Cross posted from the Renounce U.S. Citizenship blog.
Assistance required. Many people defend (not justify) citizenship taxation on the basis that:
- All U.S. citizens are subject to the same provisions of the Internal Revenue Code
- Americans abroad are U.S. citizens
Therefore, Americans abroad should be subject to the same provisions of the Internal Revenue Code as Homelanders.
Or in Homelanderspeak:
All U.S. citizens are subject to exactly the same set of tax laws. What could be unjust about that? We are ALL citizens. Therefore, we should ALL be subject to the same set of laws.
Could you please address your mind to the following question:
What is the best response to this argument? How can one best explain that it is wrong to justify citizenship taxation on the basis that ALL citizens are subject to it in the same ways?
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"not sure why u believe the tax law ur asked 2 adhere 2 is unequal. It = tax system that all other citizen r held 2" https://t.co/e7HSt5hgCZ
— U.S. Citizen Abroad (@USCitizenAbroad) November 8, 2015
The above tweet references the following recent comment on a Robert Wood’s blog.
I’m not sure why you believe the tax law you’re being asked to adhere to is unequal. It’s the same tax system that all other citizens are held to, except you get income exemptions due to not being resident. I agree that relinquishing should not be a financial burden. However, if the burden of complying is less than the one time $3000 cost of relinquishing, then how much of a burden is it?
This is very similar to the rationale used by Judge Rose in denying the injunction in the Republicans Overseas FATCA lawsuit.
You will find Judge Rose’s decision here. Commentary on the ADCSovereignty blog included:
You may recall the wisdom from 17th Century France (I wasn’t there) …
“The law in its majesty equality prohibits both the rich and the poor from sleeping on the park bench.”
Which Judge Rose carried forward into 21st Century America (I am here) …
FATCA in its majestic equality requires both Homelanders and Americans abroad to report their “foreign” bank accounts.
In the same way that the practical impact of the “park bench” law is to apply only to the poor, the FATCA reporting requirements apply only to Americans abroad.
In other words, Judge Rose is NOT looking to the effect of the law to consider a denial of equal protection.
Your thoughts would be greatly appreciated.
“The law in its majesty equality prohibits both the rich and the poor from sleeping on the park bench.”
Well if I live in Canada and the park bench is in Blaine, WA, I sure as hell can’t make use of said park bench; can I?
The Cook decision cannot stand up in 2015 period. Not only are there NO benefits of US citizenship to those living abroad, it is an unbearable burden.
How to answer the question regarding all citizens subject to the same laws; All citizens within one nation should be subject to the same laws. Citizens not living within the same nation do not have the same common denominators and are thus outliers requiring separate consideration.
If you live in the UK, the British tax code is about 17,000 pages, the American one is about 70,000 pages, how is it fair that one British citizen has to comply with 17,000 while another one has to comply with 87,000 with both residents of the UK?
The stacks of paper speak for themselves.
Question: “All U.S. citizens are subject to exactly the same set of tax laws. What could be unjust about that? We are ALL citizens. Therefore, we should ALL be subject to the same set of laws.”
Answer: Americans living abroad do not have access to and therefore can not use US public goods or services.
They don’t use US roads, highways, bridges, hospitals, schools, fire, police, courts, libraries, national parks, Medicare, Medicaid, welfare, food stamps etc.
Any US embassy services used by Americans living abroad are paid for on the spot at exceptionally high rates. And contrary to popular belief, the USG will not intervene if an American abroad is arrested. Moreover, if the US provides any assistance for evacuating Americans abroad in the event of a natural disaster, civil war etc, the evacuated person(s) is required to pay the full cost of the evacuation, and usually up front.
So if income taxation is indeed the price of civilization, then the real question should be, “what commensurate benefits of US civilization do Americans abroad receive in return for the income taxes they are expected to pay?”
If all tax laws should be equal, should all US citizens pay the same amount? Like $20,000 for everyone? Or, like 25% with everyone. Or, with no deductions for anything. Everyone should be penalized if they don’t buy Obamacare.
Most benefits underpinned by taxes not equal, or non existent for US persons living overseas.
Concept of impact. US persons living overseas impacted in a more discriminatory and unequal way.
Tax code for Homelanders same as for US persons living overseas yet substantial taxes and penalties for overseas income and assets are hinged on the assumption that all US persons live in the US when this is not true. Yes the same for both Homelanders and US persons overseas and when a Homelander moves oveseas they will get taxed the same. Yet in any given tax year it is not equal as one is either taxed as a US resident or nonUS resident.
@USCitizenAbroad We need a good comeback for this.
Discrimination under equal protection clause because Americans in the states only have to file 1099 forms and overseas Americans have to file FATCA and FBAR, etc. Fines not equal, etc.
How can one best explain that it is wrong to justify citizenship taxation on the basis that ALL citizens are subject to it in the same ways?
Because ALL citizens are NOT subject to it in the same ways, for the very simple, obvious fact that they DON’T LIVE IN THE USA. In other words, the EFFECTS of the same law differ for citizens living outside USA versus citizens living inside USA. Citizens living outside USA suffer from US tax laws in ways that citizens living inside the USA do not.
You ask: “Could you please address your mind to the following question:
“What is the best response to this argument? How can one best explain that it is wrong to justify citizenship taxation on the basis that ALL citizens are subject to it in the same ways?”
Really the only useful response is to refer to standard Private International Law (conflict of laws) and Public International Law principles.
The problem is that the USA frankly does not consider that these principles bind it as a sovereign, and it has intimidated (some would say extorted) complaisance or capitulation by its tax treaty partners and other countries. Recall that the USG walked out of the World Court when it became obvious it would lose the Nicaragua case. With no embarrassment it returned to the court to pursue a case against Iran over its kidnapped diplomats.
The fact remains that I have yet to find any effort by the USG (since the Harden case) to pursue abroad any US Person who does not have assets, income or heirs in the USA — outside of existing reciprocal collection provisions. I have no doubt there are abroad many tax debtors, as well as millions of noncompliant persons (some of whom may have an argument that they are not US Citizens or US Persons at all).
Inasmuch as Treasury and State are seeking to negotiate and ratify new reciprocal collection provisions, I suspect that a particularly interesting point will need to be resolved: whether an EU/EEA/Swiss person exercising right of establishment in another Member State can be assimilated to a national of the requested country (i.e. the country asked by the IRS to collect a tax debt) in a situation where a national (as in the case of Canada where the (non-)taxpayer possessed Canadian nationality when the tax debt accrued) could not be pursued.
Unfortunately the European Commission has a reluctance to involve itself in direct-taxation issues, and few cases have been before the Court of Justice of the EU. There have been some behind-the-scenes demarches however, including, in 1996, the Ramadanoglou case (relating to loss of Greek nationality http://uniset.ca/naty/ramadanoglou_12-6-1996.html ) Art. 19 of the Greek Nationality Law has since been abrogated. Like taxation, nationality is, at least in principle within the sole purview of the granting state. In real life that’s not quite true: a century ago Argentina legislated for the automatic grant of its nationality to certain legal residents; and for some years Israel attributed its nationality to children born in its country to diplomats who happened to be Jewish. Both provisions were withdrawn after protest.
International-law scholars are beginning to look at FATCA as an issue of relevance to them and I expect to see law review articles published soon. These may help your analysis.
As for your qualifier “wrong”: justice has little significance in tax matters, except insofar as it is absorbed into politics. Taxes exist to respond to political exigencies and to raise money. The economic role assigned to them is mostly in textbooks.
Ah, Charl, like common-sense Residence-Based (Taxation) as the rest of the world!
Taxing people who receive no benefit has never succeeded in history and there’s a boat in Boston Harbour to prove that fact.
The US Government needs to wake up.
“1.All U.S. citizens are subject to the same provisions of the Internal Revenue Code”
False. Residents of Puerto Rico, Guam, etc., are US citizens but don’t have to obey the Internal Revenue Code unless they have income from the US government. Only if they move to Mexico, China, etc., then they have to start filing US tax returns.
Meanwhile there are the famous treaty gaps, such as residents of Canada paying Canadian tax on the part of their income that is spent in paying interest on mortgages and then paying US capital gains tax when selling the house so they can’t benefit from either break, etc.
And why did the US sponsor a UN resolution against Eritrea for Eritrea’s copy of US policy? Maybe did the US have a reason for calling US policy a human rights violation?
“We are ALL citizens. Therefore, we should ALL be subject to the same set of laws.”
Remember why the US entered the War of 1812 on Napoleon’s side? The UK was enforcing UK citizenship on descendants of UK citizens who were born overseas, and the US didn’t like it. But homelanders like the idea now? OK great, let homelanders pay double tax, to the US and to the UK.
“However, if the burden of complying is less than the one time $3000 cost of relinquishing, then how much of a burden is it?”
What happens when the burden of complying is bigger than the $3000 cost of relinquishing, like when IRS employees including Monica Hernandez steal our withholding, followed by the IRS penalizing us for telling the truth on tax returns, followed by courts ruling that telling the truth on US tax returns really is punishable by collecting penalties and keeping the stolen withholding? Why did the IRS report to Congress, in its National Taxpayer Advocate report at the end of 2011, that IRS policies force thousands of honest taxpayers to renounce US citizenship?
Judge Rose lied too, saying that people are expected by tax law to be witnesses against themselves by revealing SOURCES of income, where the US Supreme Court had ruled at least twice (US v. Sullivan and Garner v. US) that tax law requires people to reveal AMOUNTS but retain Fifth Amendment protection on the SOURCES?
But it’s still a losing battle. Congresscritters understand what they’re doing but don’t give a shit. Average homelanders don’t understand and never will.
“And contrary to popular belief, the USG will not intervene if an American abroad is arrested.”
They will if the rapist or burglar is a US soldier.
Trouble , we’re all straining for a cutting, sound bite response, and there isn’t one. That has been the whole problem all along. Here’s why I tell people:
1) Citizenship is not a prerequisite for income tax. Any non-citizen earning income while present in the USA is subject to income tax.
2) Therefore it is a fallacy to state that income tax is necessarily an appendage of citizenship. The national maximum speed limit in the USA is 65mph (I think; haven’t driven there in decades). However, a US citizen driving on the German Autobahn is not obligated by US law to adhere to the US speed limit.
3) If, as the argument states, that US citizenship makes us all equal under the law, in terms of our obligations, then all US laws must apply to all US citizens in all places, no matter where they live. Therefore US citizens in Germany must adhere to the 65mph speed limit, and face prosecution by the United States government if they fail to obey.
4) It is therefore a logical and moral fallacy to state that only US tax law and no other laws must apply to citizens outside US borders.
5) The fact that it is the law does not make it right. Just as with Prohibition, laws against miscegenation, women’s disenfranchisement, etc.
…and by that time the Homelander has found an adorable cat video to watch instead of reading through my answer.
@Barbara – Great points, even about the cat video.
This is not just about CBT. I believe I heard it in relation to the Bopp lawsuit.
There are endless rhetorical arguments one can use against CBT. Trouble is, even when the argument is worth considering, people think you’re joking. I like my German speed limit analogy best, but here’s one I tried once:
1) The 16th Amendment to the Constitution, imposing an income tax, applies to all US citizens throughout the world.
2) The government may not pick and choose which laws to enforce, just as citizens may not pick and choose which laws to obey.
3) Therefore, all provisions and amendments to the Constitution apply to all US citizens.
4) Hence, it is my Constitutional right as an American in Japan or Singapore to own a gun. I demand that the US government enforce that right on my behalf in Japan and Singapore.
5) What’s more, the 21st Amendment repealed the ban on sales, transport and possession of alcoholic beverages. Therefore, as a US citizen in Saudi Arabia, my right to drink in public is protected.
“But wait,” said my one Homelander friend with a working brain cell: “You’re talking about US laws overriding local country laws, which is of course nonsense.”
“No, you wait,” I say. “In the country I live, the law is territorial-based taxation. Thus, US CBT is overriding local laws.”
Homelander friend final response: Yeah yeah yeah… Hey, check out this hysterical cat video!
Ya cain’t win!
If a woman drives a car containing any Saudi oil product anywhere in the world, she should be lashed and jailed.
Recently, the Supreme Court determined that the Constitution does not apply to citizens who are not in the USA.
How could taxation be the same for persons who are protected by the Constitution as those that are not
@Barbara That is why it needs to be taken to the courts.
How about make it financial. Us laws allow 401k and IRA, yet Australia does not recognise these, USA should make it legal in Australia for me to have a 401K on earnings in Australia.
It is not fair to tax us citizens abroad as they get NO services from USA in return.
We pay taxes in exchange for services, not for fairness or because we are american, that’s ridiculous assumptions.
We file and pay our taxes to the country where we live because that is where we get services from.
Resident based taxation is fair taxation.
Citizenship taxation is outright robery, and USA is the only country doing it !
Ask foreigners living in the united states if they have to file and pay taxes back to their country, they don’t.
Resident based taxation is honest taxation. Something that USA is totally incapable of doing making it a non civilized country.
The US tax system may be equal in its “inclusiveness” but it is decidedly unequal in its application. It disregards physical location in its inclusiveness but takes physical presence into account when it comes to the application of the tax system. The IRA isn’t available to most US citizens abroad because, I believe, it requires US earned income for which you need to be physically present in the US or have a freelance arrangement with a US company. The Bush era tax cuts were only available to those physically present in the US. See also charitable contributions. Unless you live in the handful of countries where the pension system is recognised you face blatant double taxation of retirement assets (US tax on the way in and on the income and capital gains and local tax on the way out).
It is inherently unfair to subject one person to two tax systems because you end up getting the worst common denominator. The Individual Savings Account (ISA) in the UK is a fabulous tool for retirement savings but it won’t do a US citizen any good because the US doesn’t recognise it. So, the country you don’t live in both 1) prevents you from accessing a retirement tool (IRA) available to every US citizen resident in the US and 2) effectively prevents you from accessing a retirement tool (ISA) available to every non-US citizen resident in the UK.
“Ce qui est simple est toujours faux. Ce qui ne l’est pas est inutilisable.” – Paul Valéry
“What is simple is false. What is not is unusable”.
In practice, however, we strive to achieve a measure of both truth and usability.
The premise that all US citizens are equally subject to the same taxation does not stand up to life in practice because things are not so simple. As mentioned above, taxation is a fundamentally local/national, thing. Just as many non-citizens pay taxes (income, sales…) on activity in the US, many US citizens pay taxes abroad (income, sales/VAT) on activity happening elsewhere.
Therefore taxation is NOT linked to citizenship because this is neither practical nor fair.
Only a dominant nation such as the US could, in practice, attempt to bully citizenship-based taxation onto the world. Of course it would, itself, rightfully, resist attempts by other countries to reach into the US to tax people there.
One problem in the media is that much attention is brought to US corporations not paying taxes in the US, either by expatriating, or by not bringing their money home. But why should they pay taxes in the US on money earned and taxed abroad? More logical is the EU’s struggle with local tax havens. It is indeed more logical for Amazon’s French income (profits) to be taxed in France rather than at 1% in Luxemburg. All this negative press on activities “abroad” does not help proponents of RBT.
Easy. Laws are not bound to citizenship, but to territory. That’s why foreigners living I the U.S. must obey U.S. law, and people not in the U.S. don’t have to obey U.S. law. Would you expect an American to drive in Germany at the American speed limit, or build his French holiday home following American building code? Of course not. The only exception to this rule is American tax law, and it needs to be changed.
@Norman wrote:
“‘1.All U.S. citizens are subject to the same provisions of the Internal Revenue Code’
“False. Residents of Puerto Rico, Guam, etc., are US citizens but don’t have to obey the Internal Revenue Code unless they have income from the US government. Only if they move to Mexico, China, etc., then they have to start filing US tax returns.”
It’s more complicated than that, on two accounts:
1) Persons born or naturalized in a US territory are statutory, not 14th Amendment, citizens. There is Supreme Court dictum that if, there is a transfer of territory (e.g., if Puerto Rico gains independence) US citizens by reason of that connection with PR can lose their US citizenship. As with the Treaty of Paris under which they got it in the first place, and the Treaty to Resolve Pending Boundary Differences and Maintain the Rio Grande and Colorado River as the International Boundary, 23 Nov. 1970, it is likely that their will be a citizenship option for such persons. A discussion of treaties ceding U.S. territory appears in the dissenting opinion of MacKinnon, J. in Edwards v. Carter, 580 F.2d 1055; 189 U.S. App. D.C. 1 (1978).
2) Native-residents of US territories pay a “mirror tax” instead of US income tax but only on their local income; other US income is taxable by the IRS. The principle of independent local taxation is being tested by PR’s insolvency. The estates of PR “citizens” are not subject to federal estate taxation either.
Be consistent. Tax is just a Law. Based on the US concept of Tax, folks around the world should be subject to the Laws of the country of their original Citizenship ? Thus if they are from another country, say Russia, then even though they live in Los Angeles now, their tax responsibility is to Russia and not to LA where they have a moral obligation to assist in their local community facilities.
Be Consistent. If the American was originally from Saudi and now lives in LA. The Saudi / American robs the neighborhood store. Should the Saudi / American be subject to Saudi law and have his hand amputated or should he be subject to American law and merely get his wrist slapped. OR should he first be punished by the American law (by getting his wrist slapped) and then also be punished by Saudi Law (by getting the hand amputated) … unless of course there is some sort of Punishment Treaty under which he will get to offset the LA punishment against the Saudi punishment and thus get to suffer the higher punishment of the two …. thus still getting the hand amputated.
Hypocrisy rules with Unjust Law.
@Mark wrote: “Recently, the Supreme Court determined that the Constitution does not apply to citizens who are not in the USA.”
That’s not quite true. See the Insular Cases, but also Reid v. Covert (5th & 6th Amendments apply to US citizens abroad). Compare Yaser Esam Hamdi and Webster Bivens, and the case you probably are referring to, Amir Meshal — which was a decision by a divided appeals court, not the Supreme Court.
Alvarez-Machain (a non-US citizen kidnapped abroad) had no rights, but in the end he was acquitted and recovered damages. Tomoya Kawakita was arrested in San Diego for treason committed in Japan; the interesting point is that like Hamdi he was allowed to leave the US (in his case pardoned after imposition of the death penalty) on condition of renouncing (within the USA?) his American citizenship.
As for consular “protection”, for practical reasons US consular officers try to provide some assistance even to dual nationals arrested in their other country of citizenship. For reasons of morale their prison visits may be encouraged by the host government: this is certainly the case in the UK. Often “protection” doesn’t mean more than this anyway; contrary cases tend to be in countries (like Iran or Egypt) where the arrest was likely to have a political and diplomatic basis in the first place.
The Meshal judgment seems to concede that Constitutional rights are conditional, at least abroad, especially in the context of “national security policy”. I would hazard a guess that one could add to that “fiscal policy”.