cross posted from Quora
NB: This title comes from the question asked
at Quora and represents that individual’s
mindframe
by John Richardson
Lawyer (1982-present)
President Kennedy at the “Berlin Wall”
How would these thoughts on mobility restrictions be viewed in the world of "Exit Taxes" – "JFK speech on wall, democracy and immigration" https://t.co/LpQ83wM6NM via @YouTube
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) April 9, 2018
On June 26, 1963 President Kennedy gave his historic “Ich bin ein Berliner” speech. After World War II, the administration of the City of Berlin was divided among the allied powers (Soviet Union, USA, Britain and France). In 1961, the Soviets created a wall in order to prevent their people from leaving the Soviet Sector. (The City of Berlin was actually inside East Germany). Among other things, President Kennedy’s speech included the line: “We have never had to put a wall up to keep our people in – to prevent them from leaving us.”
Congressman Ron Paul speaks about “walls”
As Ron Paul once said: “The wall could be used to keep people in!”
Ron Paul 2011: In times of economic turmoil when people want to leave with their capital there is "capital control" and "people control" – the way could be used to keep Americans in https://t.co/yol3HiWEZC
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) April 12, 2018
Does the United States have any prohibitions on leaving the United States?
As a matter of fact yes.
In order for a U.S. citizen to legally leave the United States, the citizen must have been issued a U.S. passport. This is a legal requirement. U.S. citizens are NOT permitted to leave the United States on a non-U.S. passport. There is an interesting history to the United States using refusals to issue passports, as way to keep people inside the United States. See for example this discussion from “Today In Civil Liberties History”:
“Some of the more famous passport denial cases involved the famed African-American singer and left-wing political activist Paul Robeson, whose passport was cancelled on August 4, 1950; the noted artist Rockwell Kent, who was denied a passport extension on August 7, 1950; and the distinguished scientist Linus Pauling, who was denied a passport on May 11, 1952.”
The United States does have a history of attempting to prevent U.S. citizens from leaving the United States. But, the United States (unlike those who tried to climb the Berlin Wall) has not (to the best of my knowledge) shot for attempting to leave.
See also:
U.S. Passport as Instrument of Control
An excellent “scholarly” review of the Passport requirement is here:
The history of the requirement that U.S. citizens only use U.S. passports to enter the U.S.
Is there an analogy between the building of the Berlin Wall and the “Exit Taxes” imposed under Sec. 877A of the Internal Revenue Code today?
First, what are these “Exit Taxes” anyway?
“Exit Taxes” are taxes that are imposed on people who sever “tax residency” with a country. For a comparison of Canada’s Exit/Departure tax and the U.S. Exit Taxes see:
The U.S. “Exit Tax” is particularly draconian. It has no equivalent anywhere in the world. In part this is because the U.S. imposes “Exit Taxes” on renouncing citizenship (in addition to the $2350 administrative fee). Other countries impose Exit/Departure taxes when one physically moves from the country. (This illuminates one of the differences between U.S. “citizenship-based taxation” and “residence-based taxation” as applied by other countries. On this point see:
http://www.citizenshipsolutions….
U.S. citizens who live in the United States are fed a steady diet of “The United States is the “Land of the Free”. Although absolute freedom is NOT possible (JFK said “Freedom has many difficulties”), even in a comparative sense, Americans have fewer freedoms than the citizens of many other countries. I have provided a Quora answer to this question before.
John Richardson’s answer to Which country’s citizens enjoy more freedoms than Americans?
How do the Internal Revenue Code S. 877A Exit Taxes Work?
Renouncing US citizenship? How the S. 877A “Exit Tax” may apply to your Canadian assets – 25 Parts
U.S. “Exit Taxes” are imposed by Internal Revenue Code Sec. 877A. They are imposed by the Internal Revenue Code on certain people “covered expatriates” who relinquish U.S. citizenship. A “covered expatriate” is a person who relinquishes U.S. citizenship and triggers one or more of these three events: (1) has certain levels of income (determined by the U.S. tax payable), (2) a net worth of 2 million USD or more or (3) who cannot certify U.S. tax compliance for the five years prior to his/her relinquishment.
Part 4 – “You are a “covered expatriate” – How the “Exit Tax” is actually calculated”
For examples that demonstrate how incredibly punitive the U.S. “Exit Taxes” are (and specifically how they operate to confiscate non-U.S. pension plans) see:
The Section 877A Exit Tax impacts primarily Americans who already live outside the United States and are “tax residents” of other countries
The U.S. “Exit Tax” is triggered by relinquishing U.S. citizenship.
Most people relinquish U.S. citizenship when they already live outside the United States.
Therefore, I would say that:
The Berlin Wall was to prevent people for leaving Easy Germany!
The U.S. Exit Taxes are designed to punish those who have ALREADY left.
Furthermore, the Berlin Wall was to prevent EVERYBODY from leaving. The U.S. “Exit Taxes” are to punish only SOME (“covered expatriates”) who leave the United States.
Therefore, although both the Wall and the Exit Taxes are/were bad things, the are not the same.
A more relevant comparison “might” be between the German “reichsfluchtssteur” and the U.S. Exit Taxes. Both of these taxes are (at their core) ways to prevent capital from leaving the country. It is described in the above Wikipedia link as:
“The Reich Flight Tax ( German: Reichsfluchtsteuer) was a capital control law implemented in order to stem capital flight from the Weimar Republic. The law was created through decree on 8 December 1931 by Reich President Paul von Hindenburg. The Reich Flight Tax was assessed upon departure from the individual’s German domicile, provided that the individual had assets exceeding 200,000 RM or had a yearly income over 20,000 RM. The tax rate was set at 25 percent. In 1931, the Reichsmark was fixed at an exchange rate of 4.2 RM per USD; 200,000 RM was equivalent to $47,600 USD (equivalent to $766,000 in 2017).”
Although not triggered by tax non-compliance, note that (like the U.S. Exit Tax) it was triggered by both income and asset levels. The “Reichsfluchsteuer” was apparently a 25% tax. The “U.S. Exit Tax” (when applied to pensions) could very easily exceed 25%. Furthermore, the “U.S. Exit Tax” is largely a tax on non-U.S. pensions and other U.S. assets (making it the only known Exit Tax that effectively imposes confiscatory “taxation” on foreign pensions” and other foreign assets).
That said, (in fairness) it is possible to physically move from (or otherwise leave – provided you have a U.S. passport) the United States and NOT be subjected to the U.S. “Exit Tax” (it applies on relinquishment of citizenship). Therefore, the U.S. Exit Tax although harsher when applied, applies to fewer people AND is NOT a physical barrier to leaving the United States (although it is a clear barrier to creating a life in another country).
Possible conclusion:
How is the IRS levying taxes to renounce US citizenship different from the Berlin Wall?
U.S. Exit Taxes are more like the German Reichsfluchtsteuer than like the Berlin Wall (but financially more punitive than the Reichsfluchtsteur).
The Berlin Wall was designed to punish people who tried to leave East Berlin.
The U.S. “Exit Taxes” are used to punish those who have already left the United States.
Both, are designed to punish those who attempt to sever relationships (physical or political) with their respective “Homelands”.
But, considering the future …
It is interesting that the United States is now considering building it’s own wall. Those who don’t learn the lessons of history are doomed to repeat history.
“And so my fellow Americans, ask not what your country can do for you, ask what you can do for your country”
OK, since it was my country at that time, I’ll ask.
Q. Can I make my country obey its own law?
A. No I can’t.
Patricia Moon – “In spite of the recent possibilities of changing the mindset of Congresscritters, the video reinforced for me, why I have no real faith or expectation that a real legislative solution will occur.”
I don’t get the impression that mindsets have been changed in Washington. The current government and their funders have different plans, which require changes to the tax system. I think if the balance of power remains the same after the mid-term elections, there could be further legislation in the same direction – which might as a side-effect make things better for some USCs living Elsewhere, and worse for others.
There seems to be an instability, following the tax bill. Too much uncertainty, and much back-channel politicking between the factions. Something’s surely going to change, following Mulvaney’s coup over the Treasury. But what? is the question.
It would be so easy for them to change the regulations…
@Patricia Moon
What did I think of Samuels’ remark that taxation of non-residents has been that way since the beginning? First, I thought he was just ill-informed, and then I was disappointed Kies didn’t set him straight about how CBT came to be. The lack of understanding is so frustrating. (I swear, if I heard any of those committee folks mention paying one’s “fair share” one more time, I was going to scream!) I forgot who it was, but one guy gives the example of how valuable US citizenship is by discussing how he went abroad for two years after college and met other Americans out in the world – and all of them absolutely cherished their US citizenship. Well, sure, if that’s home and you plan on returning there to live, then, of course, you think your little blue booklet is wonderful. However, comparing Americans on a gap year or short-term working stint abroad with those who have left the US permanently is wrong because the circumstances are so distinctly different. Then, the example of the Greek dual citizen, born and raised in Greece, never having set foot in the US and earning all his income in Greece, justifiably needing to pay US tax out of fairness to middle class, tax-paying homelanders – excuse me, what?! No other country in the world could justify that, why is America the oddball?! As for the Marines coming to bail me out one day – no, thanks, I couldn’t afford the bill they’d stick me with.
I disagree with the suggestion of voluntarily paying a flat fee (or any fee) to maintain the right of return. If you were born on US soil, you automatically become a USC; if you are born abroad and one of your parents spent enough time on US soil, then US citizenship may be conferred upon you. Kids born abroad for whom the American parent got a consular report of birth and passport were never consented about the decision and are stuck with an unwanted citizenship until they are old enough to renounce. Should those kids pay to maintain something they had no say in? IBS is well-aware: the dilemma of obtaining USC status is a whole other murky mess open to interpretation.
It seems to me US lawmakers refuse to see past their own noses because none of them ever questions why America insists on doing things differently. Why CBT when the rest of the world has RBT? Why push FATCA when there’s CRS? Why be contrary, to what end? They never see it in the context of their own exceptionalism being the source of a majority of their problems.
Petlover:
“Why push FATCA when there’s CRS?”
That one I think does have an answer. Until there was FATCA, there was no CRS. FATCA/IGA had the unintended consequence (unintended by the Americans) of enabling CRS.
The US can’t bring CRS into force, in its present form, because the US tax haven states don’t want to require their FIs to report on their non-resident accountholders; that would slow the influx of money. But the US could amend FATCA, through legislative changes or regulatory changes.
Although the US exceptionalist attitude is highly objectionable, there are ways in which the US really is different from other countries: the dollar, and the size of the economy. Dual USCs have access to the US economy, and also to the economy of their residence country. A complex situation, complicated further by the ongoing US commodification of citizenship/residence (both getting it and losing it).
Wish I’d realised some of these things long ago, instead of getting bonked on the head with FATCA in the lobby of a bank.
@petlover
What I find difficult to understand is that surely some members of congress have a relative who has gone to live abroad permanently.
I know quite a few college kids, sons, daughters, grandchildren of homeland Americans who have studied or worked abroad and for love or jobs have decided to stay overseas
Do they not have reports from these relatives as to the problems encountered?
Congress can’t be totally ignorant by now, it seems it must be a sheep mentality.
Heidi: it is indeed amazing.
I think that USness is so engrained that most people, once abroad, continue to function as homelanders abroad. Even people who reside long-term. It only slowly dawns upon people, and then only a few end up outraged or bothered enough to renounce or spend time here (ha ha).
This to say that unfortunately it’s normal that true homelanders, including Congress, have a really tough time realizing what the problem is (although it should be easy to comprehend).
And those making the right noises are sometimes unsavory: how the heck did I find myself on board with Grover Norquist or the Freedom Caucus? Makes life weird. (as if Trump’s Reality TV show “The White House,” season 1, wasn’t strange enough).
@plaxy
I understand that CRS only came about as a result of FATCA. America can always take credit for being the first in that respect, but why should it refuse to sign on to CRS in a show of global cooperation? To me it looks like just plain stubbornness and further displays America’s disinterest in being a global teamplayer. This fact alone should signal other nations to question the US’s motivations in any treaties or agreements. I hope France succeeds in its endeavor to find a solution for its accidentals population because other countries will most likely follow suit.
At what cost to the rest of the world has the US become a economic superpower? Did it spring out of imperialism and the race to scoop up all the natural resources it could? How many wars, excuse me, “extended military engagements”, have been justified by elite plutocrats to expand America’s extraterritorial reach? I think making excuses for the US’s behaviour based on the power of the dollar and the size of the economy only goes to show how pervasive acceptance of American exceptionalism is. It’s a poor excuse. I believe the US is on the decline now economically and will soon be displaced by China as the number one economic power.
@Heidi
Good point about congressmen having family members abroad facing the issues. Statistically, someone must know somebody. However, it is not a case of sheep mentality or even willful ignorance; they would be unpopular among their constituents if they promoted any group of USCs as tax exempt, especially those viewed by homelanders as the jet-setting, rich, offshore tax-evading expats.
Petlover – “why should it refuse to sign on to CRS in a show of global cooperation?”
Because global co-operation is exactly what the US doesn’t want to do. It has the most power (among the rich OECD countries) and uses that power to get more power.
“I think making excuses for the US’s behaviour based on the power of the dollar and the size of the economy only goes to show how pervasive acceptance of American exceptionalism is. It’s a poor excuse.”
It’s not an excuse, it’s the reality. Which USCs and former USCs need to find a way to deal with.
@plaxy
Exactly. The US is uncooperative because it only has its own interests at heart. Other countries have been asleep to this and it’s about time they wake up. Why should America be held to a different standard than any place else? What if they did that in any other arena? Imagine if Team USA was judged by different criteria at the Olympics than every other competing nation and that put them at a distinguished advantage? There would be an uproar, as there should be when it comes to economics and military action.
The impending decline of the US economy will put a damper on exceptionalism – hopefully sooner rather than later.
Petlover: I too expected that having a moron run a sh*tshow in the White House would make America weak and hurt the economy. Apparently not, the economy is fine, the GOP is up in the polls, as is the orange wonder himself.
Since Canada’s leaders have not seemed concerned with the plight of their US persons, we shall see what France does…
Petlover: “The US is uncooperative because it only has its own interests at heart.“
Exactly.
“Other countries have been asleep to this”
They’re not, you know. All democratic governments are supposed to act in the interests of their country. Sometimes that involves co-operating with other countries, as with tax treaties, but they’re each still acting in the interests of their own country, and fully understand that other countries, including America, are doing the same.
There are signs that the FATCA Model 1 IGAs may become more trouble than they’re worth, to both sides, and may be amended. It would certainly be more satisfying if America could be made to apologise, but that’s probably not going to happen. They’ll do what’s in their interests; if that aligns with my interests, I’ll be pleased.
And nine cheers (three each) for the Canadian litigants, Fabien Lehagre, and Jus de Fruit, for disrupting the cosy IGA partnerships.
In an ideal world, politicians in sovereign nations act to protect and further the interests of their citizens. It is most apparent in the USA that those governing are not legislating in the best interests of their constituents, but, rather, are responsive to the influence of heavy lobbying from corporate and military industrial enterprises. So, spare me the blather about them being a democratic country supposedly acting on behalf national interests.
@plaxy
Sorry, am not very adept with this phone …I did not say mindsets had changed I said the possibilities given the fact that some have- such as Meadows, Brady and Holding and potential legislation might open the attitudes of a few more. A few others like Boustany changed earlier. Not enough yet to make a dent…..
@Petlover
Sorry, I did not make myself clear. I am not suggesting a fee to maintain USC. It was something that crossed my mind in 2011 and seemed a much more reasonable option than a possible FBAR fine of $450k.
Patricia – apologies, I misunderstood.
I agree possibilities have changed. Paul, Meadows, Brady, Holding, and Mulvaney (co-sponsored Meadows’ bill) may be few, but Brady and Mulvaney are in positions of power. Especially Mulvaney.
Waiting to see what transpires.
Petlover – “In an ideal world, politicians in sovereign nations act to protect and further the interests of their citizens.”
That’s not what I said. In this world, which is far from ideal but the only one we’ve got, governments of democratic countries are supposed to act in their country’s interests. In capitalist countries, that’s generally focused on the economy. i.e. money. Not the
consumerscitizens.Well, the economy is not just made up of one-percenters, but, unfortunately, those are the only interests which are acted upon. Everyone else is getting screwed.
Petlover – I agree, it’s a stinker.
I think it’s the 0.1% that is really best served. That’s the level you need to pay for lots of advice (legal, financial), have the right connections, and be able to make lots of significant campaign contributions. It’s the level where you can start to use the best investment vehicles and best tax tools.
“I know quite a few college kids, sons, daughters, grandchildren of homeland Americans who have studied or worked abroad and for love or jobs have decided to stay overseas.”
I bet we all know of at least one. Even if we haven’t met him personally, we’ve probably read some of his writings on his blog.
I bet we know of at least one former homeland American who did the same thing after himself having served honourably defending his country against those invaders from Afghanistan, Australia, Bahrain, Belgium, Brazil, Bulgaria, Canada, Cuba, Diego Garcia, Djibouti, Germany, Greece, Greenland, Honduras, Iraq, Israel, Italy, Japan, Kosovo, Kuwait, the Netherlands, Norway, Oman, the Philippines, Portugal, Qatar, Saudi Arabia, Singapore, South Korea, Spain, Turkey, United Arab Emirates, and the United Kingdom.