nothing more than slaves but the IRS won’t allow that argument as a defense to tax liability.
It is nothing more than the Soviet Union/Communist China all over again.
Well, obvious solution I guess….
Ensure you hold no assets in the US in your name at the time of renouncing. And if you ever want to in the future, just change your name and apply for that ITIN with the new name, use a fake ID, whatever. Once you are out of the web they can’t do much anymore.
@recalcitrantexpat
I live in China, I’ve lived in China for a long long time. Even China wasn’t ever this draconian, nor is it now.
Clearly this law would provide a huge incentive for wealthy foreigners in the U.S. not to naturalise. How would Schumer benefit from this? Does he have an opponent who is heavily funded by donations from rich immigrants or something?
I’ve never broken a law in my life (as far as I am aware), but I would literally be ready to bribe whatever government official necessary to remove the US birthplace in my passport and put in anything else if I thought that I could get away with it. I don’t even care where – Put in any country other than the US – It could be Mozambique or Papua New Guinea for all I care, but that US birthplace is starting to drive me insane!
Becoming surreal
@Don Pomodoro – I hear you! I’ve thought to myself that there could become a brisk underground (and illegal) market specifically to change passport place of birth. As far as I am aware, trade in illegal documents used to be for criminals (or perhaps for desperate refugees?), but in the future it may become a thriving underground market for average citizens.
On the plus side, the more batshit the US gets, the easier it will be to claim refugee status in countries that are still sane.
I can’t recall whether the Constitution allows for renunciation. If it does. then some fatcat will likely bring it into the court system. I REFUSE to get worried about this.
After I read the news about Eduardo Saverin’s renunciation, I was afraid that this would happen.
Nazi Germany and some Arab countries confiscated the assets of Jews who tried to leave. Eduardo Saverin is Jewish. Carl Levin and Chuck Schumer are also Jewish. Isn’t this ironic? Can’t these senators see that what they are doing is so similar to what other countries did to torment their own people in the past? Don’t they know that about 100,000 American Jews live in Israel and are subject to these draconian laws? As an American Jew myself, I’m outraged.
I read the mostly negative comments on Eduardo Saverin’s renunciation, some of them proposing such a law. I now see that almost all comments on the ABC article recognize this bill as tyranny and are against it. I still have hope.
I am desperately trying to figure out what exactly are the provisions of the law but I can’t seem to find the text yet.
@Tim he wants to create a media circus first, so he’s “introducing” the bill to the public via a press conference before formally introducing it on the floor of the Senate (from where it’ll get assigned a bill number, go to the GPO and you can get it from Thomas, OpenCongress, GovTrack, or wherever).
There’s a bit more details in Schumer’s press release which just got posted to his website. Basically, if you’re a covered expatriate, they want to tax you at 30% for life on everything you earn, and if you fail to pay the tax then you’ll be denied a visa.
The fun part is where they try to justify the 30% rate by reference to the non-resident alien FDAP rate (which doesn’t even apply to capital gains).
There are very few consequences in terms of actual tax law changes other than to try to impose a 30% Capital Gains witholding on sales of US securitites on renounced citizens(Not sure how this will be implemented. As part of FATCA???). This provision will apply to anyone who renounced in the past ten years.
The big thing though is increased enforcement of the Reed Amendment. Again not sure what the effect of this will be.
@Eric
So the real stick is the Reed Amendment. They don’t actually appear to be trying to impose a witholding or using FATCA to somehow enforce this.
I am old enough to remember when the US condemned exit taxes and restrictions imposed by the Soviet Union and communist block countries.
Next thing is to impose exit and transit visa like Saudi Arabia.
”Ex-PATRIOT Act’ would tax Facebook’s Eduardo Saverin’
By TONY ROMM
This article first appeared on POLITICO Pro at 8:26 a.m. on May 17, 2012. http://www.politico.com/news/stories/0512/76440.html#ixzz1v9Fiy83c
“But the senator (Schumer) rejected the idea the legislation aims only to target one individual who is now in the news as Facebook stands to reap the multibillion dollar benefits of an IPO on Friday.”
“We’re not targeting one person, we’re targeting all people who have done this over the past 10 years,” Schumer said, rejecting the notion that the bill could be unconstitutional.”….
Extract with more of the details from the Washington Post. It sounds like “expatriot” lines up with the three net worth tests instituted in 2008. So not a lot new?
* * * * * * * * *
Under the proposal, “any expatriate with either a net worth of $2 million or an average income tax liability of at least $148,000 over the last five years will be presumed to have renounced their citizenship for tax avoidance purposes,” according to a release from Schumer’s office, and they would pay 30 percent capital gains tax — the same rate as people pay in the U.S.
If an expatriate can prove he or she has a legitimate reason for renouncing U.S. citizenship, no penalties will apply.
The bill would tax any prospective gains an expatriate who has renounced his or her citizenship in the past ten years who did so for purposes of tax avoidance.
* * * * * * * * *
http://www.washingtonpost.com/business/technology/facebook-co-founder-saverin-under-fire-for-renouncing-us-citizenship/2012/05/17/gIQAPFCyVU_story.html
@Tim you really think it’ll only to U.S. capital gains? From Schumer’s language (and his generally imperialist attitude) it looks like he wants to apply it to gains in the entire world. Cleverly enough, imposing high taxes on covered expatriates’ capital gains (at least U.S.-source gains) doesn’t seem to violate any of the U.S.’ existing tax treaties (unlike imposing taxes on dividends or interest). The U.S. Model Treaty includes the clause “Gains derived by a resident of a Contracting State that are attributable to the alienation of real property situated in the other Contracting State may be taxed in that other State” full-stop, and doesn’t impose any ceiling. I don’t know of any U.S. treaty partner which did not accede to this treatment, but if there is one you can bet Saverin will be moving there in about ten years’ time 🙂
The part about taxing capital gains of US assets from former US citizens doesn’t really bother me, and I don’t think it would prevent people from renouncing. The enforcement of the Reed amendment is the scary part. I also have doubts about how this law would be enforced, are banks supposed to ask people if they are former US citizens?
The upside of this could be that it would prevent the Reed Amendment from being applied at the whim of a bureaucrat. The proposed law would only be applied to covered expatriates, and only if they don’t have “legitimate reasons” for renouncing. I would think that a legitimate reason could be that they have moved to a country that does not allow dual citizenship, or that they want to run for office, work for a foreign government, etc.
It’s still punative and unfair for covered expatriates who live abroad and want to get on with their lives. But still, I might prefer this new law to the random uncertanties of Reed Amendment enforcement.
Clearly the U.S. will lose when “U.S born persons” decide to never again vacation or visit friends and relatives in the United States. We’ll be spending our money elsewhere.
The only way for the tax to apply to worldwide capital gains is to force the former US citizen to file a US income tax return and report the capital gains. I don’t think that this is the intent of the bill.
@all- this is just another example of why U.S. tax law is so riddled with holes. So much of the tax code has been written in response to knee jerk reactions by politicians to either the input of lobbyist or to the news of the moment. There is no overall guiding principle that guides U.S. tax law. Rather it is just the photo op that a law can gain you which generates the 72,0000 pg. mess.
Certainly the product that Saverin left behind is going to generate way more in economic output in the States and around the world, than any of his taxes would have amounted to even if paid over his lifetime.
It certainly is most unfair to make such a law retroactive to people who have settled their account with the IRS. This penchant that the U.S. Congress has shown for reaching back in time just because they believe the U.S. got a raw deal is not behaviour which shows respect for the “rule of law” and the sanctity of contracts.
Another good reason that if you have any assets at all, do not get a US greencard or US citizenship. I wonder if Murdoch is regretting his decision!
Just wait Roedgroed, when Denmark legalizes dual nationality, you will be deemed to have your US nationality back and they will try to get you under the Alternative Minimum Tax despite your FEIE and FTC for high danish tax. (I’m playing devil’s advocate).