Including this interesting little anecdote:
I came across a form of exit tax when I left my country. In order to receive a visa for permanent non-citizen residence in the U.S., I had to pay a tax for all the government benefits I had received in my first twenty years of life, schooling, medical care, subsidized concrete block housing, pot-holed road use, constant police surveillance, and other “services” I was not even aware existed or received. I was worried since I had no penny to my name and I knew I would not be able to leave without paying.
The final figure was provided to me after months of deliberation and computation by the communist party apparatchiks – my freedom was worth exactly $160 U.S. dollars. I owned a Japanese boom box, it was the rage back then, which I sold quickly for $160, and paid my “exit tax.” This cleared my name – I did not owe anything to the government of Romania, for the communist care and education I had received. I was finally free.
Of course, nowadays the price of a boombox won’t even get you an hour of an international accountant’s time to help you fill out the Form 3520 for your “foreign” retirement plan or the Form 8621 for your “foreign” mutual funds.
I would certainly like to shove a Japanese boombox at Uncle Sam if it would get him out of my life.
Contrast the Romanian scenario, with the US demands on those who have never even set foot on US soil:
From above; “I had to pay a tax for all the government benefits I had received in my first twenty years of life, schooling, medical care, subsidized concrete block housing, pot-holed road use, constant police surveillance, and other “services” I was not even aware existed or received” http://romanianconservative.blogspot.ca/2012/12/exit-tax.html
now consider the US ‘exit’ tax, and extraterritorial-citizenship-based provisions, and penalties assessed on our so-called ‘foreign’ assets – where we have yet to, and may never, receive ANY benefit or services. And the only ones we might possibly receive from abroad – like the US passport (mandatory to enter or pass over or through the US), or US consular ‘services’ (renunciation) – are paid for on a current, fee for service basis.
The US extraterritorial taxes on citizens abroad, levy a tax on citizens and residents of other countries, many born outside the US (status via US parentage only), many who have never set foot there, and who have never received any services at all from the US. And, if they left when they were very young, their parents would have paid for all the services they received, via US taxes if they were US resident at the time. And, cannily, the FBAR, and FATCA can impose penalties on assets that have already been taxed, or are non-taxable by our home country, and sometimes, by the US itself. The financial reporting penalties and obligations extend so far beyond the actual ownership or benefit enjoyed by the ‘taxable person’ – that they encompass many assets where the ‘US person’ has no financial interest, or, only a potential, theoretical, or contingent benefit. And in the case of ex-greencard holders, the ‘benefit’ was the access to US permanent residence, which they can no longer enjoy, because the status was contingent, has expired – and thus is no longer available.
Not minimizing the human rights impact of Romania and other similar countries imposing a fee which stops their citizens from leaving, but merely underscoring that that is exactly what the US is doing, and more – because the US imposes it on the mere hypothetical and groundless pretext – that we receive a benefit merely because the US government exists. We and our estates ‘abroad’, are charged an ongoing lifetime (and beyond) fee – rationalized on an illogical, baseless, contingent and imaginary pretext.
In principle, an exit tax is reasonable. Canada has one, a tax on unrealised capital gains when the individual ceases to be a tax resident of the country.
The US introduced an exit tax in 1966 after John Templeton evaded an estimated $100 million dollars in 1964 by becoming a citizen of the Bahamas and renouncing his US citizenship. There is a big difference however between a tax evader like Templeton and, for example, a dentist born in the US to Canadian parents, who has lived her entire life in Canada, who has a home and business in Toronto with a value over $2 million, and whose wealth was created outside the US. The US exit tax would require this individual to turn over a large part of her wealth to the US government for the privelege of shedding US citizenship. Unfair.
The Soviet Union had an exit tax and so, evidently, did Roumania. These appear chiefly a device for social control, i.e. to discourage emigration.
@NorthernShrike, Tax evasion is a crime. You are accusing a person who expatriated of a crime. I was not aware that Templeton was charged with a crime. Please stop calling people who expatriate to avoid taxes “tax evaders”. If it is of a living person or dead, it is libellous.
The mark to market provisions that make a person have to pay their taxes on all unrealized capital gains is an unfair exit tax. The time to pay the taxes (even capital gains are mostly tax on shadow gains from largely inflationary –i.e., inflation caused by the governmental expansion of fiat money through deficit spending) is when a property is sold, not when one expatriates.
But how do you sort out the likes of John Templeton, from the likes of any regular Joe Schmo? And why should renouncing citizenship label someone as a tax evader, anyway? Gerard Depardieu can also be labelled as a tax evader as well, but if I was faced with a 75% tax, I would’ve bolted, too.
But at least with France, you can just leave. No so with the USA.
As shameful as it is to pay for your own freedom as though it’s simply another commodity, at least the Romanian only had to pay $160. It’s $450 for an American, and that’s if he has no meaningful assets!
And this goes without saying: If a government has to take measures to discourage emigration, then there is something severely wrong with the matter in which said government is operating.
A person born in the US to Canadian parents may in fact be a certifiable Canadian at birth, possibly exempting her from the exit tax.“The exceptions are dual nationals from birth, who have not lived in the US for more than 10 years from the last 15, and persons younger than 18½ who have not lived in the US for more than 10 years.”
Canadian citizenship by descent:
Great comment. James Dale Davidson in his book “The Sovergman Individual” (or something like that) made the point that when it came to exit taxes that:
1. At least the Eastern Bloc countries could claim that they had given something to their citizens and therefore the exit taxes were at least rationale;
2. In the case of the US, not even that claim could be made. The Exit tax is nothing more than a punishment/money grab.
Point 2 is of course compounded in relation to people who are “accidental Americans”
I repeat for the 1000th time – this is is really a human rights issue and that is how this should be developed!
This is at least the 2nd time I have seen Templeton referred to as a tax evader on this blog. He is NOT a tax evader. He simply made a rationale decision to exercise his legal right to expatriate. In life (as in investing) Templeton had a remarkable propensity to see the future. Also, Templeton in 90+ years of life did more for humanity than the US has in its whole history.
Check out the Templeton Organization.
On the definition of “tax evasion”, I find this disputation unproductive, but since I am being taken to task, I will comment.
Governments create tax breaks, such as tax-free retirement accounts, to encourage desirable behavior or in some cases in response to lobbying from special interests. Everyone agrees that using these breaks might entail tax avoidance and is fair.
Some people break the law by cheating on their taxes, for example by failing to report income. This is tax evasion, we all agree, and it is a crime.
And then there is the cat-and-mouse game between those who seek out loopholes in the law and the tax authorities. They and their lawyers call that tax avoidance; so do some contributers to this webpage. Governments are unlikely to use such neutral language and to the extent possible they try to close those unintended tax breaks (increasingly difficult in a globalized world with corporate revenue shifting).
Tax “evasion” is a crime, although the legal terminology may vary from one jurisdiction to the next. It is also common English, like “thief” or “murderer”. I see creative, aggressive tax avoider/evader as the moral equivalent of the thief who avoids conviction due to a legal technicality. “Evasion” carries a sense of moral disapprobation that is absent in the term “avoidance”, and I use it in this non-legal, moral sense.
Two other points:
If you reject exit taxes in principle, you have no way that I can see to distinguish between my hypothetical dentist in Toronto and the wealthy individual who would avoid taxes by leaving the country where she acquired a fortune. (Of course, a libertarian or an Ayn Rand wouldn’t distinguish between them.)
Templeton wasn’t the first (or last) rich man to put money saved through tax evasion/avoidance to use in philanthropy. The mismatch between the mission of his foundation and Sir John’s behavior is remarkable.
This is my final comment on this.
I reject exit taxes in principle. Period. The very idea of having to paying a government to leave a country is morally repugnant to me, and I don’t see how it can be construed as anything other than a violation of human rights (freedom of movement, being one) without the discussion becoming intellectually dishonest, like calling renunciants ‘tax cheaters’ for one thing.
Again, if one has to actively try to discourage people from emigrating, then there is something really wrong with the governance. Besides, how in the hell can one be a tax cheater to a jurisdiction that said person is not even in, let alone using any services of same jurisdiction? If somebody billed you for services not rendered to you, and then had the audacity to call you a cheater, then how would you feel about that person? I’d call him a f—ing crook!!
Lastly, I deeply resent the attitudes of US politicians, along with their policies towards myself, and many others like me, just because we chose to make a living elsewhere other than within the American police state.
@Northernshrike, The person who paid taxes on every penny they earn, then, the exit taxes forces them to mark to market everything as though it was sold that day. This is what is not fair. No non-expatriate has to do that.
Now your real problem is that you think that wealth belongs to the state and not to the owner of the wealth, so that you think they are stealing if they expatriate and are thus able to avoid a certain amount of state thievery. I study ethics and morality too. My opinion on the matter is that taxation can be a form of theft especially (1) when applied disproportionately taxing some (i.e., the rich) more than others; (2) when the benefits of taxation do not benefit the commons (i.e., individuals, either on social assistance or through corruption). In the Ten Commandments, there is no exception clause for governments (Thou shalt not steal, unless you are the king and can make a tax law that says that you can). Thus, I believe that socialists governments are thieves and are breaking higher laws than the ones written on paper by human legislators.
So there, you can see that others, such as myself, can pass judgement upon human systems or individuals. You are not the only one. But we must not libel people on this blog. Calling a person who within the law avoids taxes a “tax evader” is libel if you cannot prove that they’ve broken laws. Loopholes can be closed but those who take advantage while they exist are not tax evaders. They are rather wise people.
The systematic harassment, intimidation and economic persecution of American expatriates to pay for public goods they don’t use and public services they never receive, coupled with denying them the fundamental right of direct representation in the legislative body which creates such laws and policies directly affecting and harming them, are crimes against humanity.
Erecting a barrier intended to trap American expatriates into a state of permanent persecution (i.e. the exit tax) further compounds the crimes committed against them.
Here is some of the wisdom of Sir John Templeton.
Do you think Templeton or the US government made better use of his money? Temleton was concerned with enriching humanity. The US government is concerned with what?
*Badger, you wrote:
The cold war is over, and yet the taxation persists. The US government wants to give you hell so that it can finance the bloody murder of humans around the world. Sad, but true.
The US will now have to sell its guns to human rights violators without Swiss components:
“The U.S. government claims that most American taxes go for U.S. defense, which also protects Americans abroad.”
Are they serious? What a f***ing joke! I could certainly do without their “protection”, thank you very much. What’s the English word for Größenwahn?
Indeed, because if they actually have to rescue you from a violent situation, they’ll also send you the bill.
As has been pointed out, the US claims that those elsewhere in the world, who inherited US status via parentage, or by birthplace, or naturalization, or via current (or expired!) greencard, owe it a running tab for life, in exchange for ‘defending’ them ‘abroad’. However, it currently charges us, but not the rest of the world. This ‘service’ is not only ‘enjoyed’ by us. Since the US sees itself as a self-appointed policeman of the world (where and when congruent with self-interest), and has a history of not paying its UN dues or acting with allied nations’ consensus; from the US perspective, it would claim that it is providing ‘services’ to the whole world, (whether they want it or not) not just us to US individuals abroad! So why not present the bill to the whole world? Well, perhaps FATCA is the first step in that direction. Maybe that is the rationale for not agreeing to give Canada a FATCA IGA exception though the US knows that we are not a tax haven – the US does not want to exclude us, because all of Canada is being billed for US Homeland Security and Border protection.
A Bloomberg article on an ex-American billionaire in Thailand. He and his wife reportedly gave up their US citizenship in 1991, long before there was the American version of the Nazi Reichsfluchtsteuer. I, of course, would like to see his and his wife’s CLNs:
“American Billionaire Made in Thailand Keeping Kingdom Bet”