— U.S. Citizen Abroad (@USCitizenAbroad) April 21, 2020
This is the second post discussing aspects of Sovereignty and International Law. The first post identified the right of a country to determine who its citizens are, as one aspect of the sovereignty of a country. This principle has been been assumed by EC Gentiloni as his justification for allowing the United States to claim European citizens (living in Europe) as U.S. citizens. But, Mr. Gentiloni also assumes that the sovereign right of the United States to define European citizens as U.S. citizens, includes the U.S. right of taxation over those “captured” citizens.
In other words (under the Gentiloni Doctrine), U.S. Sovereignty includes:
1. The right to define anybody in the world as a citizen of the United States
2. The right to impose worldwide taxation on United States citizens without regard to where they live in the world.
How cool is that!!!!!!!
Well, if the USA can do this, then Canada can too!
A recent post at Brock discussed Canadian MP Chandra Ayra’s proposal that Canada follow the United States and impose worldwide taxation on Canada’s expat community. He references the 1924 U.S. Supreme Court decision of Cook v. Tait, which upheld the right of the United States to impose taxation on one of its citizens living in Mexico. What is of interest is how Mr. Ayra describes Cook v. Tait:
The United States is the only developed country that taxes its citizens on their global income irrespective of where they live or how long they have lived outside of the US. The constitutional validity of CBT has not been tested in Canada, but the 1924 US Supreme Court decision in the case of Cook v. Tait offers cogent reasoning about CBT that shows its validity under the US constitution. The decision relied on the inherent benefits received by US citizens and their property from the US government, regardless of where the citizens made their home or where their property was located.
Mr. Ayra appears to describe Cook v. Tait as a decision based on the U.S. Constitution. This is probably NOT correct. Cook v. Tait should be described as a decision which recognizes and reinforces the sovereign right of a country to determine its own tax policies. (Cook v. Tait has been the subject of many posts on Brock.)
Taxation under international law – An aspect of the Sovereignty of A Nation
When Justice McKenna was writing his decision in Cook v. Tait, what exactly did he believe “citizenship” to be? What did he believe taxation to be? For that matter, what does the judgment in Cook v. Tait even mean? Was Justice McKenna’s decision in Cook v. Tait based on “reason”? If it was based on “reason”, was it based on “legal reasoning”? Was it based on “rhetoric”? The decision of any judge necessarily reflects his or her personal background, outlook on the world and built in biases.
About Justice McKenna …
Assuming the truth of this Wikipedia entry, Justice McKenna was:
an American politician who served in all three branches of the U.S. federal government, as a member of the U.S. House of Representatives, as U.S. Attorney General and as an Associate Justice of the Supreme Court. He is one of seventeen members of the House of Representatives who subsequently served on the Supreme Court (including two Chief Justices).
It appears that Justice McKenna was a man devoted to “public service” and that (in general) he served the public with great distinction. It appears that his appointment to the Supreme Court of the United States was a pure political appointment (one of many). To his credit, after having been appointed to the Supreme Court, he being:
Conscious of his limited credentials, McKenna took courses at Columbia Law School for several months to improve his legal education before taking his seat on the Court.
Justice McKenna wrote the decision in Cook v. Tait in 1924. The decision was subsequently used to subject millions of people living outside the United States to U.S. tax jurisdiction. It appears to be a decision that is premised more on rhetoric than on reason. Soon after Cook v. Tait:
McKenna resigned from the Court in January 1925 at the suggestion of Chief Justice William Howard Taft. McKenna’s ability to perform his duties had been diminished significantly by a stroke suffered 10 years earlier, and by the end of his tenure McKenna could not be counted on to write coherent opinions.
Cook v. Tait – Interpreting the decision – citizenship as an aspect of sovereignty
In Cook v. Tait 26, commenters at the Isaac Brock Society generously helped interpret Justice McKenna’s 1924 decision. The comments were enormously helpful. Some of the comments discussed the sovereignty of the United States and how the ability to define the responsibilities of citizenship was an incident of that sovereignty, under the principles of international law. A U.S. lawyer (commenting on Facebook) recently opined that:
… don’t hold your breath waiting for a civil war to break out and end taxation of US citizens and residents. Cook v Tait is based on traditional notions of sovereignty, not on an assessment of the value conferred by citizenship. The Court specifically rejected the argument that expats received no benefits from the US and so shouldn’t have to pay taxes. Sovereignty remains a core principle, if not the core principle, of international law.
Consider also the following comment by Shadowraider:
I’m late to the discussion, but here is my opinion.
The decision in Cook v. Tait was purely based on principles of international law, it had nothing to do with the US constitution. International law is mostly unwritten, based on the general customs of relations between countries, and also on written treaties. So to decide this case, one would have to see whether jurisdiction based on nationality in the area of taxation is something generally accepted among countries, in their declarations, actions and treaties. As much as I don’t like it, I have to admit that it is, and this has not changed since 1924. It’s certainly rare, but the numerous examples lead me to conclude that it is indeed an accepted practice: others countries used it in the past (Mexico, Philippines, Soviet Union, Bulgaria, Vietnam, Myanmar), some still use it today in rare circumstances (France, Spain, Italy, Finland, Hungary, Turkey), and it is the last tie-breaker to determine residence in hundreds of tax treaties. The condemnation of Eritrea is due to the alleged illegal or oppressive enforcement of its diaspora tax, not the tax itself. The Philippines had a very similar tax for decades (1-3%) and was never condemned for it, as far as I know. The EU prohibits tax discrimination based on nationality, but France recently considered the possibility of taxing its citizens living in Andorra, as it already does in Monaco (both outside the EU). Finally, dozens of countries accepted the saving clause in US tax treaties, and more recently the FATCA IGAs.
I don’t think that Justice McKenna was saying that taxation is justified because the country provides tangible benefits to the citizen. I think that he was simply using the word “benefits” to refer to the abstract connection between a country and a person, called citizenship, and that this connection by itself carries obligations such as taxes. In other words, jurisdiction by nationality, which is accepted in international law.
On the other hand, I emphasize that Cook v. Tait did not refer to the US constitution at all. I also agree that in 1924 the general understanding of the US constitution did not pose a problem for CBT. However, this did change since then. For example, the US Supreme Court gave new meanings to “due process” and “equal protection” to prohibit discrimination on various grounds (1954), and the 24th amendment prohibits the dependence of voting rights on taxation (1964). I believe that CBT is unconstitutional with these understandings, because it is discrimination based on citizenship on an area that has nothing to do with citizenship. In this case, Cook v. Tait is not a precedence.
To answer some of your questions:
1. It’s debatable whether the constitution allows CBT, but it’s certainly not required by the constitution. Again, Cook v. Tait was not based on the constitution at all.
2. Cook had property in Mexico, I suppose real estate, and he rented it out. The US taxes rental income.
3. Mexico created its first income tax in 1921, so there could have been double taxation. Coincidentally, Mexico also had CBT until 1980.
4. “Do you know of ANY country which gave up a source of income voluntarily?” Mexico, the Philippines, the Soviet Union, Bulgaria, Vietnam and Myanmar abolished CBT. Australia, New Zealand, Canada, Mexico, Panama, Israel, India, Pakistan, Thailand, Singapore, Hong Kong, Russia, Austria, Portugal, Sweden and Norway abolished their inheritance tax. Sweden also abolished its wealth tax. Australia, Argentina and Brazil abolished a bank transaction tax. Most US states abolished their estate tax, and the federal government abolished it for a year. The US also abolished the limitation on the foreign tax credit for the alternative minimum tax.
To summarize – Sovereignty Among Nations
The key point is that (at least in 1924) the concepts of citizenship and taxation were largely “rooted in” the “sovereignty of nations”. In addition, tax policy is part of the sovereignty of nations. Every country would/should respect the taxation and citizenship policies of every other country.
Constitutional limitations on how a country relates to its own citizens
Cook v. Tait did NOT consider possible constitutional limitations on U.S. tax policy vis-a-vis its own citizens. Can the 14th Amendment prohibit certain aspects of U.S. taxation of its citizens abroad?
These aspects will be considered in a subsequent post.