http://www.americanbar.org/groups/taxation/publications/tax_lawyer_home/ttl-win12-berg.html
This article is pay-walled to members of the American Bar Association but it does seem to have a rather interesting premise. I also note the author appears to pick a fight with IBS Wall of Shame member Bruce Ackermann of Yale University. If anyone gets access to this article it might be something interesting to look it.
For what it is worth, I have no principled objection to an exit tax. John Templeton moved from the US to the Bahamas and in 1964 renounced his US citizenship, thereby avoiding over $100 million in taxes. This is certainly tax evasion, and it makes sense for a country to try to block it. However, this situation is very different from that of the individual who moves from the US to Canada as a young person, makes a life, accumulates assets, and then can only renounce US citizenship after turning over a large part of these assets acquired outside the US. (50 percent on assets greater than $2 million US, as I recall.)
Incidentally, Canada charges a departure tax on Canadians permanently moving out of the country if their assets exceed, I believe, $25,000. Same logic.
Libertarians, who tend to regard all taxation as illegal, will disagree with me. Goes to show that the participants on this blog have a wide range of philosophical points of view. All they have in common is a common problem.
@NorthernShrike
“This is certainly tax evasion…”
No it isn’t. John Templeton’s move was tax avoidance, not evasion. It’s an important distinction. Look it up if you’re unclear.
“Same logic.”
Logic and implementation are two different things. An idea can be so badly executed that it becomes self-defeating.
The Canadian exit tax deals only with capital gains arising while in Canada, and specifically excludes RRSPs and other retirement and tax deferred accounts. The US one covers many more assets, and not only explicitly includes all of your retirement accounts, but goes on to tax them at your highest marginal income tax rate for your year of departure.
The Canadian version excludes real estate and your primary home. The US version includes them. The Canadian version does not include a threat of permanent bar to re-entry. The US version has the Reed Amendment. The Canadian version does not force you to waive your tax treaty rights on some future incomes. The US version does. And so on.
If the US version of the exit tax were more measured and equitable there would be many fewer problems with it. Unfortunately the US has chosen to make it as harsh as possible. And I can say from direct personal experience that the exit tax alone is costing the US highly qualified and skilled immigrants, who now either leave or do not arrive in the first place.
“Libertarians, who tend to regard all taxation as illegal…”
Again no. Libertarians regard income taxes as harmful to economies. There’s usually an acknowledgement that some form of tax is required.
And no, I’m not a libertarian. Not even close. But after regular tax maulings by the US government I’m starting to see why the idea has some appeal.
My understanding that the exit tax is trying to close a loophole. Let’s say you expatriate, and afterwards sell $10,000,000 in stocks as a non-citizen. The non-resident non-citizen has no capital gain tax, because the US has such fiscal problems that they need to encourage foreign investment in its capital markets. So now the US has lost the capital gains on that sale. So now they require you to mark-to-market and pay it up front on everything you have after expatriating.
So what’s the solution? Certainly not the current exit tax. NorthernShrike clearly explains why that’s problematic, because people like me who earned everything in Canada in any case, and the US doesn’t even have the remotest right to ask me for a penny since they lost nothing from my leaving.
I think the solution is to get rid of capital gains taxes altogether. It is a wrong-headed tax in the first place, and illusory. Politicians can debauch currencies and then turn around and charge you on your nominal gains. It is a big scam. Just get rid of capital gains taxes and there won’t be a need for a exit tax at all.
As Petros said, the US exit tax is fundamentally flawed because it does not differentiate between money made in the US and money made overseas…which is of course the problem with the entire US tax code anyway. I don’t really know what is a fairer solution though – As somebody with no assets I certainly prefer the current model to the 10 years tax reporting of the previous one, but obviously anybody who has been working for many years would probably disagree. Maybe they should just raise the ceiling to something a lot higher, say 10 million and exclude anything earned overseas?
@Don
The old model of filing US tax returns for ten years after renouncing is decidedly weird, but also relatively toothless. It covers only US source income and capital gains, so the obvious thing to do is to make sure you have none. That’s trivial if you’re not living or working in the US. Just steer clear of holding any US stock or bank account and don’t buy a US vacation home, and mission accomplished. Yes, the old rules actively discourage inward investment into the US. Surprised?
What this leaves you with is sending in a 1040-NR, 8854 and assorted other pointless forms every year, always with $0 tax owing. Simply another waste of your time and the IRS’s, but no worse than that.
@John Brown just posted this comment over on another thread, which probably should be put here too…
The Dr. Laurie Roth Show: “High price tag for leaving the wrong state or country”
http://therothshow.com/2012/12/high-price-tag-for-leaving-the-wrong-state-or-country/
From the article:
“Recently I heard of a similar punishment [exit] tax offered up as legislation in California. Because record numbers of the wealthy and business owners are leaving the state due to out of control taxation and regulation, Legislators are in a panic. Their plan is to try and pass a bill that will restrict wealthy California folks and earners to face a huge penalty and ‘assessment’ on their real estate and other financial assets if they leave the state.”
The author invites interested parties to join her on her National radio show which airs each day from 7-10pm PAC at http://www.therothshow.com.