This is excerpted from a post at RenouceUScitizenship. Feel free to participate in the poll about U.S. the benefits of U.S. citizenship there. Could you also comment specifically on whether you believe that the U.S. government by its very nature benefits its citizens abroad.
Cook v. Tait – The case cited for establishing U.S. citizenship-based taxation is constitutional?
Cook v. Tait was decided in 1924. This is almost 100 years ago. The world has changed. One hundred years ago dual citizenship was not common and few U.S. citizens lived abroad. In 2013 dual citizenship is common and many U.S. citizens live abroad. The estimates of Americans living abroad ranges from five to seven million. This makes the populations of Americans abroad larger than the population in many states. Yet, Americans abroad have no political representation. This is a clear case of:
Taxation without representation!
After 100 years it might be worth reconsidering the reasoning in Cook v. Tait. It’s a short decision that adopts certain “assumptions/presumptions” and contains very little legal reasoning (sound familiar?).
Cook v. Tait – The Facts
The case involved a U.S. citizen who lived in Mexico and had property in Mexico. The U.S. was attempting to levy income taxes on this U.S. citizen abroad. To his credit, the taxpayer managed to have the case heard by the Supreme Court of the United States.
The taxpayer argued that:
The U.S. did NOT have the constitutional right to levy income taxes on U.S. citizens living outside the U.S. and on income earned outside the U.S.
The U.S. government argued that:
It did have the constitutional right to levy income taxes on citizens living outside the U.S. and that it could levy those taxes on the citizen’ s world income.
Nothing has changed in almost 100 years.
The decision was written by Judge McKenna and the rationale is in the following paragraph:
The contention was rejected that a citizen’s property without the limits of the United States derives no benefit from the United States. The contention, it was said, came from the confusion of thought in “mistaking the scope and extent of the sovereign power of the United States as a nation and its relations to its citizens and their relations to it.” And that power in its scope and extent, it was decided, is based on the presumption that government by its very nature benefits the citizen and his property wherever found, and that opposition to it holds on to citizenship while it “belittles and destroys its advantages and blessings by denying the possession by government of an essential power required to make citizenship completely beneficial.” In other words, the principle was declared that the government, by its very nature, benefits the citizen and his property wherever found and, therefore, has the power to make the benefit complete. Or to express it another way, the basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, it being in or out of the United States, and was not and cannot be made dependent upon the domicile of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen. The consequence of the relations is that the native citizen who is taxed may have domicile, and the property from which his income is derived may have situs, in a foreign country and the tax be legal — the government having power to impose the tax.
In “people talk” the decision is saying:
A. The U.S. has two kinds of sovereign power:
1. It’s sovereignty as a country in relation to other countries. This kind of sovereignty stops at its border.
2. It’s relation to it’s citizens and the citizens relation to the U.S. which exists no matter where the citizen is located. (How does the U.S. view its citizens? Is citizenship a consensual relationship? Does the U.S. view its citizens as property of the state?)
Cook v. Tait is concerned only with the relation of the U.S. to it’s citizens and vice-versa. In considering the relationship between the U.S. as a country and it’s citizens:
1. There is a “presumption” that the U.S. government benefits its citizens and their property wherever they may be in the world (note the word “presumption”);
2. Because the U.S. benefits the citizen wherever the citizen lives, it is fair and reasonable to allow the U.S. to impose a tax in exchange for that benefit.
That’s all folks!
Analysis of the reasoning in Cook v. Tait
The Supreme Court is an appellate court and is there to address matters of law. Appellate courts should NOT decide facts. The factual predicate for the decision is “the presumption that government by its very nature benefits the citizen and his property wherever found”. Note that the Judge is PRESUMING WITHOUT DECIDING that the U.S. benefits its citizens wherever they live. (A highly dubious claim) Hence, the decision is much narrower than is commonly believed.
Therefore:
The decision in Cook v. Tait is NOT that the U.S. can tax its citizens wherever they live.
The decision in Cook v. Tait is that the U.S. can tax its citizens wherever the citizen may live, based on the presumption, that the U.S. benefits the citizen wherever the citizen lives.
Therefore, absent a showing of either benefits coming from the U.S. government or a convincing demonstration of the validity of the presumption that the U.S. government provides benefits to U.S. citizens abroad:
It’s difficult to see how Cook v. Tait can be used to justify the constitutionality of levying income taxes on U.S. citizens living outside the U.S. (As Judge Bork reminds us: this doesn’t mean that there couldn’t be another justification. It’s just that this justification doesn’t makes sense.)
Does Cook v. Tait require that the U.S. provide benefits as a condition of citizenship-based taxation? Cook v. Tait is not clear on this point.
Interestingly, one year ago a post (and interesting comments) appeared on the Isaac Brock Society blog titled: “You want taxes, I want services“.
The post strongly suggests that the U.S. does NOT by its very nature benefit U.S. citizens abroad.
The issue of “benefits” was discussed in the next significant case discussing citizenship-based taxation. This was the 1968 case of Felix Benitez Reckach. In this case the United States Court of Appeals – First Circuit considered the question of whether the United States was required to provide benefits to its citizens as a condition of taxing them. The facts are interesting and the lawyering is clever (Mr. Reckach clearly had money). The decision of the court included the following:
‘Appellant does not claim that his citizenship was lost as a result of the renunciation, but that as a result of the determination of the Secretary of State and consequent issue of the Certificate of Loss of Nationality, the United States was freed of its obligations to him as a citizen and he in fact lived and existed as an alien to the United States during the period in question.’
He concludes that since the United States ‘owed’ him, or apparently owed him, no citizen’s protection, he, in turn, owed no tax.
While there is language in Cook v. Tait, supra, indicative that these are reciprocal obligations, the Court also observed that ‘government by its very nature benefits the citizen * * *.’ 265 U.S. at 56, 44 S.Ct. at 445. We cannot agree that the reciprocal obligations are mutual, at least in the sense that taxpayer contends. It is sufficient that the government’s stem from its de jure relationship without regard to the subjective quid pro quo in any particular case. We will not hold that assessment of benefits is a prerequisite to assessment of taxes.
This is interesting and like many legal opinions unclear.
On the most minimal level the Rexach confirms that:
– the U.S. jurisdiction to tax citizens abroad is NOT dependent on the government owing the citizen “protection”;
– the U.S. is not required to “assess” (demonstrate benefits) as a condition to levy taxes on U.S. citizens abroad (note this does not mean that the government can provide NO benefits);
– the U.S. may tax its citizens abroad because of the “presumption” that “government by its very nature benefits the citizen”.
So the question is: Can the presumption that ” the U.S. government by its very nature benefits U.S. citizens abroad be justified?”
The answers to the following questions, although they are not determinative, must be considered:
1. Does the U.S. actually provide benefits to its citizens who live outside the U.S.?
There is a wealth of evidence suggesting that the taxation of U.S. citizens abroad is extremely damaging to them and provides them with no benefits at all. The U.S. might argue that the benefit of citizenship is that one has the right to live in the U.S. But Cook v. Tait focuses on a “presumption that the GOVERNMENT by its very nature benefits” citizens. It is the 14th amendment of the constitution that guarantees citizenship and not the government. Assuming a constitutional right to enter the U.S., this is a right granted by the constitution and NOT by the government. Hence, the search for government benefits provided to citizens abroad is elusive.
On this point see another post that appeared on at the Isaac Brock Society: “How I really feel about citizenship-based taxation“. The comments on this post are absolutely worth reading to understand the impact of citizenship-based taxation!
2. Does the U.S. impose costs on U.S. citizens living abroad? If so, what are they?
It is becoming increasingly clear that the “compliance costs” of U.S. citizenship are such that it is too expensive for many to retain it. (It is difficult to find tax preparers for U.S. citizens abroad.) Furthermore, the “compliance costs” do not include the increasing cost of double taxation.
3. If the U.S. does provide benefits to U.S. citizens abroad, are the benefits in proportion to the cost that U.S. citizens are expected to pay for those benefits?
It is important to note that U.S. citizens abroad must pay in three ways:
First, they must pay taxes to the U.S.;
Second, they must pay taxes in their country of residence;
Third, the effect of this is that a significant number of U.S. citizens abroad are subjected to costly double taxation which is NOT saved by tax treaties.
On this point note the comments of Roger Conklin:
RT this concise statement explaining why tax treaties do NOT prevent double taxation for #americansabroad isaacbrocksociety.ca/2012/12/28/ame… … #FATCA
— U.S. Citizen Abroad (@USCitizenAbroad) December 30, 2012
*The statement that tax treaties beetween the US and other countries “avoid double taxation” is not correct. Such treaties may mitigate double taxaxation but each and every one of these treaties clearly acknowledge the right of the US government to subject its citizens resident in the other country to US taxation.
The tax laws of the different countries are often so different that these tax treaties mean little to US citizens living abroad – unless the the foreign system mirrors the US tax system – which few of them do. There is invariably income which is tax free in the foreign country which is taxed under US law. Tax incentives provided by foreign countries are rarely recognized as such under US tax law, so what the US citizen person in the foreign country saves in foreign taxes by taking advantage of these incentives is penalized, usually dollar-for-dollar, by increasing the tax due to the IRS.
In many coungtries there are no capital gains taxes. So the US citizen has no foreign tax credit to offset the US tax on these capital gains. Many foreign countries have net worth taxes which subject assets to an annual tax based on the value of those assets. Not one penny of this net worth tax can be used to offset the US tax on capital gains when these assets are sold.
Likewise, some countries raise there revenue primarily through consumption rather than income taxes, In fact they have no income tax whatsoever. Yet no US tax treaty recognizes these consumption taxes as either deductible or creditiable against the US tax obligation on foreign income.
Given this reality, it is absolutely false to assert that tax treaties avoid double taxation. Period.
4. Do the answers to questions 1, 2, and 3 provide strong evidence that could overcome the presumption that the the U.S. government “by its very nature” benefits U.S. citizens abroad?
The views of U.S. citizens abroad need to be considered. See (among others) the following thread from the Isaac Brock Society “Has your life been stolen by the IRS?“.
And finally, doesn’t this reasoning raise the following question?
What if a U.S. citizen abroad simply says that he will neither accept not request any benefit from the U.S.? This should negate the rationale in Cook v. Tait. Can the U.S. force a citizen to pretend that he/she receives benefits from the government?
Cook v. Tait dealt with the taxation of U.S. citizens abroad. What does this have to do with Green Card Holders?
Everything you need to know about a US Green Card but didn’t know to ask isaacbrocksociety.ca/2012/12/24/fat… – Tax and penalty club – It’s a #FATCA
— U.S. Citizen Abroad (@USCitizenAbroad) January 3, 2013
The answer is nothing at all. There has never been even the slightest suggestion that the U.S. provides benefits to Green Card Holders outside of the United States. In the case of Green Card Holders the question is:
Where does the U.S. imagine it gets the right to levy income taxes on Green Card Holders who do NOT live in the U.S. and while they are residents of other countries?
There is no way that this can be justified under the Cook. v. Tait decision! Furthermore, it is very clear that to levy income taxes on Green Card Holders who are residents of other countries is to levy taxes on residents of other countries. One would think that this would violate the principle of sovereignty between nations identified by Judge McKenna.
In closing …
This post is based only on the decision of the Supreme Court of the United States in Cook v. Tait and the decision of the United States Court of Appeals – First Circuit in Felix Benitez Reckach. I have had not attempted to locate any subsequent decisions that specifically consider the legal reasoning in these two cases. I will leave that for another post, but welcome any comments on Cook v. Tait and any other cases of relevance.
The reasoning in this post could be used to develop the arguments that:
1. Cook v. Tait cannot be used to justify the claim that citizenship-based taxation is constitutional. But, the failure of the “ratio” in Cook v. Tait does NOT mean that citizenship-based taxation is unconstitutional.
2. Even if the reasoning in this post were NOT accepted, Cook v. Tait does NOT mean that citizenship-based taxation is constitutional. For example:
citizenship-based taxation could be permitted under another part of the constitution.
3. Cook v. Tait could be used to argue that citizenship-based taxation is constitutional, if the presumption that the “government by its nature benefits its citizens”, was demonstrated to be true.
4. Although citizenship-based taxation might be constitutional as a general principle, certain aspects of it might not be. Should the taxation of U.S. citizens abroad be allowed if:
– it means that U.S. citizens abroad cannot get bank accounts (FATCA)
– it means that U.S. citizens abroad cannot use retirement planning vehicles in their country of residence (TFSA, RESP, etc.)
– it means that their investments in mutual funds in the countries where they live subjects them to punitive PFIC taxes rendering effectively disabling them from retirement planning
– it subjects to expensive and frightening reporting requirements (FBAR, FATCA Form 8938 etc) that makes U.S. citizens undesirable as employees, business partners, shareholders, marriage partners, in their country of residence
– it means that U.S. citizens abroad live in a constant state of fear of the U.S. government
– it completely disables U.S. citizens abroad from living normal productive lives
Many things that are legal as a general principle but become illegal when they go too far. For example free speech is generally allowed until it goes too far. Citizenship-based taxation may be generally legal, but certain aspects of it might go too far making it:
– unconstitutional under U.S. law; and
– a violation of international law
Does Cook v. Tait really mean that citizenship-based taxation is constitutional in all cases?
If the U.S. has a constitutional right to tax its citizens abroad, does that allow them to do anything under the guise of Cook v. Tait?
The time has come to reconsider the legal, moral and practical considerations of citizenship-based taxation. Even if it is legal, it is unwise. Citizenship-based taxation is not consistent with the best of America’s traditions. The U.S. is an will continue to pay a heavy price for this “ill advised” policy.
Two examples of the “heavy price” of citizenship-based taxation:
1. Roger Conklin (and others) have argued persuasively that citizenship-based taxation is harmful to U.S. trade and the trade deficit.
1976: US #1 Exporting nation in the world. 2013: US not a major exporter. The power to tax is the power to kill. isaacbrocksociety.ca/2012/12/28/ame…
— U.S. Citizen Abroad (@USCitizenAbroad) January 2, 2013
2. The most articulate and growing voice of anti-Americanism is from U.S. citizens abroad.
The fastest and newest growing form of anti-Americanism is from U.S. citizens abroad.
The most reasonable, vocal, articulate,justified andmarketable – “Anti-Americanism” comes from U.S. citizens abroad isaacbrocksociety.ca/2012/06/16/u-s…
— U.S. Citizen Abroad (@USCitizenAbroad) June 16, 2012
The IRS attack on U.S. citizens abroad may become a diplomatic issue. Many U.S. citizens abroad are also citizens of their country of residence. Therefore, through citizenship-based taxation the U.S. is taxing the residents of other countries and harming those countries!
Epilogue: Cook v. Tait and the basic principles of logical reasoning
The decision in Cook v. Tait is an example of a false premise justifying the conclusion.
Consider the following argument:
1. Hockey players have three legs.
2. Steve is a hockey player.
Therefore Steve has three legs.
The conclusion “Steve has three legs” is a conclusion that is perfectly valid from the facts given. It’s just that the facts are wrong. Hockey players do NOT have three legs.
Consider the following argument:
1. The U.S. government always benefits its citizens.
2. Steve is a U.S. citizen
Therefore, Steve benefits from the U.S. government.
The conclusion “Steve benefits from the U.S. government” is a conclusion that is perfectly valid from the facts given. It’s just that the facts are wrong. U.S. citizens abroad receive no benefits from the U.S. Furthermore, the U.S. is destroying their lives.
Cook v Tait does NOT provide a constitutional justification for the way that U.S. attempts to tax its citizens abroad.
This argument needs to be developed with a view to getting the Supreme Court of the United States to reconsider the reasoning in Cook v. Tait.
_________________________________________________________________________________________
The text of the decision follows:
265 U.S. 47 (1924)
COOK
v.
TAIT, UNITED STATES COLLECTOR OF INTERNAL REVENUE FOR THE DISTRICT OF MARYLAND.
No. 220.Supreme Court of United States.
Argued April 15, 1924.Decided May 5, 1924.ERROR TO THE DISTRICT COURT OF THE UNITED STATES FOR THE DISTRICT OF MARYLAND.
Mr. Charles Claflin Allen, Jr., and Mr. Charles Claflin Allen, with whom Mr. Frederic N. Watriss was on the briefs, for plaintiff in error.
Mr. Solicitor General Beck for defendant in error.
53*53 MR. JUSTICE McKENNA delivered the opinion of the Court.
Action by plaintiff in error, he will be referred to as plaintiff, to recover the sum of $298.34 as the first installment of an income tax paid, it is charged, under the threats and demands of Tait.
The tax was imposed under the Revenue Act of 1921, which provides by § 210 (42 Stat. 227, 233): “That, in lieu of the tax imposed by section 210 of the Revenue Act of 1918, there shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax of 8 per centum of the amount of the net income in excess of the credits provided in section 216: Provided, That in the case of a citizen or resident of the United States the rate upon the first $4,000 of such excess amount shall be 4 per centum.”[1]
54*54 Plaintiff is a native citizen of the United States and was such when he took up his residence and became domiciled in the City of Mexico. A demand was made upon him by defendant in error, designated defendant, to make a return of his income for the purpose of taxation under the Revenue Laws of the United States. Plaintiff complied with the demand, but under protest, the income having been derived from property situated in the City of Mexico. A tax was assessed against him in the sum of $1,193.38, the first installment of which he paid, and for it, as we have said, this action was brought.
The question in the case, and which was presented by the demurrer to the declaration is, as expressed by plaintiff, whether Congress has power to impose a tax upon income received by a native citizen of the United States who, at the time the income was received, was permanently resident and domiciled in the City of Mexico, the income being from real and personal property located in Mexico.
Plaintiff assigns against the power not only his rights under the Constitution of the United States but under international law, and in support of the assignments cites many cases. It will be observed that the foundation of the assignments is the fact that the citizen receiving the income, and the property of which it is the product, are outside of the territorial limits of the United States. These two facts, the contention is, exclude the existence of the power to tax. Or to put the contention another way, as to the existence of the power and its exercise, the person receiving the income, and the property from which he receives it, must both be within the territorial limits of the United States to be within the taxing power of the United States. The contention is not justified, and that it is not justified is the necessary deduction of recent cases. In United States v. Bennett, 232 U.S. 299, the power of the United States to tax a foreign built yacht owned and used during the taxing period outside of the 55*55 United States by a citizen domiciled in the United States was sustained. The tax passed on was imposed by a tariff act,[2] but necessarily the power does not depend upon the form by which it is exerted.
It will be observed that the case contained only one of the conditions of the present case, the property taxed was outside of the United States. In United States v.Goelet, 232 U.S. 293, the yacht taxed was outside of the United States but owned by a citizen of the United States who was “permanently resident and domiciled in a foreign country.” It was decided that the yacht was not subject to the tax — but this as a matter of construction. Pains were taken to say that the question of power was determined “wholly irrespective” of the owner’s “permanent domicile in a foreign country.” And the Court put out of view the situs of the yacht. That the Court had no doubt of the power to tax was illustrated by reference to the income tax laws of prior years and their express extension to those domiciled abroad. The illustration has pertinence to the case at bar, for the case at bar is concerned with an income tax, and the power to impose it.
We may make further exposition of the national power as the case depends upon it. It was illustrated at once in United States v. Bennett by a contrast with the power of a State. It was pointed out that there were limitations upon the latter that were not on the national power. The taxing power of a State, it was decided, encountered at its borders the taxing power of other States and was limited by them. There was no such limitation, it was pointed 56*56 out, upon the national power; and the limitation upon the States affords, it was said, no ground for constructing a barrier around the United States “shutting that government off from the exertion of powers which inherently belong to it by virtue of its sovereignty.”
The contention was rejected that a citizen’s property without the limits of the United States derives no benefit from the United States. The contention, it was said, came from the confusion of thought in “mistaking the scope and extent of the sovereign power of the United States as a nation and its relations to its citizens and their relations to it.” And that power in its scope and extent, it was decided, is based on the presumption that government by its very nature benefits the citizen and his property wherever found, and that opposition to it holds on to citizenship while it “belittles and destroys its advantages and blessings by denying the possession by government of an essential power required to make citizenship completely beneficial.” In other words, the principle was declared that the government, by its very nature, benefits the citizen and his property wherever found and, therefore, has the power to make the benefit complete. Or to express it another way, the basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, it being in or out of the United States, and was not and cannot be made dependent upon the domicile of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen. The consequence of the relations is that the native citizen who is taxed may have domicile, and the property from which his income is derived may have situs, in a foreign country and the tax be legal — the government having power to impose the tax.
Judgment affirmed.
MR. JUSTICE McREYNOLDS took no part in the consideration or decision of this case.
[1] The following regulation, No. 62, promulgated by the Commissioner of Internal Revenue under the Revenue Act of 1921, provides in Article 3: “Citizens of the United States except those entitled to the benefits of section 262 . . . wherever resident, are liable to the tax. It makes no difference that they may own no assets within the United States and may receive no income from sources within the United States. Every resident alien individual is liable to the tax, even though his income is wholly from sources outside the United States. Every nonresident alien individual is liable to the tax on his income from sources within the United States.”
[2] Section 37, Tariff Act of August 5, 1909, c. 6, 36 Stat. 11, 112, provided in part as follows: “There shall be levied and collected annually on the first day of September by the collector of customs of the district nearest the residence of the managing owner, upon the use of every foreign-built yacht, pleasure-boat or vessel, not used or intended to be used for trade, now or hereafter owned or chartered for more than six months by any citizen or citizens of the United States, a sum equivalent to a tonnage tax of seven dollars per grosston.”
________________________________________________________________________
United States Court of Appeals First Circuit. – 390 F.2d 631
March 11, 1968
Walter L. Newsom, Jr., San Juan P.R., with whom Rene Benitez Rexach, San Juan, P.R., and Brown, Newsom & Cordova, San Juan, P.R., were on brief, for appellant.
Mitchell Rogovin, Asst. Atty. Gen., with whom Francisco A. Gil, Jr., U.S. Atty., and Meyer Rothwacks, Thomas Silk, Louis M. Kauder, John J. McCarthy and Jerome H. Fridkin, Attys., Dept. of Justice, were on brief, for appellee.
Before ALDRICH, Chief Judge McENTEE and COFFIN, Circuit Judges.
ALDRICH, Chief Judge.
*That the US may constitutionally tax its citizens wherever they may reside is long and well-settled law in the only place where it counts: the US of A.
Time to accept that and decide whether and how to appeal to the only authority that can change citizenship-based taxation: the democratically elected representatives of the US people.
Failing that, there are three choices:
1. pay up,
2. disobey the law and accept the consequences, or
3. cease to be a citizen.
Todundsteuer, I am all for ceasing to be citizen and disobeying the law.
This was a great post. No reason to be so negative. The matter hasn’t even come to a head yet with FATCA, FBAR and the evil Obama administration’s applications of these laws. It is arrogant and unconstitutional on multiple counts. Yet Obama has stacked his courts with thieves (i.e., unjust judges), so I guess you are right.
There is yet another choice: revolt. Rise up and defend the country that you live in. Remember Isaac Brock! Vive le Canada libre!
I hope someone has the cojones (and the money) to mount another Supreme Court challenge against America’s immoral citizenship-based taxation system, citing the United States’ official support for a United Nations resolution against Eritrea’s practice of the very same thing, as evidenced in this infamously hypocritical statement by U.N. Ambassador Susan Rice in December 2011:
According to the monitoring group, Eritrea is financing all of these activities through illicit means, including threats and the extortion of a “diaspora tax” from people of Eritrean descent living overseas.
In direct response, this Council has today imposed tougher sanctions. Our goal is to show Eritrea that it will pay an ever higher price for its actions. Building on Resolution 1907, this resolution imposes new obligations on Eritrea, including to cease illicit practices to extort funds from its diaspora.
Alternatively, I wonder what it would take to have the U.N. sanction the United States for the very same practice? After all, isn’t some of the money the U.S. hopes to extort from its own diaspora going to be used to pay for its recent unfunded and illegal wars and for its expensive civilian-killing drones?
@USCitizenAbroad,
Very well done! That was a lot of research on your part and a great starting point for meaningful thought-provoking discussion.
Although you covered some of them, the list of liabilities for Americans abroad keeps growing as time progresses. Lawmakers like Levin, Rangel, Grassley, Schumer etc will never stop dreaming up new ways for putting the screws to ex-pats.
What I am interested to know is, what government benefits would the Supreme Court try to use to justify the “….presumption that government by its very nature benefits the citizen and his property wherever found,”?
– The right to enter the US? Anyone with a foreign “visa waiver” passport has this.
– The right to work in the US? Americans abroad are obviously not there to exercise this. Besides, the unemployment and underemployment situation in the US has been less than desirable for many years.
– The protection of the US? How many US citizens abroad are sitting in jail somewhere on trumped up charges while the State Department takes the line that “we cannot interfere with the other country’s justice system?” Does the US government provide the citizen with a public defender if he cannot afford a lawyer him/herself? Does the Embassy charge a fee if the Consular prepares any paperwork on the citizen’s behalf?
– If the US citizen’s property located abroad is stolen, does the US send police to investigate the crime?
Anyone who understands the situation can see that citizenship-based taxation is a one-way street when it comes to cost vs. benefits. In my opinion, many more Americans abroad would have already renounced or relinquished US citizenship if the process were easier to navigate and people were not so afraid of being trapped by compliance and exit tax issues– barriers that were purposely put in place to block the outflow of productive people.
I agree with Tod in that the only authority that matters to the USG is the USG. The Cook v Tait is based on the assumption that most homelanders hold that the USA is really the only place in the entire world that any sane person would want to live and therefore, holding US citizenship is a super-special privilege and everyone knows that privilege costs something – in America.
But it is an interesting post because it is good to know where the whole ownership of its citizens mentality comes from and just because no one has attempted to challenge the USG about this particular delusion, and their habit of unilaterally forcing citizenship on those who don’t want it, doesn’t mean that it couldn’t happen and that aren’t credible grounds for challenging it. Sooner or later, the wrong person is going to be pushed.
Perhaps we can use this thread to formulate the arguments that might be used by whoever is “unlucky” enough to be forced to run the gantlet up to the Supreme Court. USCitizenAbroad has done a fine job so far.
Any benefits to having US citizenship would exist without citizenship based taxation. The US charges a premium to its citizens that it will not tolerate from any other nation attempting to do the same. Does hypocrite come to mind?
*I am not a lawyer, but reading this document causes me to ask this question: If a carefully and well structured case protesting the constitutionality of citizenship-based taxation might result in a reversal by the Supreme Court of its earlier ruling that it was constitutional. How, for example, can the US consider it constitutuional to obligate US citizens who are residents of a frendly foreign country to violate and subvert the laws of that country where the smuggling of dollars from that country to pay taxes to a foreign nation on income received in that country is a criminal offense?
@Todundsteur
As always, thanks for your comment.
“That the US may constitutionally tax its citizens wherever they may reside is long and well-settled law in the only place where it counts: the US of A.”
I don’t think it is “well settled law”. I think it is “well settled that this is the law”. By that I mean that no case to my knowledge has considered the reasoning of Cook v. Tait. People just assume that the issue has been settled by the Supreme Court – that this is the law – and that there is no reason to examine it.
It is possible that Cook v. Tait could be justified in 1924, but no more.
Now I am not suggesting that the Supreme Court would consider this any time soon and I agree that the key is to get the law changed. But, I think it is as mistake to buy into the “well settled law chorus”.
IMHO the way to proceed is to be willing to attack on all fronts – legal and legislative.
As I suggested in the post, the abuses of citizenship-based taxation are getting so extreme that one may be able to argue that this is a massive human rights violation (not today but down the road). To expose the weakness of Cook v. Tait as a justification for the constitutionality of citizenship-based taxation cannot hurt and is likely to help. A plain reading of the judgment makes clear it is simply out of touch with present day reality. Therefore, these arguments should be explored in the event that there is a possibility that they can be made.
Second, an analysis of Cook v. Tait shows that there is no justification whatsoever for taxing Green Card Holders who reside outside the U.S. None. Again none.
What has happened in relation to Green Card Holders appears to be something like this (if you have any insight into this I would love to hear it):
In the beginning there was citizenship-based taxation and the Supreme Court saw that it was good.
Then the U.S. learned that there were immigrants and thought they were lucky to be in the U.S. and should have all the burdens of citizenship but not of the advantages.
In order to facilitate this, through a “slight of linguistic hand” the term U.S. citizenship-based taxation really became “U.S. person-based taxation”.
This could be justified because the court ruled that it was constitutional to tax citizens, and because “this was well settled law”, the result of the decision (even though there is nothing in the decision that possibly justify taxing “green card holders”) would become the justification for taxing Green Card holders outside the U.S.
So, here is the current deal:
The U.S. has no constitutional, no moral and a manufactured legal justification to tax Green Card Holders abroad.
Bottom Line: The U.S. is taxing people who are NOT U.S. citizens and living in other countries. This is a major step beyond citizenship-based taxation. This is absurd and this is why I believe it is important to begin (at least in an academic sense”) to unravel this fraud.
You are right that is will make no difference to the U.S. government. But as @Petros has noted, FATCA is sure to bring U.S. person-based taxation under the microscope. Let’s see what the microscope will reveal.
@ USCitizenAbroad
Thank you so much for putting the green card situation into words which perfectly describe it. Ever since I discovered I was in an IRS US personhood pit (early 2012) I’ve been searching for those words. Prior to this, the best I could come up with was that this whole mess is “ab absurdum”. For the entire 12 years that I lived in the USA (over 15 years ago) I never once thought of myself as a “US person”, not even as a US immigrant. The green card stated that I was a “resident alien” but in my mind I was just what I have always been — a Canadian. The card gave me permission to work in the USA and the obligation to pay US taxes but I never took a salaried job there so it boiled down to a tax obligation only. It was not a pleasant process to obtain that damn card and the only thing I ended up getting from it was a load of grief. I think you never hold a green card; the green card holds you. Even now, after having officially abandoned my long expired green card (8 months ago with still no “approval” from USCIS), the damn thing holds me under the murky waters of unknown, unknowns.
I wish I knew how to warn everyone of the pitfalls of obtaining a US green card and the pitfalls for Americans who seek job opportunities in other countries and the very devious pitfalls awaiting poor Canadian snowbirds who overstay their annual allotment of 183 days. It seems any US connection can turn out to be the pits!
Roger, good point on friendly countries! And I hope everthing is well with you. I wish you a very happy 2013! I don’t know if you heard about it, but there were some suspected Al-Queda operatives in Brazil some years back. The US said to kick them out. Guess what Brazil did? They kicked them out very quickly. And as you likely know, we have the Receita Federal here, which loves money even more than the IRS. Brazilian taxes IMO are much more “salgado” hard-to-swallow than US taxes. I also heard on the news tonight that Brazil was short on revenue collection for 2012 and they had to borrow money from BNDS and Caixa Ec. Federal. Not good. The Federal Government has to get spending under control. But if they follow the US’s lead, I doubt that will ever happen!
Todundsteuer – I find just the lack of choice to be abominable. I’m guessing from your nick that you live in Switzerland. If you live there (a wonderful country by the way), I don’t see any benefit the US can give you.
Petros, be glad you are dealing with the US IRS. In all of my research here, there’s no negotiating, no interaction with the tax inspector, no nothing. Either you pay their tax bill or they seize your assets. You’re not American anymore. Ok. But if THEY [the IRS] feel that you owe them something, then call them to ask why. Reconcile with them. You’ll sleep better at night. Please don’t preach that non-compliance stuff. Why be a target? Why cause grief to other people? You know my story. All I can say is that as long as you are American and have assets in the US, you had better file your tax returns. Be as compliant as possible until you no longer fall under their laws, or you are no longer a US Citzen.
In 1924, dual citizenship was not tolerated by the US Government. People were also a lot less mobile than today. The tax code was different. Foreign tax codes were also different. The situation has changed, the decision of Cook v. Tait must be revisited, perhaps not only with US constitutional and international law arguments, but also incorporating the Universal Declaration of Human Rights, regional charters of blocks of countries, as well as the constitutions of the countries where USPs live.
In the meantime, it would be useful to obtain the entire case history of Cook v. Tait. All we have available for free on the Internet is the decision, and I have always had the impression (maybe incorrectly) that only Justice McKenna ever really worked on the case.
Would anyone know how to get a hold of all of the pleadings of the case? One would have to delve into the archives of the federal district court where the complaint was first lodged, find the complaint, and any orders, minutes of hearings, and the decision of the trial judge, as well as the same for the appellate jurisdiction. With the information this would provide, we could most likely show that the situation of Cook was not the same as the situations of many USPs who are bone fide residents abroad today (especially in the case of duals, mere green-card holders living in another country, and long-term residents abroad).
There is a 1924 Virginia Law Review article (Virginia Law Review Vol 11 607-627 1924-1925) that I read a long time ago which does not provide much additional information about the facts of the case, but I find that the following is interesting:
Nowhere in the decision nor in the Virginia Law Review article can I find that Cook paid Mexican taxes. In the article, it is stated that:
But the issue of dual citizenship is not discussed in the case or article because Cook was neither a dual citizen as far as one can tell, nor was that option available to him at the time. The discussion of the international law experts cited by the article may make sense in the international law context of 1924, but now things have changed. We have the UDHR, dual nationality, and national constitutions in other countries that protect their subjects (often regardless whether citizens or mere residents) from discrimination and other abuses or abridgements of freedoms. We have a UN resolution supported by the US which condemns the extra-territorial taxation practice of Eritrea.
In the article there is also a very complicated discussion of positive and negative commands of sovereigns, and the difference between personal jurisdiction (upon the citizen by his sovereign, which is based in law) and territorial jurisdiction (based upon both power and law). Territorial jurisdiction is apparently supposed to trump personal jurisdiction, but read the footnote on page 613, which concludes with:
Yet if Cook had been a dual national, he would have had two sovereigns. Consider again if there might have been laws on the Mexican books that defined what jurisdiction someone with income in Mexico must be taxed under. Another example, in Switzerland, various laws define where a Swiss-domiciled person pays taxes. While not specifically forbidding payment of taxes to a foreign sovereign (e.g. the US), these laws specify the tax jurisdiction to be at the primary residence of the person or where he or she has the center of their interests, and thus requiring payment of taxes at the township, cantonal, and Swiss federal level. In the case of a dual Swiss-US person living in Switzerland, I would argue that territorial jurisdiction of Switzerland, coupled with the personal jurisdiction of Switzerland trumps any personal jurisdiction claim of the US. Furthermore, even in the case of residents, the anti-discrimination and freedom of economic opportunity clauses of the Swiss constitution command by analogy that Swiss income on the part of Swiss residents must be taxed in a consistent fashion. The savings clause of the tax treaty does not address dual citizens, only current and former US persons. Big gray area, but the case is even stronger in Brazil, where according to Roger Conklin, it is illegal to export currency to pay foreign taxes, hence a negative command through territorial jurisdiction. In other words, if Cook had been resident in Brazil, the territorial negative command of Brazil would trump US personal jurisdiction.
Although I would like to reproduce the entire text of the Virginia Law Review article here at IBS, I am not certain what arguments we can make as to fair use as it appears that the holders of licenses to the VLR articles intend to keep a tight hold on copies. As far as I know, the article may still be available on Hein Online (for a fee, with restrictions on reproduction).
Nonetheless, while the arguments of the various “international law experts” mentioned in the article are interesting, one would also need to see the entire history of the case, complaint, pleadings, decisions in their entirety from the district level up to SCOTUS (as I stated above).
Are there any Homelanders out there that might be capable of looking into the archives in the US and getting all of the documents (which unless under some gag order or seal—which is unlikely–we could reproduce here in their entirety without any restriction as they are public record)?
To note that Renounce’s article provides some information about the case at the appealate level, but I think we should see the entirity of the documents.
I may sound like a broken record again here, but we also have to remember the “no taxation without representation” arguments of the revolution, as well as the absence of congressional jurisdiction resulting from failure to respect Art 1 Section 2 USCONT requirement for a census every 10 years upon which the House is proportionately constitututed (USPs abroad are not counted in such census).
I think I misread, the mention of the court of appeals was about another case.
*@JeffersonDThomas, You stated in your posting “Big gray area, but the case is even stronger in Brazil, where according to Roger Conklin, it is illegal to export currency to pay foreign taxes, hence a negative command through territorial jurisdiction. In other words, if Cook had been resident in Brazil, the territorial negative command of Brazil would trump US personal jurisdiction.”
Please allow my to clarify this. When I lived and worked in Brazil in the 1970s Brazil had strict controls on converting its currency to a foreign currency, such as US dollars. I am not at all sure these or any other controls exist today and it is my impression that if they still do they are much more liberal than they were back then.
At that time the only “easy” conversion of Brazilian currency by residents of Brazil into foreign currency was when you traveled abroad. With a air ticket in hand you could walk into you bank and purchase up to $1000 (or its equivalent in another currency.) Part of it, $100 as I recall, could be in cash whereas the remaining $900 had to be in travelers checks. If you were travleling to a country bordering on Brazil you could only purchase $100. These purchases of foreign currency were stamped in your passport. In order to obtain foreign currency for a subequent trip abroad you needed to have a Brazilian exit stamped by immigration, an entry stamp by the foreign country and another entry stamp that you had returned to Brazil.
There were also provisions which allowed you to obtain small amount dollar checks issued by your bank to pay for foreign magazine subscriptions, etc.
Imports by businesses all required import licenses. With an approved import license your bank was authorized to send payments abroad to pay for them. Contracts for services provided by a foreign company had to be registered with the Central Bank and all payments in foreign currency for services were subject to a 20% withholding tax when remitted by the bank.
Foreign currency for service other payments had to be autorized by the Central Bank. It routinely turned down applications for dollars to remit to the IRS for payment of US taxes on income in Brazil. Brazil did not recognize the right of the US or any other country to levy and collect taxes on Brazilian income. One response I recall hearing about accompanying a denied reauest noted that even if such dollars were to be authorized, (which they never were) they would be subject to the 20% withholding tax when remitted to the IRS. Purchasing dollars on the black market was possible, but it was illegal. If you needed say $5000 to pay your taxes to the IRS on income earned in Brazilian currency there was no way to either obtain it or take it out of the country legally for this purpose. If a personal search at the airport when leaving the country revealed that your were carrying out more dollars than you had legally purchased for the trip, you were automatically in serious trouble. Illegal money laundering are the words that come to mind.
Although juding from the flood of Brazilians who are currently purchasing real estate in Miami and paying cash today, Brazil is considerably more liberal today in this respect. it is my impression that the exchange control laws in Venezuela and Argentina today with respect to obtaining dollars and carrying or remitting them outside of the country are very similar to what they were in Brazil in the 1970s.
There has been information in the press recently about Chinese citizens smuggling large amonts of cash hidden in their luggage into both Canada and the US. China apparently allows its citizens to convert into dollars up to $50,000 per perposon per year, but that is it. This probably will cover the US tax obligation of most US persons in China, but when they owe the IRS more they have a similar problem.
US law requires that US taxes be paid in US dollars. You are permitted to defer payment until dollars are legally available where there are currency conversion controls, except that if you use any part of your foreign “blocked” income for personal expenditures then no deferral is permitted. This is totally unworkable if you live in such a country because if if use it to buy food or pay rent or anything else then US tax payments cannot be deferred. I have asked various persons in the IRS, including an attorney on the staff of Nina Olsen, how this provision can possibly work. There is no explanation. I wonder if this fact alone could raise questions on the constitutionality of subjecting US persons living abroad in controlled currency countries to US taxation.
I first raised this question to the person in charge of the IRS office in Chicago when I made a business trip to that city for another purpose just a few days after the enactment of the Tax Reform Act of 1976 becuase I was just about to face that dilemma. It was a lady. Her response was to order me out of her office. She told me that I must be pretty stupid to live in a country with rules like that and she did not have time to waste in responding to such a nonsencical question. This was one of the factors in my decision to leave Brazil and return to the US since it was obvious that if I stayed I would have to make a choice between which prision system I would be most likely to survive, that of Brazil or that of the US. I could not live as a US citizen in Brazil without violating either the tax laws of the US or the currency control regulations of the other.
Some others in countries with currency controls may be able to offer additional enlightening comments on this. Today, according to Wikipedia, there are some 30 countries in the world with currency exchange control laws. Some tolerate currency black markets wheras in others they are illegal.
Is it possible for some kind of class action or suit to be launched to challenge the outcome of Cook vs. Tait? Could it be launched by a bona fide organization like ACA and/or AARO ?
Could a class action or suit be made in Canada if the the government throws dual citizens and residents under the bus with an IGA?
*I hope I’m wrong but really doubt if the US is going to listen…I’ve concluded that I’ll either have to put up and shut up or discreetly renounce. “Our way or the Highway”. I don’t want to put a mark on my back! But I admire all the determination I see here.
Renunciation is the best. But the fight against the injustice of citizenship-based taxation must go on. I renounced a long time ago, but I still have friends and family members who are unfairly affected by this madness. The fight is not only for them, it is for every red blooded American who may one day want to leave the Homeland. Why should they be punished by such greedy short sighted policies?
Re: how to appeal to the only authority that can change citizenship-based taxation: the democratically elected representatives of the US people
THere is a post about the ways and means committee to look at, for those that don’t have the other 3 options available to them. THere is an email address.
To do a class action suit, one needs to find a competent lawyer who would take the case, and there needs to be a specific grievance attached to it. It would be great if someone found such. Finding a lawyer requires that the lawyer can get paid somehow—either from the results of the case or from other source.
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As a follow up to this excellent post, it is worth reading the article by Edward A. Zelinsky, University of Iowa Law Review, 2010
“Citizenship and Worldwide Taxation: Citizenship as an Administrable Proxy for Domicile”
http://www.uiowa.edu/~ilr/issues/ILR_96-4_Zelinsky.pdf
The author’s Bio (seems to be an insider in policy making circles):
http://en.wikipedia.org/wiki/Edward_Zelinsky
http://www.cardozo.yu.edu/MemberContentDisplay.aspx?ccmd=ContentDisplay&ucmd=UserDisplay&userid=10580
In his article, Zelinsky argues in favor of citizenship-based taxation because it is convenient for the state to administer and that the concepts of “citizenship” and “domicile” are close enough to be used interchangeably in order to justify it. Therefore, there is no significant difference between citizenship-based taxation and residency/domicile-based taxation (IMHO, a fallacy). Zelinsky makes his argument in this way because according to him, it is clear among scholars that Cook vs. Tait’s underlying “presumption that government by its very nature benefits the citizen and his property wherever found,”no longer holds water!
It doesn’t take a rocket scientist (or Law Professor) to figure out that ex-pats don’t use the Homeland’s highways, bridges, dams, power grid, fire, police, courts, hospitals, schools, Medicare, Medicaid, unemployment insurance, food stamps, etc. because they are not physically present to use them. So why should they be required to pay for such things?
Page 1289 of Zelinsky’s article states:
“ABSTRACT: The United States’ worldwide taxation of its citizens is less different from international, residence-based norms than is widely believed and is sensible as a matter of tax policy. An individual’s citizenship is an administrable, if sometimes overly broad, proxy for his domicile, his permanent home. Both citizenship and domicile measure an individual’s permanent allegiance rather than his immediate physical presence. Because citizenship and domicile resemble each other, and because other nations often define residence for tax purposes as domicile, the U.S. system of citizenship-based taxation typically reaches the same results as the residence based systems of these other nations, but reaches these results more efficiently by avoiding factually complex inquiries about domicile.
In contrast, the traditional justification of U.S. citizenship-based taxation, the putative benefits of such citizenship, is not persuasive. In this context, three models of U.S. citizenship are relevant, namely, the minimalist model, the psychological model, and the Tiebout / purchase model. None of these models justifies the worldwide taxation of U.S. citizens on a benefits basis. Rather, such taxation is persuasive because of administrative considerations, i.e., the close resemblance of domicile and citizenship that makes the latter an administrable proxy for the former.”
Pages 1308-1312 go into detail about Cook vs. Tait and the three models of citizenship benefits, none of which, the author acknowledges, justifies citizenship-based taxation. In short, the author almost casually shoots down Cook vs. Tait’s underlying “presumption that government by its very nature benefits the citizen and his property wherever found.”
Page 1314 states:
“Governmentally furnished benefits are a traditional consideration for tax policy and, as we have seen, is the rationale of Cook. However, upon examination, the benefits rationale for citizenship-based taxation proves unpersuasive, both in theory and in practice. The most significant civil and social benefits extended by the U.S. polity are tied to U.S. residence, not to U.S. citizenship.”
Page 1320 states:
“However meritorious these arguments for the Code’s current rules may (or may not) be, the net result of those rules is a pattern of differential taxation of nonresident citizens, which in practice undermines the argument for worldwide taxation of U.S. citizens on the basis of the putative benefits of citizenship.”
“In the final analysis, the benefits rationale for citizenship-based taxation is unpersuasive. That rationale has been part of our constitutional tradition since Cook. However, it does not survive scrutiny in light of the minimal legal benefits associated with U.S. citizenship; the absence of a convincing link between the psychological utility of citizenship and worldwide taxation; the lack of mobility among nations [thanks to the Exit Tax], which precludes active shopping among alternative citizenships; and the divergent tax prices the Code currently assesses different citizens for the same benefits of citizenship.”
Page 1321 states:
“…a nonresident U.S. citizen receives the bulk of her social and civil rights from the nation in which she resides, not from the United States.”
From the conclusion on page 1348, the author reinforces that the argument of “presumption” in Cook vs. Tait fails to hold water:
“The received wisdom about federal taxes and U.S. citizenship—the benefits of U.S. citizenship justify worldwide taxation of such citizen’s income and assets—is unpersuasive. The legal rights associated with U.S. citizenship are minimal. The psychological benefits of U.S. citizenship are significant for most of us, but, as a logical matter, do not justify the worldwide taxation of nonresident U.S. citizens. In theory, the Tiebout model justifies the worldwide taxation of U.S. citizens under a love-it-or-leave-it theory: Any U.S. citizen who finds the tax cost of U.S. citizenship inordinate can expatriate. In practice, however, U.S. citizens typically lack the mobility between nations necessary to make expatriation a practical alternative [Exit Tax is barrier to mobility]. Moreover, the Code taxes different U.S. citizens differently for the same benefits of U.S. citizenship.”
“While the traditional benefits rationale for the worldwide taxation of U.S. citizens is not compelling, such taxation can be justified in terms of administrability. An individual’s U.S. citizenship is an bjective, enforceable proxy for his U.S. domicile.” [The only argument that can be made is that citizenship-based taxation is convenient for the State—but is it convenient for Expats? But they don’t matter because they have no representation in Congress anyway]
“Both the benefits and ability-to-pay justifications for taxation point to worldwide taxation by the nation in which an individual resides. The country in which an individual lives provides his basic social and civil rights. Moreover, the nation of residence is typically best positioned to aggregate and assess an individual’s worldwide income and assets and to enforce its tax laws against him.”
“However, residence is typically a fact-intensive inquiry, often manipulable by the taxpayer, frequently difficult for the tax collector to enforce. When residence is defined as domicile, citizenship serves as an administrable marker for such domicile, since both citizenship and domicile focus upon permanent political allegiance rather than immediate physical presence. From this vantage, U.S. citizenship-based taxation resembles other nations’ residence-based taxation when those other nations define residence as domicile, and the U.S. system of citizenship-based worldwide taxation is not the outlier it is often thought to be. [This argument is very weak. It does not define domicile, which in the simplest of terms would be “the center of a person’s life.”] Moreover, such global citizenship-based taxation reaches similar results more efficiently by obviating the need for factually intensive inquiries into domiciliary residence.”
“For many reasons, a legal rule may persist after its initial rationale has ceased to be compelling. One good reason for the persistence of an old rule is that it serves a new, if as yet unrecognized, function. The United States’ traditional policy of taxing its citizens on their worldwide incomes and assets is such a rule. The traditional benefits rationale for citizenship-based taxation has ceased to be compelling. [Cook vs. Tait appears ripe for challenge] However, by serving as an administrable proxy for an individual’s domicile, citizenship-based taxation makes sense in the twenty-first century.” [An argument only a totalitarian State could uphold]
Although Zelinsky argues in favor of citizenship-based taxation, his article is well worth reading because it confirms how weak the argument for citizenship-based taxation really is.
Therefore, one cannot help but conclude that Cook vs. Tait is really vulnerable if challenged, particularly when one adds to the equation the liabilities/dangers of having US citizenship (complicated reporting, draconian fines, double taxation, exit tax trap etc) presently being experienced by ex-pats.
One question though, is Cook vs. Tait the only thing propping up citizenship-based taxation? Is there something else such as JFK signing a law about taxing ex-pats?
As a follow up to this excellent post, it is worth reading the article by Edward A. Zelinsky, University of Iowa Law Review, 2010
“Citizenship and Worldwide Taxation: Citizenship as an Administrable Proxy for Domicile”
http://www.uiowa.edu/~ilr/issues/ILR_96-4_Zelinsky.pdf
The author’s Bio (seems to be an insider in policy making circles):
http://en.wikipedia.org/wiki/Edward_Zelinsky
http://www.cardozo.yu.edu/MemberContentDisplay.aspx?ccmd=ContentDisplay&ucmd=UserDisplay&userid=10580
In his article, Zelinsky argues in favor of citizenship-based taxation because it is convenient for the state to administer and that the concepts of “citizenship” and “domicile” are close enough to be used interchangeably in order to justify it. Therefore, there is no significant difference between citizenship-based taxation and residency/domicile-based taxation (IMHO, a fallacy). Zelinsky makes his argument in this way because according to him, it is clear among scholars that Cook vs. Tait’s underlying “presumption that government by its very nature benefits the citizen and his property wherever found,”no longer holds water!
It doesn’t take a rocket scientist (or Law Professor) to figure out that ex-pats don’t use the Homeland’s highways, bridges, dams, power grid, fire, police, courts, hospitals, schools, Medicare, Medicaid, unemployment insurance, food stamps, etc. because they are not physically present to use them. So why should they be required to pay for such things?
Page 1289 of Zelinsky’s article states:
“ABSTRACT: The United States’ worldwide taxation of its citizens is less different from international, residence-based norms than is widely believed and is sensible as a matter of tax policy. An individual’s citizenship is an administrable, if sometimes overly broad, proxy for his domicile, his permanent home. Both citizenship and domicile measure an individual’s permanent allegiance rather than his immediate physical presence. Because citizenship and domicile resemble each other, and because other nations often define residence for tax purposes as domicile, the U.S. system of citizenship-based taxation typically reaches the same results as the residence based systems of these other nations, but reaches these results more efficiently by avoiding factually complex inquiries about domicile.
In contrast, the traditional justification of U.S. citizenship-based taxation, the putative benefits of such citizenship, is not persuasive. In this context, three models of U.S. citizenship are relevant, namely, the minimalist model, the psychological model, and the Tiebout / purchase model. None of these models justifies the worldwide taxation of U.S. citizens on a benefits basis. Rather, such taxation is persuasive because of administrative considerations, i.e., the close resemblance of domicile and citizenship that makes the latter an administrable proxy for the former.”
Pages 1308-1312 go into detail about Cook vs. Tait and the three models of citizenship benefits, none of which, the author acknowledges, justifies citizenship-based taxation. In short, the author almost casually shoots down Cook vs. Tait’s underlying “presumption that government by its very nature benefits the citizen and his property wherever found.”
Page 1314 states:
“Governmentally furnished benefits are a traditional consideration for tax policy and, as we have seen, is the rationale of Cook. However, upon examination, the benefits rationale for citizenship-based taxation proves unpersuasive, both in theory and in practice. The most significant civil and social benefits extended by the U.S. polity are tied to U.S. residence, not to U.S. citizenship.”
Page 1320 states:
“However meritorious these arguments for the Code’s current rules may (or may not) be, the net result of those rules is a pattern of differential taxation of nonresident citizens, which in practice undermines the argument for worldwide taxation of U.S. citizens on the basis of the putative benefits of citizenship.”
“In the final analysis, the benefits rationale for citizenship-based taxation is unpersuasive. That rationale has been part of our constitutional tradition since Cook. However, it does not survive scrutiny in light of the minimal legal benefits associated with U.S. citizenship; the absence of a convincing link between the psychological utility of citizenship and worldwide taxation; the lack of mobility among nations [thanks to the Exit Tax], which precludes active shopping among alternative citizenships; and the divergent tax prices the Code currently assesses different citizens for the same benefits of citizenship.”
Page 1321 states:
“…a nonresident U.S. citizen receives the bulk of her social and civil rights from the nation in which she resides, not from the United States.”
From the conclusion on page 1348, the author reinforces that the argument of “presumption” in Cook vs. Tait fails to hold water:
“The received wisdom about federal taxes and U.S. citizenship—the benefits of U.S. citizenship justify worldwide taxation of such citizen’s income and assets—is unpersuasive. The legal rights associated with U.S. citizenship are minimal. The psychological benefits of U.S. citizenship are significant for most of us, but, as a logical matter, do not justify the worldwide taxation of nonresident U.S. citizens. In theory, the Tiebout model justifies the worldwide taxation of U.S. citizens under a love-it-or-leave-it theory: Any U.S. citizen who finds the tax cost of U.S. citizenship inordinate can expatriate. In practice, however, U.S. citizens typically lack the mobility between nations necessary to make expatriation a practical alternative [Exit Tax is barrier to mobility]. Moreover, the Code taxes different U.S. citizens differently for the same benefits of U.S. citizenship.”
“While the traditional benefits rationale for the worldwide taxation of U.S. citizens is not compelling, such taxation can be justified in terms of administrability. An individual’s U.S. citizenship is an bjective, enforceable proxy for his U.S. domicile.” [The only argument that can be made is that citizenship-based taxation is convenient for the State—but is it convenient for Expats? But they don’t matter because they have no representation in Congress anyway]
“Both the benefits and ability-to-pay justifications for taxation point to worldwide taxation by the nation in which an individual resides. The country in which an individual lives provides his basic social and civil rights. Moreover, the nation of residence is typically best positioned to aggregate and assess an individual’s worldwide income and assets and to enforce its tax laws against him.”
“However, residence is typically a fact-intensive inquiry, often manipulable by the taxpayer, frequently difficult for the tax collector to enforce. When residence is defined as domicile, citizenship serves as an administrable marker for such domicile, since both citizenship and domicile focus upon permanent political allegiance rather than immediate physical presence. From this vantage, U.S. citizenship-based taxation resembles other nations’ residence-based taxation when those other nations define residence as domicile, and the U.S. system of citizenship-based worldwide taxation is not the outlier it is often thought to be. [This argument is very weak. It does not define domicile, which in the simplest of terms would be “the center of a person’s life.”] Moreover, such global citizenship-based taxation reaches similar results more efficiently by obviating the need for factually intensive inquiries into domiciliary residence.”
“For many reasons, a legal rule may persist after its initial rationale has ceased to be compelling. One good reason for the persistence of an old rule is that it serves a new, if as yet unrecognized, function. The United States’ traditional policy of taxing its citizens on their worldwide incomes and assets is such a rule. The traditional benefits rationale for citizenship-based taxation has ceased to be compelling. [Cook vs. Tait appears ripe for challenge] However, by serving as an administrable proxy for an individual’s domicile, citizenship-based taxation makes sense in the twenty-first century.” [An argument only a totalitarian State could uphold]
Although Zelinsky argues in favor of citizenship-based taxation, his article is well worth reading because it confirms how weak the argument for citizenship-based taxation really is.
Therefore, one cannot help but conclude that Cook vs. Tait is really vulnerable if challenged, particularly when one adds to the equation the liabilities/dangers of having US citizenship (complicated reporting, draconian fines, double taxation, exit tax trap etc) presently being experienced by ex-pats.
One question though, is Cook vs. Tait the only thing propping up citizenship-based taxation? Is there something else such as JFK signing a law about taxing ex-pats?