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!
@Eric
You seem surprised. You seem shocked. You seem horrified.
Most Homelanders don’t think like people in the rest of the world. They have a completely different operating system. It’s like something out of “Star Trek”. They are like the Klingnons or the Romulans. They cannot see the world the way as you do.
What this means is that they will have no chance of ever collecting an Exit Tax from anybody – that is unless they send the local IRS to an “offshore” place – say Canada.
Not surprising but the immigration bill is not going to be an easy sell and there are some indications that it might not pass. Homeland Americans hate immigrants and have even more negative stereotypes about them than they do about us.
Aside from Obama, who love to add this to his “legacy”, the only ones in favor of the immigration bill (aside from immigrants who don’t seem to realize what they are signing up for) are the tech companies who want to exploit the worker visas.
The longer the process drags on the better chance it has of snagging on the run up to the 2014 mid-term elections, which will make candidates wary of supporting it.
Notice how one would have to apply to DHS for relief from this. How long would that take to grant? Ninety days? A year? Three years? More? What questions would you have to answer about your motives? Would you have to supply ten generations of your family tree and the DNA of your parents and grandparents for testing? Would DHS consider your application abandoned if you didn’t get all that together within two weeks?
The example of nefariousness Jack Reed gives is 20 years old, and any loophole it exploited is long gone today thanks to two decades of fiscal Berlin wall construction by congress. What a shame long term grudge-holding is not an Olympic event. It would be a guaranteed gold for the US every year.
Why don’t we just call it the New Berlin wall of Tax penalties Act.
Schumer and Reed should just come up with a new bill to institute the kidnapping of former Americans abroad, to bring them back in chains, so that they have to pay taxes in the United States.
In the Roman Empire, exile of the senator class used to replace the death penalty. So Schumer and Reed believe that expatriation as a covered expatriate is a capital offense, by Roman standards. And we know that the Romans had standards. These are the people who killed about four million in the Colosseum. I called it barbaric here: http://isaacbrocksociety.ca/2012/05/21/no-civilized-country-would-ever-banish-eduardo-saverin/
Yet again nonsense and hypocrisy reigns in Washington masquerading as “intelligent policy-making”. These same Senators are the ones who are arguing to fast-track illegal immigrants to citizenship while trying to punish any American who wants to leave. “Come into my web said the spider to the fly.”
Here is the biggest problem with Schumer-Reed: If I, for example, have amassed $5 million (let’s say that is the amount, though whatever amount they think should be a limit), and have paid taxes on it as I grew it, and then decide to move to Holland where my in-laws live and give up my American citizenship by what right do they have to steal my net-of-tax assets? Since when did this suddenly belong to the government? I can assure you that anyone who has done well in America has done so by creating a great deal of wealth for everyone else in America to enjoy, and more taxes paid than just the ones I will have paid personally.
But because I have decided for whatever reasons to take up another nationality and live somewhere else in the world, I should be robbed with the exit tax and denied re-entry? How does that make any sense at all – and why would this be in the interests of the USA at all? When did retribution become an American trait?
Finally, perhaps Schumer and Reed should be made aware that our international investment deficit in America is currently over $4 trillion, and trade deficit $750 billion – these are the amounts that foreigners actually take out of the country annually and about which Schumer, Reed, and everyone else are doing NOTHING!! Instead they want to focus on punishing anyone with the audacity to actually want to leave this “paradise” and never let them return!
The absurdity continues for no apparent reason….
For me, the key feature of the Reed, requiring a very special logic, is that even after paying your fair share with the exit tax, you still might not be allowed back for a visit.
America, your desperation is showing and it’s not very attractive.
Other differences from Ex-PATRIOT: no visible attempt at retro-activity; appears to limit to HEART and section 877A rather than also catching pre-HEART section 877 covered expatriates; and no mention of former long-term green card holders.
I guess we should expect a new amendment to cover all these “deficiencies” shortly.
What a weird and paranoid place the US has become.
Those who seek to control feel they have no control.
Well, I guess renouncing without catching up on filing (an often talked about topic here), has become even less of an ‘option’.
Maybe ‘they’ have been reading here!
@Watcher: I suspect that Reed–Schumer not banning former long-term green card holders is intentional, and that the Ex-PATRIOT Act ban of them was accidental. Clearly the drafters understand that not all covered expatriates are citizens, otherwise they would have written (ii)(II) just as “any alien who is a covered expatriate” instead of “any alien who is a former citizen of the United States and who is a covered expatriate” (since the latter looks redundant unless they understand that green card holders can be covered expatriates too).
I guess since this is an immigration reform bill, Schumer & Reed didn’t want to make green cards any worse than they already are in tax terms. It’ll get too embarrassing for the US if they push through their giant shift of green cards away from family reunification to investors and skilled workers but then those same investors keep on picking E-2 treaty investor or L-1 intra-company transferee visas and leave the EB-5 green cards to mainland Chinese nouveaux-riches whose idiot one-trick-pony visa consultants convinced them to buy it as a “status symbol”.
Now bubblebusting, that short comment of yours is worthy of a tweet with a link back to this post, eiher a long link, or create a bitly link! That is how you do it. 🙂
and you could look up Senator Reed on twitter, and copy him in. Not sure he has a twitter account, and I am traveling in a car right now so not easy to look up quickly.
Excuse me, I have to make a few contacts.
@SenJackReed is his twitter account. 🙂
Do notice that he is following NO ONE, so he really does not give a shit about what anyone has to say. Twitter is a one way street for the Authoritarians!
Just Me –
Non sequitur. There are different ways to “follow” on Twitter. I very deliberately have a zero showing on my Twitter account, but that does not mean I “do not give a shit about what anyone has to say.” Rather, I practice a security culture that makes it a lot more difficult for you and the authorities to tie me to any grouping. Get more sophisticated.
After reading the actual amendment it is almost certainly against the US Constitution as it is trying to raise revenue through a Senate originated bill. Thus even if it were to pass the House of Representatives it could easily be challenged in court.
I will also add it will interesting when this hits the floor does Baucus try to object on jurisdictional grounds.
@usxcanada
How serendipitous this is! I was just reflecting on you Seven Deadly Sins post you made some time ago, as I thought it was an opportune time to repost it here. I can’t find it though, would you be so kind to repost it in its entirety here?
@Just Me
Ok, I’ll give it a whirl…
@WhiteKat, I’d say that it widens the gap between compliance and non-compliance. Either one will be very compliant, or not compliant at all. If one is banished from the US, then there is no point in filing or paying anything.
@SwissPinoy,
Exactly. Either do it perfectly ‘right’ or don’t do it all.
Could the Reed amendment be critical in moving us closer to residence-based taxation?
The House W&M Committee will be considering two very thoughtful and detailed proposals (Schneider, ACA) dealing with our tax problems. Both proposals, like the Reed, include a departure tax aimed at being “fair” and not punitive.
Perhaps the House Committee should be strongly encouraged, for the sake of balance and because we are all fair-minded US persons, to consider seriously including the Reed for assessment.
Always a risk, but comparison of the merits of the over the top Reed vs. the others might be helpful.
Interestingly, a bill to implement the exit tax in 2003 would have changed the Reed amendment to apply only to people who are not in compliance with the provisions of the exit tax:
(E) FORMER CITIZENS NOT IN COMPLIANCE WITH EXPATRIATION REVENUE PROVISIONS- Any alien who is a former citizen of the United States who relinquishes United States citizenship (within the meaning of section 877A(e)(3) of the Internal Revenue Code of 1986) and who is not in compliance with section 877A of such Code (relating to expatriation).