In a press release on his website, Jack Reed announces that he and Chuck Schumer have moved an amendment to the immigration reform bill to make “covered expatriates” — people who give up U.S. citizenship and meet certain asset thresholds, or who have missed some of the ridiculously time-consuming piles of tax paperwork required of citizens living abroad within the past five years — into permanent exiles from the United States, in similar terms as Schumer’s failed Ex-PATRIOT Act last year.
Contrary to Reed’s mendacious claims, this amendment does not just affect people who “accumulat[e] wealth and benefit from the greatness of the United States and then renounc[e] their citizenship to avoid paying their fair share of taxes”. As even a cursory glance at Wikipedia confirms, the overwhelming majority of people who give up citizenship have lived abroad for many years and became successful thanks to the countries in which they actually live, not the United States which they made a conscious choice to leave behind.
Under Reed’s new amendment, if you have lived abroad all your adult life and got lucky buying a house in the right neighbourhood, or even if you simply have missed some tax filings in the last five years, and you dare to exercise your human right to change your nationality as guaranteed by the International Covenant on Civil and Political Rights to which the United States is a signatory, then you too will be banished from the United States and refused the right to visit your relatives who still live in the country or the old stomping grounds of your early childhood.
It would seem that Chuck Schumer, the Democratic Senator from the
carried interest loophole State of New York, has learned a few tricks from Carl Levin about gaming the U.S. legislative process. Now, instead of trying to get his bill to pass on its own merits, he’s snuck it into an existing bill with a greater chance of passing — just as FATCA died in committee before being snuck into the HIRE Act. His co-sponsor on the amendment, Jack Reed (D-RI), is of course the author of what even his fellow Democrat Daniel Moynihan referred to as the “incoherent and unenforceable” Reed Amendment to the 1996 Illegal Immigration Reform and Immigrant Responsibility Act, the United States’ first failed attempt to ban former citizens.
Other countries both developing and developed — ranging from the Philippines to Denmark to South Korea — have easy-to-obtain diaspora visas for their former citizens, a simple humanitarian gesture to allow emigrants to come back to attend their high school reunions, see their nephews grow up, attend a higher education course in the language of their childhood, and care for their parents in their dying days. The United States, on the other hand, is once again proposing exile for its own former citizens. “Greatest country in the world” indeed.
Update: The amendment number is SA1233; you can find it at page S4420 of the Congressional Record for 12 June 2013. Here’s a link to the THOMAS page for the amendment, but you may find it easier to go to the THOMAS search page, search for “expatriate”, and pick the most recent result:
SA 1233. Mr. REED (for himself, Mr. SCHUMER, and Mr. CASEY) submitted an amendment intended to be proposed by him to the bill S. 744, to provide for comprehensive immigration reform and for other purposes; which was ordered to lie on the table; as follows:
At the appropriate place, insert the following:
SEC. __. INADMISSIBILITY OF INDIVIDUALS WHO RENOUNCE CITIZENSHIP TO AVOID TAXES.
Section 212(a)(10)(E) (8 U.S.C. 1182(a)(10)(E)) is amended to read as follows:
(E) FORMER CITIZENS WHO RENOUNCED CITIZENSHIP TO AVOID TAXATION
(i) INADMISSIBILITY — The following aliens are inadmissible:
(I) Any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Secretary of Homeland Security to have renounced United States citizenship for the purpose of avoiding taxation by the United States.
(II) Subject to clause (ii), any alien who is a former citizen of the United States and who is a covered expatriate.
(ii) REVIEW FOR COVERED EXPATRIATES — A covered expatriate shall not be inadmissible under clause (i)(II) if the Secretary determines that the covered expatriate has established by clear and convincing evidence that avoiding taxation by the United States was not one of the principle purposes that the covered expatriate renounced United States citizenship.
(iii) COVERED EXPATRIATE DEFINED — In this subparagraph, the term ‘covered expatriate’ means an individual described in section 877A(g)(1) of the Internal Revenue Code of 1986 and to whom section 877A(a) of such Code applies.
The approach here is somewhat different from Schumer’s previous attempt. The Ex-PATRIOT Act by default classified all “covered expatriates” as “specified expatriates” and then banned all “specified expatriates”; it made the Secretary of the Treasury responsible for processing applications from “covered expatriates” who wanted to be reclassified as otherwise than “specified expatriates” so they could visit the U.S., but did not allow the Secretary of Homeland Security to grant them a waiver of inadmissibility. In contrast, the Reed–Schumer Amendment bans all covered expatriates and then makes Secretary of Homeland Security responsible for processing waivers.
The distinction may seem subtle — in both cases, you are deemed guilty and the burden is on you to prove your innocence — but it has an important implication: it very likely means that the IRS will have to share tax return information of ex-citizens with the Secretary of Homeland Security in order for DHS to be able to assess the claim that giving up your citizenship did not have the principal purpose of avoiding taxation. (Note also that the amendment empowers the Secretary for Homeland Security to use allegations of “tax avoidance” to ban even people who aren’t covered expatriates — though only on the same terms as the existing Reed Amendment empowers the Attorney-General to do.)
The other difference is in the standard used to ban ex-citizens: the Ex-PATRIOT Act banned any covered expatriate who had a “substantial reduction in taxes”, whereas the Reed–Schumer Amendment allows a waiver only for those who can prove that avoiding taxation was not “one of the principle [sic] purposes” of their choice to give up citizenship. This is a much higher hurdle to clear. If you are a U.S. Person living abroad, you very certainly would like to avoid U.S. taxation on your local retirement plan, not because the tax burden itself is “substantial” but because the paperwork is fraught with danger. But even if you clearly did not enjoy a “substantial reduction in taxes” by giving up citizenship, it might still be said that one of your “principle [sic] purposes” was to avoid taxation. After all, why else besides taxes would you choose to stop being a dual citizen of the “greatest country on earth”, or to naturalise in a country in which you’ve inexplicably chosen to live your whole adult life when neither your parents nor your spouse hail from there? Traitor!