When the US first created an income tax in 1861, it was 3% on worldwide income of residents, and 5% on US income of nonresident citizens. So nonresident citizens had a higher tax rate, but the tax only applied to US income. In 1864, nonresident citizens started being taxed the same way as residents, on worldwide income and with the same rates. In 1866, nonresident foreigners started being taxed, on US income only. Later, the US income tax was deemed unconstitutional and returned after the 16th amendment, but the system of taxation based on both citizenship and residence never changed again.

Some people say that taxation based on citizenship is an anachronism given today’s globalized world. I go farther and say that it was never justified, because people have always moved between countries, even in ancient times. Already in 1923, a team of experts wrote a report to the League of Nations about this subject:

The question thus arises: Where shall a man be taxed? Whatever principle we lay down, it is plain that, if every state or every tax authority followed the same principle, it would be easy to avoid double taxation. The complications arise from the fact that one state follows one principle, and that another state follows an opposite or conflicting principle. Let us discuss the different principles that have actually been employed.The oldest principle is that of citizenship or political allegiance. Originally only the citizen of the state or the burgess of the town had any obligation to the government under which he lived. But it soon happened that commercial relations developed, until in modern times the actual population of any state or community is by no means limited to citizens. To tax only the citizen and to exempt the stranger, whether the stranger be from another state or only from another city, would plainly be inadmissible. Political allegiance in thin sense is nowhere today made the basis of taxation. Yet when political allegiance involves a positive rather than a negative attitude, it is still followed, at all events in international relations. While the stranger is not exempted, the citizen living abroad is frequently held responsible to his country. Political fealty cannot be so easily abandoned; political rights involve political duties. Among them is certainly the duty to pay taxes.

In modern times, however, the force of political allegiance has been considerably weakened. The political ties of a nonresident to the mother country may often be merely nominal. His life may be spent abroad and his real interests may be indissolubly bound up with his new home, while his loyalty to the old country may have almost completely disappeared. In many cases, indeed, the new home will also become the place of a new political allegiance. But it is well known that in some countries the political bond cannot be dissolved even by permanent emigration; while it frequently happens that the immigrant has no desire to ally himself politically with what is socially and commercially his real home. In the modern age of the international migration of persons as well as of capital, political allegiance no longer forms an adequate test of individual fiscal obligation. It is fast breaking down in practice, and it is clearly insufficient in theory.