RT Lawyers: 1924 @USSupremeCourt decision of #CookvTait https://t.co/Va1ITUKq8M = justification 4 "citizen tax" – What does case really say?
— U.S. Citizen Abroad (@USCitizenAbroad) May 22, 2015
Since 2013 I have been working on a series of posts about the 1924 decision of Justice McKenna (see his biography) in the 1924 decision of Cook v. Tait. As you know, Cook v. Tait is always cited as the justification for U.S. citizenship-based taxation. You will find the series of posts here. My goal has been to explore and understand what is the history, basis, and rationale for “citizenship taxation”. Even if it was justifiable in 1924, it is hard to justify it today.
The problem is that although, there is agreement that Cook v. Tait stands for the legal proposition that U.S. “citizenship-based taxation” is NOT illegal, the reasoning in the decision is (in my opinion) very unclear. I have read the decision may times and to this day and have never felt comfortable that I really understand the basis of the decision (if there is one). Of possible interest is what appear to be a summary by a law student of what Cook v. Tait is about.
Interestingly, in 1925 a law review article was written by a U.S. law professor (the Michael Kirsch of 1925) about Cook v. Tait. You will find a link to a CBC interview with Professor Kirsch (along with a large number of valuable comments) at a previous post at the Isaac Brock Society.
You will find the decision in Cook v. Tait from the link in the above tweet.
I invite readers of this post to:
1. Take the time to read the decision (more than once).
2. Try to understand what exactly is the basis for Justice McKenna’s reasoning.
What I am looking for comments are answers to the following two questions:
1. What is Justice McKenna really saying?
2. What is his specific justification for what you understand him to be saying.
Please think carefully about this.
Here is the decision in Cook v. Tait may be found here.
Thanks to the comment by @Publius, you will find the most interesting arguments advanced by the lawyers here:
COOK v. TAIT https://t.co/6It7D4B7Vh via @casetext – Here are the positions advanced by the lawyers for and against in #CookvTait
— U.S. Citizen Abroad (@USCitizenAbroad) May 23, 2015
I have not read it in detail yet, but the law student keeps referring to “International Law”. The decision is based on International Law. What law is that – because it certainly isn’t international, otherwise other countries would be doing the same.
Seems to me McKenna (who doesn’t even have a degree in law!) is basing his decision on a previous case about a yacht. The yacht is symbolic of anything owned outside of the United States. If the yacht was deemed taxable wherever it was on the high seas and irrespective of where the owner lives (?), then so can Tait`s business profits in Mexico be taxed. Location is irrelevant. But the general justification used for the yacht decision is that one has the “benefits of government” wherever one lives. That is the real crux. The arguments keeps circling around those benefits- whatever they may be.
I liked what Kirsch had to say about that- what US benefits does a Canadian have that is so extra special to be deemed tax worthy?
The basis for Cook v. Tait seems to be some unspecified benefits rationale. Basically, “because I feel so.” I suspect that if were re-adjudicated today, it would not be upheld — but would instead be replaced with some other inscrutable rationale for people to spend the next 90 years scratching their heads over. Even Michael Kirsch doesn’t defend CBT on a benefits rationale; he seems to think of it more as some kind of loyalty test.
In 1930, six years after this stupidly outdated Supreme Court decision, the League of Nations signed up to the Master Nationality Rule so as to resolve a plethora of issues arising from dual nationality. Unsurprisingly, the United States of Exceptionalism were not party to it (because they do not recognise the sovereign character of other nations?). It is such arrogance that makes America become the object of scorn.
@Polly Benefit of persons tax resident overseas quite different than benefit of US persons living in the US.
Richardson-Kish point out the perplexity that US persons living in different countries pay way different to the US for the same “benefit” of US person status. And, they suggest a fixed annual passport fee for the benefit.
Paying to the US in 1924 was much different than today.
* Tax rates much higher
* Complexity much greater
* FBAR regime and penalties
* FATCA regime and penalties.
So one may say that those US persons living overseas pay much greater in tax and foregone life choices and foregone tax savings & investment vehicles than US persons in 1924. Much much more intrusive than in 1924.
Nothing said about tax treaty. Knocking CBT is one angle. Reinforcing tax treaties may also deny impacts of CBT.
No mention of other sovereign powers and their rights for self determination, and to have internal domestic polices not upended by an outside sovereign power.
@JC Absolutely! And the taxation of expats versus homelanders is different- expats are double taxed! We know this- yet every homelander who comments on an article thinks this is all “fair”- it is “paying your fair share” when there is nothing fair about it. The US of A is broke. So the taxes and PENALITIES imposed by this government are draconian. Bama wants to have the money to fix the roads and bridges from the expats! And I also don`t think there is any justification for it. But a nation which is broke will rationalise their actions any way they can. Maybe the question is why the Tait decision was made at a time America was not broke? And they keep talking about the “benefits” of citizenship. Even Kirsch says “What benefits of citizenship does somebody living in Canada have?” We all have not a clue. And now Maryland was called guilty of unconstitutionality for double-taxing its residents. And Eritrea is called out for its system of CBT. And the biggest tax haven is IN America but that is not cleaned up. It is all mind-boggling and maybe the answer is just: because I CAN. Because none of this makes sense…. but nobody dares oppose them. Maybe that is the real answer to all of this.
….on a side note- how much was 1000$ in 1924?
@Polly
Yes, you are very correct: America is the biggest tax haven in the world, and she very well knows this. But the Americans pontificate to the entire world, pointing their fingers at countries like Switzerland. If millionaire (or billionaire) non-US Persons wanted to evade paying taxes, they would park their millions (or billions) in Delaware. It is that simple.
Further to my comment above, Swiss due diligence is becoming more and more strict these days.
I think that all of this is to say/reinforce that Cook v Tait should be challenged. One must wonder why Jim Bopp would not throw that into his basket of causes of action and structure the suit in a way that the court would strike down (or hopefully not – uphold) Cook v Tait while also addressing the other causes of action (e.g FATCA) on a separate and independent basis. To me that is the most logical way to structure the complaint.
@US Citizen Abroad
If you google Cook v. Tait briefs and click the casetext.com link, you will get the arguments that both sides made in the case, which you might find helpful.
@foo
Too true!
@Polly
$1000 in 1924 is $13,836.20 today.
The swiss banks have lost many of their clients to guess where?
@All
Thanks for the most interesting comments. Please keep the coming. By, the way, (in response to @Polly), at that time, the road to becoming a lawyer did NOT necessarily include law school. It may have been a tribute to Justice McKenna that he made any effort at all to attend law school. On this note, it was NOT until 1957 in Canada that a law degree, became part of the process of becoming a lawyer. Speaking of lawyers, it would be interesting to know something about the background of the lawyers. If anybody has the interest, have a look at casetext.com and see what you can find out.
@Publius
Thanks for the casetext.com information. Here is the tweet I just added to the post:
https://twitter.com/USCitizenAbroad/status/602080860804927488
I know that the two aren’t fully related, but Ireland today voted yes for gay marriage, how about a referendum for equal financial rights? How about resident Irish citizens being reported and taxed only by the Irish government regardless of your place of birth? It’s time.
One other thought – the basis of the Irish vote was ‘social inclusiveness.’ FATCA certainly creates second class citizens who can’t enjoy the same level of inclusiveness as other fellow resident citizens. So yes the gay referendum vote in Ireland and FATCA are the same in the final analysis.
just posted at Citizenship Taxation:
https://www.facebook.com/groups/citizenshiptaxation/permalink/850079288415154/
The decision by Justice McKenna in Cook v Tait is really an odd and puzzling one. I don’t think it is clear and I don’t think anyone really bothers anymore to examine the arguments of the plaintiff nor the Solicitor General. Instead of just trying to make sense out of McKenna’s decision, why not look more closely at what the issue was?
I am continually perplexed by the arguments of lawyers which seem fixated on (more or less) “the courts have ruled…” as if society and it’s relation to the world is static and the laws should not change in order to address reality rather than the world as it was decades earlier…..
http://isaacbrocksociety.ca/…/cook-v-tait-26-help-what-doe…/
*****
https://casetext.com/case/cook-v-tait?embed
arguments for the plaintiff
(sound familiar?)
I. Congress has no power to impose a tax upon income received by a native citizen of the United States who was at the time when the income was received permanently resident and domiciled in the Republic of Mexico, when such income was derived solely from real and personal property permanently located at all times without *4848 the territorial jurisdiction of the United States and solely within the territorial jurisdiction of the Republic of Mexico.
B. The power of taxation, inherent in sovereignty, is limited to the territorial jurisdiction of the sovereign, and the attempt to impose a tax upon property, persons or business beyond that jurisdiction is void.
(1) The subject of the tax is the right to the rents and profits from the property realized in the shape of income; this is a property right having its situs in the Republic of Mexico.
(2) The person of plaintiff in error is not within the jurisdiction of the United States for purposes of taxation. See authorities cited supra, under B(1).
(3) Citizenship of a native American is neither property nor a privilege granted by Congress and therefore cannot afford any basis for the tax in the instant case.
C. The United States not having the power to impose the tax, its imposition and collection is a mere extortion under the guise of taxation and violates the rights of the plaintiff in error guaranteed him under the Fifth Amendment.
D. The tax is in violation of the natural and inherent rights of plaintiff in error and is contrary to the rights reserved — independently of citizenship — by the first ten amendments to the Constitution, and especially the Fifth, Ninth and Tenth Amendments.
II. The tax assessed is not within the statute.
A. The statute does not contain express declaration of authority to impose the tax and will be strictly construed in favor of the taxpayer.
B. The statute must be construed as including only property and persons within the constitutional power of Congress to reach, so as to keep the statute in harmony with the Constitution.
Is giving up one’s allegiance to the US equivalent to expatriation?
part of argument for the Soilicitor General:
“The payment of an income tax by a nonresident citizen is looked upon as prima facie evidence of citizenship. The failure to pay such an income tax is, inter alia, of considerable weight in determining that the nonresident citizen has given up his allegiance to the United States.”
Citizenship Taxation @CitizenshipTax now
Is giving up one’s allegiance (by non-pmt of tax) 2 the US equivalent 2 expatriation? https://casetext.com/case/cook-v-tait?embed … What does “free” mean???
@Tricia Moon
On another note- do changing laws also include changes made to the constitution? Human rights?
AT any rate- if catholic Ireland is capable of allowing gay marriage- then one would think that America would be able to scrap CBT and replace it with RBT too. Why? Because it is more humane, same as gay marriage.
The reasoning in Tait v cook falls apart if cook was a dual Mexican national resident in Mexico.
The logic here still only applies to the proverbial American citizen abroad.
What this clarifies for me is that cbt in the Usa can be attacked but not by a proverbial American citizen abroad.
@Polly
Ireland is firmly part of the European sphere of influence so is able to evolve in these changing times. However, America is an oddity.
For me, citizenship-based taxation presents us a snapshot of a time when a nation fell into civil warfare in the mid-nineteenth century. The Revenue Act of 1861 (probably the origin of citizenship-based taxation) was meant to finance the war effort; however, it had its unintended consequences (i.e. FBAR, FATCA, draconian penalties, violation of privacy, second-class citizenship, national origin discrimination, etc). Unfortunately, an antiquated method of taxation has effectively been burnt into the American conscience as being “the right way.” I really do hope that our relentless advocacy will change things for the better.
We need a new challenge based on current conditions. You’d think that the insurmountable challenges non-residents face in complying would factor into whether Americans abroad should be taxed, especially when it results in little revenue.
I see noting in the ruling about taxes from Mexico on the property. Perhaps there were none at the time – (not clear on what sort of US tax, on rental income?) So perhaps could not be considered double taxation in the sense of double taxation in 2015. No consideration of taxes in the other country. It would also be interesting to learn what taxes the plaintiff was up for from Mexico at the time and to compare the US taxes at the time.
Re examining the original ruling might give ideas for angles to attack it. That has to be a central part of devising a strategy to reverse the ruling. Another part of it is thinking outside the 9 dots and breaking that box, to think of new angles to have a go at it.
My thought of one angle is if there may be a forcing of the US Supreme Court to consider the situation in reverse – and to use US exceptionalism to our advantage: Would it be legal for Canada to levy income tax at the higher Canadian rate on a dual US Canadian citizen resident in the US? If such forcing may be brought about with example ruled unfair/not legal, I believe it would then be easier for the reverse to be ruled unfair/not legal and that is about CBT.
Often we hear the case of Eritrea and their CBT condemned by the US. I feel this is a really bad example as for one the country is in Africa (one of the continents with the poorest countries), two it does not even border The Atlantic or Pacific Oceans, three it is relatively small, four it has relatively insignificant population of 6 million, and five it is completely insignificant in terms of the global economy. Who cares about Eritrea! That is why example and plaintiff need be from a country like Canada (and hopefully not give The Canadian government any ideas in the mean time).
I may suggest arguing quite vigorously (vigorously more important than frequently and I consider the Eritrean angle not argued vigorously up to now) how unfair and unjust such a hypothetical tax from Canada would be on a dual Canadian/American living in America would be (they don’t get any government services from Canada so no justification for taxation, and remember the ‘taxation without representation’ basis for the American Revolution). And it might be finished up with Example of US and Canadian condemnation of Eritrean CBT (although part of this condemnation was what the funds would be used for).
Speaking of legal action against CBT. Solomon Yue did tweet to me in January along the lines: ‘You get $50,000, I’ll ask Bopp for an opinion on legal case against CBT.’
@Polly
I have the idea (not sure from where) that the Constitution can only be altered via Amendments. My sense of that is things are added or defined more but I think the Constitution cannot be changed in the same way as a law.
Laws change all the time. They are struck down, repealed and so on. The question would be, does CBT derive from the Constitution (it would seem McKenna thinks so).