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.
For the Berlin Wall to be like the exit tax, it would have to have a special gate for dual nationals as birth.
It’s not the best analogy, to be honest. People aren’t being shot for trying to climb over it.
But as I said earlier, lots of slow news days.
The analogy to the Berlin wall comes from the person who asked the question at Quora, not John Richardson.
@Patricia Moon
What drove me to follow IBS was Petros and his 12 disciples . They were articulate and creative and made me rationalize rather than simply fear. I think there are followers on IBS who are not just interested in how to get a fast ticket off the plantation and what forms and procedures to follow but are in the process of contemplating whether to do it or not and the consequences. Following which forms to fill ,only, makes for dull reading.
As for “chatter” , I see as it discourse which in the end leads to no real gain in information and I leave at that.
Since the subject is really over renunciation, one shouldn’t forget that the Canadian litigation concerns,I believe, two nonreliquishers/nonrenunciants and most duals fall into that category.
It seems to me that you are leaning towards turning this site into “firemen selling fire insurance”.
@RobertRoss
Well, I am one of the original twelve.
“Fireman selling fire insurance.” That is just dead wrong. You don’t seem to understand that we hear from people who do not comment at the site but do read it. It is not my job to support only positions that I myself may personally favour. This site is meant to address the issues of ALL Americans/US Persons caught in this mess. Imagine being a longterm compliant American expat filing 5471’s for years. Those folks are sitting ducks. They need help with the Transition Tax issues. They are just as deserving of attention as those who are in your position.
I don’t recall any recent posts that about how to fill in forms.Would be happy to go back and make a list for you of my posts. They are not what you are describing……..
I find John Richardson with his clear followups on citzenship and tax issues very commendable ,as well as ,IBS with its information pool. Hopefully , IBS continues on course
I love this site just as it is. It is informative through its posts which are marvellously well written and researched. It allowed me to discover and support the Canadian lawsuit. And it is greatly comforting to read and contribute to the “chatter”. I feel the ongoing, continuous, abundant chatter/discussion remains remarkably articulate, constructive, and diverse. It is indeed quite extraordinary to be able to get a feel for what many different people are thinking. I have often argued a point just to be able to read counter-arguments. I think that I and most others here are open to debate and nuance.
I think I understand Patricia’s oft repeated remarks about straying off topic. I therefore sometimes refrain from commenting. Yet I delight in continuing to read those who stay on topic and those who wander.
All of this collective venting and sharing is therapeutic of course. But it is also the basis for collective wisdom.
I have been reading about the origins of the United States while helping my son with school work. It is astounding how we forget the outrage of the founding fathers at Britain’s treatment of the colonies. The US is founded upon a revolution to make things fairer. It seems to me that citizenship based taxation as currently enforced is absurd and unworkable. Accusing this site of promoting tax evasion is ridiculous. I pay 53% income tax + 21% VAT where I live, and owe no US tax. Before I started filing again, was I evading tax? If I stop filing in the US will I be evading? No. Ignoring the whole mess is an option. I’ve even argued here that it might be unethical for professionals not to mention non-compliance as a reasonable option.
The chatter here helps people come to their own conclusions on how they manage their US personhood abroad. It helps as much as the structured posts, which are unable to offer unfounded or imprudent, but potentially useful advice or opinion.
Finally I’d argue that the renunciation fee is a true albeit administrative Berlin Wall. It is an obstacle separating one from freedom. It is hard to get across (for some), but if you don’t pay the price you are not truly free.
@RobertRoss
I am glad you like John’s work; I have worked with him for several years now and put his posts up here regularly.
IBS in terms of posts has never been off course in any regard that I am aware of. I truly do not understand what your concerns/issues are.
@Patricia Moon
Not quite wrong. Being a fireman ,by supporting a just litigation and limiting ” US ‘fire power and overreach ” . Selling fire insurance (renunciation ) as protection against ” US fire power and overreach”. Seems correct,no?
@RobertRoss
I don’t get you at all.
I am about protecting people in the best way possible. If what you say is true, then 99% of Brock is the same.
At least we stand on guard against comments that are just meta-chatter. If we allowed those in, they would distract from the chatter.
@Fred (B)
” The chatter here helps people come to their own conclusions on how they manage their US personhood abroad. It helps as much as the structured posts, which are unable to offer unfounded or imprudent, but potentially useful advice or opinion.”
That is indeed the point.
Amen.
Not different. Both were designed to keep citizens in. It is impossible for the D.C. Pukes to imagine anyone would want to escapp their great style of governing. Just as the E Germans thought their shit didn’t stink. Well let me tell the Pukes. IT stinks
@Patricia, thanks for that Cspan clip. Very interesting, especially at 33:20 (which makes me absolutely sick) and at 48:47 where we have a voice of reason for a few seconds. Throughout, the way they talk about expatriates borders on hate speech: rich freeloaders, greedy, unpatriotic. Also we are all ‘fellas’ (apparently no expatriates are women lol). It is amazing to see the bigoted mentality we have been up against for so many decades. At one point Bradley even boasts about not knowing where Cape Verde is, as if ignorance about everything outside the US is a point of great pride.
FredB –
Bingo.
Isn’t the significant difference the fact that the Weimar tax was a tax (imposed on the German-source income of (departing) residents);
while the US Exit Tax legislation solicits a share of the worldwide investments of citizens and residents of other countries.
Norman Diamond:
A very good summary, ND, and worth a post in its own right IMO.
Fred (B): Thank you for your great comment! Bingo and Amen!
A wall is a wall whether you call it “Berlin”, an “exit tax” or a “renunciation fee”. Walls are meant to stop, to prevent, to deflect, to bring an end to movement in a particular direction. Walls keep people out as well as in. No analogy is perfect, but, comparing with the Berlin Wall the walls that have been erected around us, works for me. Indeed American citizenship itself has become a wall unless you live in the US. As long as these US extraterritorial tax laws and fees are in place I dare not travel to the United States. For me, there’s a wall at that border just as real as if it were made with bricks and mortar.
The month of April is now half over. I just hope these next two weeks bring us some news of relief.
@CB
I am glad you watched it. Don’t forget though, they are only talking about 10 rich people. Ten people. It is indeed sickening to see the cliche morph into what it is today.
I find the historical aspect fascinating. Wonder how long before Dart, Rich and so on , people were renouncing. I can think of Sir John Templeton from the 1960’s. Would there ever have been a time, since 1913 where those who left the country were not labelled as tax evaders?
So I watched the whole Senate Finance Committee hearing regarding the Taxation of Expatriated Individuals from 7/11/1995 (almost 23 years ago) as posted by Patricia Moon.
I am appalled at the superficial level of discussion that took place on the issue even way back then. Mr. Kies seems to be the only one in the room with a deep understanding of a multi-facetted topic and actually points out as a side note that the US is a little bit weird because it taxes based on citizenship rather than residency, like most of the rest of the world. No one picked up on this after Mr. Kies mentioned it, as this fact is really at the heart of the matter. Most of the problems of taxation of expats on their worldwide income and/or US assets would be solved instantly if they just switched to RBT. But, no, they insist on debating the merits of taxing non-resident expats – even duals who have never lived in the US – in the framework of being “fair” to homelanders! What a joke! And this when their expert testimony is telling them it’s all about somewhere between 10-24 people a year who are supposedly renouncing US citizenship to avoid taxes. Unbelievable! The discussion of a person who expatriated in 1958 but never got a CLN being liable for US tax from 1958 to the date they finally needed to file for a CLN is absolutely moronic, yet they discuss it like it’s a totally acceptable idea! It is really shocking that not one person there realised the root cause: CBT. Endless drivel about the benefits of citizenship and it’s perceived value…. Ugh! Unbearable!
April 16, 2018 at 11:31 am
If I understand correctly, it seems that underlying the general ignorance and smugness is a deep uncertainty as to how best to get hold of the most money.
From a 2014 article, “Rethinking International Tax Reform” (http://www.bushcenter.org/publications/articles/2014/10/rethinking-international-tax-reform.html):
For years, tax scholars have debated whether the U.S. international tax regime should be modeled on the principle of capital export neutrality or capital import neutrality. Capital export neutrality occurs when the tax burden on capital owned by residents of a particular country is the same whether that capital is invested at home or abroad.
If capital export neutrality is satisfied, the tax system neither encourages nor discourages capital export, and the residents’ choice to invest at home or abroad is not influenced by tax considerations. Capital export neutrality has generally been associated with worldwide taxation coupled with a credit for foreign income taxes. Generally, the United States’ international tax system is modeled along the lines of capital export neutrality.
In contrast, the theory of capital import neutrality holds that the international tax system should have equal tax treatment for all capital invested within a particular country regardless of the residence of the investor. Capital import neutrality has generally been associated with territoriality – the idea that a particular country, as a general rule, should only tax income earned within its borders. Generally, most countries’ international tax systems are modeled along the lines of capital import neutrality.
Unfortunately, the debate between capital export neutrality and capital import neutrality leads nowhere as scholars are usually hardened in their position. More recently, however, several tax scholars have introduced the theory of capital ownership neutrality, the goal of which is to have tax rules that do not distort ownership patterns.
Capital ownership neutrality requires a U.S. multinational to be as competitive as any other bidder in pursuing a foreign acquisition. In a world in which other countries have territorial tax systems, this can only be achieved if the U.S. moves to a territorial tax system. If, however, the other countries shift to a worldwide tax system, then the United States would achieve capital ownership neutrality by adopting a worldwide tax system.
So they’ve got as far as claiming> to be shifting to a territorial tax system. If there’s a genuine policy intention to do so, logically they’re going to have to finish the job, and break the habit of deeming a few billions more out of expats every time the numbers fail to add up.
Fingers crossed.
Kennedy: “Freedom has many difficulties and democracy is not perfect. But we have never had to put a wall up to keep our people in — to prevent them from leaving us.”
Hmmm, let’s see…
– Cost of a CLN: 5 years compliance (USD 4000?), renunciation fee USD 2350. Total: USD 6350. Hope there isn’t a whole family needing one…
– Median household income in USA, per year: USD 59000. What’s left each month, cash? USD 200?
– “An estimated 38 million households in the U.S. live hand to mouth, meaning they spend every penny of their paychecks. Surprisingly, two-thirds of them earn a median income of $41,000, which puts them well above the federal poverty level” (https://www.creditdonkey.com/average-american-savings-statistics.html)
– 46% of Americans couldn’t find USD 400 for an emergency.
(https://www.washingtonpost.com/news/wonk/wp/2016/05/25/the-shocking-number-of-americans-who-cant-cover-a-400-expense/?noredirect=on&utm_term=.2f885a15ca11)
Conclusion: USD 6350, or even USD 2350, is a huge sum, not easily available, or available at all, to the majority of the US population (a rich country). And this is all the more true that many people may be living in poorer countries and earning less. That sum is more than the median household income in Argentina. To say that a country that can spend USD 600 billion and more on the military needs a few million a year from renunciations is absurd.
To ask such a sum (and I’m not even touching on CBT here) is truly to put up a wall. It is a Berlin Wall, and it is highly ironic given America’s never ending sanctimonious preaching about walls and freedom.
Trump: “I also talk about building a wall and oftentimes I’ll say, and there’s going to be a big beautiful door in that wall and people are going to come into our country because we want people to come in. We want people to come into our country, but we want them to come in legally.”
Reagan: “the advance of human liberty can only strengthen the cause of world peace.” … “if you seek liberalization, come here to this gate. Mr. Gorbachev, open this gate. Mr. Gorbachev, tear down this wall!”
Mr Trump: tear down this wall!! Or at least allow that big beautiful door to let people out, legally, freely, lest America become like the Roach Motel: you can check in but not check out! SAD!
@Petlover
Glad you watched the video. What did you think of Samuels who said the reason we tax non resident citizens is that ” it has been that way since the beginning” and all that blather. Interesting he seemed unaware of the CBT roots from time of the Civil War.
What I have never been able to understand is if they think there is some necessity to tax non-resident citizens, why couldnt they come up with something that reflects what services/benefits nonresidents actually use. Or a flat fee. While I was thinking of renouncing I felt I would be willing to pay like $500 or something in order to keep my passport/status. Such a fee could be on a sliding scale….sounds like a lot but it is less than what one would pay to be compliant-even when no taxes were owed. It would simplify what is required, one would be contributing something and would be a way to get off the “fair share” merry-go-round.
I was appalled at Moynihan’s joking(?) about the Marines. As if he knew already that this is not free and certainly a joke for First world countries.
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.
Fred (B) – well put!
@Fred
I never thought about it befoe but CBT puts a whole new spin on Kennedy’s quote
“And so my fellow Americans, ask not what your country can do for you, ask what you can do for your country”
Isn’t the Government meant to serve the people, not people serve the Government?