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
@TriciaMoon-
CBT was thought up in the 1860s so that makes me doubt it was a part of the constitution.
But honestly- do you know of ANY country which gave up a source of income voluntarily? I think that the expansion of their tax base is a main concern for any government, even one which is not bankrupt.
@Polly
Perhaps I should have asked if some concepts regarding CBT derived from the Constitution.
There are provisions in the early articles of the Constitution that are used in various types of arguments concerning taxation. Along with case law, these things are deemed to be “constitutional” or unconstitutional. IOW, does not have to be the original, late 1700s document only. As well:
The Sixteenth Amendment (Amendment XVI) to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on the United States Census. This amendment exempted income taxes from the constitutional requirements regarding direct taxes, after income taxes on rents, dividends, and interest were ruled to be direct taxes in the court case of Pollock v. Farmers’ Loan & Trust Co. (1895). The amendment was adopted on February 3, 1913.
https://americansabroad.org/issues/taxation/history-us-taxes-abroad/
@Tricia Moon.
CBT is not a requirement of the US Constitution.
But CBT is permissible under the Constitution, at least in Tait v Cook.
Reversing Tait v. Cook will be difficult because of stare decsis which means precedent.
But Tait v. Cook can be re-examined and clarified.
Hence I remain of the belief that an “American Citizen abroad” remains screwed.
But a person like Gwen or Ginny in Commissioner v. Gwen could see CBT abolished because of dominant nationality and the Master Nationality Rule. But this would affect only persons with other citizenship.
I firmly believe that its Un-Constitutional to;
1. make it difficult to get rid of USC which is the current environment.
2. apply CBT to a non-citizen which is a person resident outside the USA with that other citizenship, but having said that I think its a reasonable reading of Tait v. Cook that failure to pay US Tax would result in a dual losing their USC.
@George, @Trish The idea of non-payers being relinquishers came about because of World War I (which came right after the 1913 income tax). By adopting the policy of considering anyone who didn’t pay taxes to be a relinquisher and therefore ineligible for assistance, the U.S. created powerful incentives for Americans who were long-term residents of Europe to pay up and they were the targets of the CBT policy. If they applied for a passport with the State Department, this was cross check with the Treasury Department to see if they had filed a tax form. Without WWI, CBT would have been a non-starter. I don’t think that the U.S. would go along with a non-payment of taxes equals relinquishment argument nowadays because it isn’t being overwhelmed by demands for evacuation out of England, Germany, France, etc., let alone Canada.
@JC
Frankly, the U.S. was not bothered at all that it was double-taxing people. It sort of hoped that this would drive wealthy heirs back to the U.S, since progressive taxation meant that the very wealthy were slammed by two sets of really high tax rates. Mr. Cook was collateral damage. Two years after Cook v. Tait, the U.S. exempted all foreign EARNED income from U.S. tax, a policy it followed until the early 1960s. U.S. policy reflects U.S. interests.
@George
You’re right that CBT doesn’t need to be in the constitution to be considered constitutional, it just can’t violate the principles of the constitution. The constitution is nearly impossible to amend, so in practice change occurs when the Supreme Court reinterprets the language through a case.
@Polly
CBT is always ratcheted up when the US needs money for something.
I just looked up McKenna’s Wikipedia entry and notice that it has been edited in the last few months to include a mention of McKenna having had a stroke in 1915. The source is a Huffington Post article that includes the following statement:
“Justice Joseph McKenna, severely debilitated by a stroke in 1915, served through ten years of significant cognitive impairment before Chief Justice William Howard Taft pressured him to resign in 1925.”
http://www.huffingtonpost.com/jacob-m-appel/anticipating-the-incapaci_b_266179.html
Maybe this is why Cook v. Tait is so underwhelming as a legal opinion.
@Tricia Moon
Thank you for your comment about lawyers. It speaks volumes about “How lawyers think”. In the world of constitutional litigation, the arguments are only as good as the lawyers. The ultimate decision should be shaped by arguments proposed. Hence, my interest in Mr. Cook’s lawyer(s).
You will note that Mr. Cook was represented by Charles Claiflin Allen and Charles Claiflin Allen, Jr. I suspect that this was the “father son” legal team.
It is clear that the Cook’s lawyers were very very good (have a look at information at Casetext.com).
Assuming That Is The Same Charles Claiflin Allen Who Acted For Mr. Cook:
Interesting address given by Charles Claiflin Allen, who I presume was Cook’s lawyer. This address was given in 1922. He appears to have been a very respected lawyer of his era.
His address begins with:
The complete address is here. It seems to me that his words do apply to the “citizenship-taxation” issue that he litigated for Mr. Cook.
Mr. Allen appears to have been a highly respected lawyer in his era. He appears to have played a significant role in the Missouri Bar Association. Here is how he is described by his peers:
Interestingly there is a Charles Claiflin Allen scholarship available at Princeton.
@USCitizenabroad
“Justice lImited by Law”
That exerpt just floored me. That is what I have been saying for so long. “This is a BAD LAW.”
But how can this be? How can a nation with any sense of identity which I would hold should include honour and integrity let laws abide which are unjust? Did anybody think Germany was alright when they had their antisemitic laws and created “legal” genocide? Isn’t that what the United Nations is for? To observe and make sure that nations don`t use laws which are inhumane? Let us begin with possible penalties of double or triple of what was in the account to begin with. How can that be legal? It is saying “We wont take everything you own for taxes- we will take triple of everything you own.” It just doesn’t make sense- laws like that.
@Polly
Yes, you should read Mr. Allen’s complete address. This guy was obviously a “class act”. The problem is the United States is an example of country that completely equates law with morality. See this post I did a long time ago on this issue – “When Law Becomes A Substitute For Morality”.
http://isaacbrocksociety.ca/2013/03/22/when-law-becomes-a-substitute-for-morality/
Note, that some of the greatest evil in history has been done under the guise of law. Think of how the Nazis (as one example of many) enacted law after law to further their evil intentions. There was no other way they could have done what they did. Fast forward, think of the FBAR Fundraiser. All of these things are justified on the basis that it is the law. FBAR is the law. “Form Crime” is the law.
The notion that “it’s the law is, I believe, particularly prevalent (as reflected by the penalty regime) in American culture. Some Homelanders simply say:
“This is the law”.
This outlook will NOT change until there is an assumption that laws must reflect some basis moral principles. It’s had for laws to reflect morality when you have the Federal Government and 50 separate states legislating their own brand of legislative evil every day.
So, how then can you argue against citizenship taxation? It was tried in 1924. I have a strong sense that another challenge against (at least aspects of) citizenship taxation is coming very soon. Share your thoughts on this question:
How do you argue against citizenship taxation in an environment where:
1. The primary issue is jurisdictional – i.e. can the Government enact citizenship taxation; and
2. The morality of the law is next to irrelevant.
It will be a challenge, but I am hopeful that it will succeed.
@UScitizenabroad
With those stipulations, the only thing that pops into my mind is the exact definition of “tax”. Tax are monies paid for a service the government supplies to the taxpayer.
But then we have the age old argument about all the protection we are afforded and how we are paying as an expression of loyalty.
One of the major benefits of holding a US passport is also what many justify a reason for taxing us, that is our unfettered access to the US. This concern would be alleviated by treating non-residents as non-resident aliens and subjecting us to the substantial presence test, but how realistic is that proposal when it may be viewed as an erosion of our rights to view one group of US citizen in that way?
By the same token, it seems to me (a layman) that the current view of taxation as somehow bestowing the “rights” of US citizenship is a gross perversion of our rights. To associate the right of entry so closely with the payment of taxes is in essence “taxation-based citizenship”, is it not?
I feel like this argument is like a dog chasing its tail…
@Bubblebustin
Yeah- we get the “right” to be screwed.
But the part about right to return is definitely an anachronism.
I remember reading (on other IBS threads) discussion of the distinction between rights and benefits.
Highlighting that distinction might be helpful in some of the thinking about the subject of this thread.
The gist, as I recall it, was that one does not pay for rights. Not ever. They inherently exist.
Now, a right may appear beneficial (or not) depending on one’s perspective, but that is not the essence that makes something a right. For instance, accidentals may feel that the right of US citizenship is foisted on them against their will. They are not obliged to pay taxes for the “right” of citizenship. The taxes, as McKenna is abundantly clear, are for the presumed benefit. One does pay taxes for benefits; however, benefits are allied to but outside the scope of rights.
It is the “right” of citizenship that confers the “right” of entry to the U.S. That should immediately shoot down right of entry (or, for instance, the right to vote) as a basis for justifying taxation.
If only it were so easy to get this across to Joe Homelander.
@Shovel, The preamble to the US Decleration of Independence
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”
A homelander in 2015 would say;
With the privilege of persuing happiness comes the obligation of paying your taxes.
I have actually gained much clarity on this matter.
Birth on US soil conveys the right to US Citizenship.
While the USG does not have the right to forcibly destruct ones USC, an individyal has the right to destroy said citizenship with no interference.
I think the way to convey this to a homelander is that paying taxes is not a requirement to keep the RIGHT to vote in an election.
To the extent that there are ANY obligations with the retention of the right of USC then there absolutely must be a mechanism to quickly and easily dispose of said USC.
My children are accidental Americans.
It was not their choice to be born on US soil or to be born to a US parent.
Now because they have been so blessed with this gift which one wants to get rid of yesterday…..will eventually incur a cost of thousands of dollars to get rid of same.
To be blunt, consumer protection on getting rid of a US Timeshare unit is better than consumer protection on US Citizenship.
I like to tell the homelanders that I don’t object being obligated to the US tax system, only one of course based on residency vs citizenship.
McKenna: “The contention was rejected that a citizen’s property without the limits of the United States derives no benefit from the United States.”
Now there is a bizarre topic sentence for a culminating paragraph that lays out the rationale for a judgement. McKenna fails to discern that he is saying the presumed benefits flowing to property outside the U.S. are unaffected by citizenship of the owner. Let’s unpack the topic sentence with “citizen” removed, because to remove it makes much clearer what McKenna is saying: “The contention was rejected that property without the limits of the United States derives no benefit from the United States.” McKenna is really saying that all property in the world is presumed to have extra value because of the mere existence of the U.S. So in fact, the presumed world-wide benefit flows to citizen and non-citizen alike. This central to McKenna’s muddle. Boris Johnson’s house had extra value not because he was a citizen; it had extra value by the mere existence of the U.S. Any non-U.S. citizen who owned that same house would derive that same presumed benefit. McKenna’s presumed benefit, therefore, is not a benefit of citizenship.
So at core, McKenna has a non-justification: “You must pay for a presumed benefit all the world derives [the world benefits from the existence of the U.S.] just because you are a citizen.”
This is *such* a great discussion! When I re-read the Cook vs. Tait decision in preparation for making my own comment I ended up with a question instead. Can anyone answer me this?: what is the distinction between “national power” and “power of a state”?
The decision says this: “We may make further exposition of the national power as the case depends upon it. It was illustrated at once in United States vs. Bennett by a contrast with the power of a state. It was pointed out that there were limitations upon the latter that were not on the national power. The taxing power of a state, it was decided, encountered at its borders the taxing power of other states and was limited by them. There was no such limitation, it was pointed out, upon the national power, and that the limitation upon the states affords, it was said, no ground for constructing a barrier around the United States ‘shutting that government off from the exertion of powers which inherently belong to it by virtue of its sovereignty.'”
Does “state” in this instance refer to a state within the U.S. (i.e. Massachusetts or Idaho) rather than countries (such as France, Sweden or the United States) which can also be referred to as “states”? If so, is this judgment saying that Massachusetts is limited to taxation within its borders whereas there is no such limitation upon the United States as a nation “by virtue of its sovereignty”? If this is what the judgment says, then the judgment also implies that state boundaries within the U.S. are stronger and more impervious to interference from other states than the borders of nations are to interference from other countries! According to this judgment, the national boundaries surrounding nations are little better than sieves when it comes to other nations being able to exert the “powers which inherently belong to it”.
I hope that someone will tell me that I am completely wrong!
@Muzzlednomore
Alas, I think that your interpretation is correct. That is why California cannot continue to tax someone who has moved to Nevada, but the U.S. can continue to tax someone who has moved to Canada. Yes, states refers to the individual states. In recent decades, the Supreme Court has started looking more at international precedents, but it is controversial. The Supreme Court tends to deal with things very much from a U.S.-centred perspective
@Shovel
I suspect that they were thinking about citizens benefiting from the marines defending individual’s property, not the U.S. defense shield generally.
@George
There is a huge problem here in that the legal definition of citizen the U.S. is using is far too broad and far different from the notion of citizenship that underpins ideas of political obligation.
@Publius
Great image of helicopters violating British sovereign airspace to protect BJ’s house in London.
Maybe you’re right.
@Muzzled
You (and Publius’ comment to you) are completely right.
https://supreme.justia.com/cases/federal/us/232/299/
I wish to amend my comment on trying to use US Exceptionalism to our advantage http://isaacbrocksociety.ca/2015/05/22/cook-v-tait-26-help-what-does-this-1924-ussupremecourt-decision-really-say/comment-page-1/#comment-6125009 :: replacing England with Canada :: by pressing the example of is it right if England now says that they require tax from its subjects living in the US (Maybe offer example of UK rate over US rate). And press this example hard, with expected homelander reaction of no it is not right, or we fought a war over that. Then to twist the question for a US person living in another country, is it right for the US to tax them.
& end up with US condemnation of Eritrean CBT.
@JC, Let me cut and paste hoping to improve what you wrote…….
I wish to amend my comment on trying to use US Exceptionalism to our advantage http://isaacbrocksociety.ca/2015/05/22/cook-v-tait-26-help-what-does-this-1924-ussupremecourt-decision-really-say/comment-page-1/#comment-6125009 :: replacing England with Canada :: by pressing the example of is it right if England now says that they require tax from its British subjects (dual UK/US Nationals) living in the US (Maybe offer example of UK rate over US rate). And press this example hard, with expected homelander reaction of no it is not right, or we fought a war over that. Then to twist the question for a US/UK Citizen living in England, is it right for the US to tax them.
& end up with US condemnation of Eritrean CBT.
@George Like it
@Shovel,
From your link: https://supreme.justia.com/cases/federal/us/232/299/
I found the first half of this sentence puzzling — in what way does, say, my car benefit from the government of the US “by its very nature”? The US is not filling potholes in the roads I drive on, nor it is providing free oil changes or anything like that…
Then it occurred to me: in 1914, extraterritoriality was still a widespread arrangement. In many countries, depending on treaties, one could in fact be legally exempt from local law, and held accountable instead to home-country law. In theory, one’s citizenship could in fact provide some kind of protective legal umbrella — if one came from one of the stronger countries that managed to impose such treaties.
Could the fact that extraterritorial agreements were still common back then have influenced the notion that one was receiving benefit from citizenship in a far off nation “by its very nature”?
The U.S. Government is NOT offering me the protection of my property. On the contrary. The U.S. Government is attempting to steal my property
@Foo and all
Thank you so much for your incredibly insightful comments. There is more insight on this blog there is in the legal profession. I must confess that I had never thought of the above point raised by @Foo that:
This is fascinating. You are right, the U.S. is NOT filling potholes in Canada. It is NOT protecting or benefiting my property. On the contrary. As a matter of “factA” the U.S. is actually attempting to steal my property through various kinds of taxation (including especially PFIC rules). In a more general sense, the U.S. government is using “citizenhip taxation” to steal from the Treasuries of other nations.
Frankly, I could not imagine that the U.S. Government will even attempt to justify citizenship taxation based on Cook v. Tait. In fact, the Cook v. Tait rationale would argue against citizenship taxation.
This means that the U.S. Government will defend citizenship taxation on the basis that:
We can do what we want.
Does anybody else have any insight on the question of whether, in 1924, the U.S. Government could protect property in other countries?
Regarding “We can do what we want” as a basis for citizenship-based taxation — Isn’t that what the statement in the justice’s opinion in United States v. Bennett is essentially saying by his “no imaginary barrier” wording?
“The government of the United States as a nation, by its very nature, benefits the citizen and his property wherever found, and no imaginary barrier shuts that government off from exerting the powers which inherently belong to it by virtue of its sovereignty.”
I would have thought that an international boundary and the sovereignty of another nation would constitute something more than “an imaginary [and apparently ineffective] barrier”. Unless this statement in the opinion is simply one-sided, originating from somewhere in the U.S. Constitution, and without regard for constitutions and laws of other nations?
Perhaps as @foo suggests there was a different context regarding extraterritorial law back in 1914 and 1924. So I started googling this topic — makes my head spin. I found this essay attempting to put thoughts together, maybe a place to start, “What Is Extraterritorial Law” http://cornelllawreview.org/files/2014/09/Colangelo99CLR1303.pdf