Senator Schumer (D-NY) has introduced a bill to prohibit persons who renounce U.S. citizenship to avoid paying taxes from re-entering the United States. This acronym is "“Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy” and is aimed at Eduardo Saverin, a naturalized U.S. citizen who gave up his citizenship last year in anticipation of becoming a billionaire when Facebook IPOs shortly.
I confess that I am pretty repelled by this--especially since billionaires can easily afford to pay taxes on wealth that they made as a result of being part of our society. I am also a little disappointed that someone would regard U.S. citizenship as something that would give up for something as sordid as money--and especially what will be, for Saverin, a pretty inconsequential amount. There might be an argument that our tax laws encourage this, but still, when you expect to make $4 billion, even paying 30% of that in taxes isn't going to force you to start eating at McDonald's.
But I am even more offended by the fact that Schumer wants to prevent the very rich from re-entering the U.S.--but isn't prepared to take any action to prevent illegal aliens from entering the U.S.
Correction: about $1.2 billion in taxes. Not a trivial amount of money, but remember that part of why Facebook is going to make these people rich is that they are operating in a system that enforces copyright law and provides a mechanism for stock markets and all the legal enforcement that goes with that. Saverin and the rest of the Facebook billionaires would have no chance of making any of this money except for the presence of the U.S. legal system. You want to get rich? That's good. But thinking that you shouldn't pay taxes to support the system that makes that possible is greedy and stupid.
"when you expect to make $4 billion, even paying 30% of that in taxes isn't going to force you to start eating at McDonald's."
ReplyDeleteYes, it may not drive you to the poorhouse in one move, but it certainly drives home the point that the current tax structure is fundamentally unfair.
Look at what you're saying critically: You're saying that you're disgusted by someone not wanting to pay the government 1.2 BILLION DOLLARS for the mere fact of having engaged in a successful business venture.
A successful business venture that relies on the presence of copyright law and legal enforcement mechanisms, on the stock markets and all the legally enforceable rigamarole that goes with that, and thus, the U.S. legal system. I am disgusted that someone wants to enjoy the benefits of the legal system in the U.S., without paying taxes to support it.
ReplyDeleteMy problem is the issue of motivation.
ReplyDeleteThe government will be forced to prove that it was tax avoidance at the root of the issue.
So they want to punish people for not giving the government as much money as the government wants but draft dodgers, people running from crimes and those that (temporarily) hate the country get a pass back in?
I don't think Saverin is bailing because of the taxes he has to pay now. I think he's bailing because he sees a future risk.
ReplyDeleteSchumer is grandstanding. When Saverin renounced his citizenship he became liable for capital gains tax as if he had sold all his holdings on that day. Which seems sufficient to me. Part of living in a free country is being free to leave. It seems reasonable to tax unrealized gains on the way out but not at a punitive 30% rate.
ReplyDeleteI'll go with professor Boudreaux's comment on this. "The very fact that sitting U.S. senators issue such a proposal – the sick reality that representatives of an allegedly free people act as if individuals are serfs bound to a master – the noxious yet proudly paraded assumption by American government officials that a peaceful man’s or woman’s freedom of movement can properly be restricted by a government jealous that it misses the opportunity to seize a huge chunk of that man’s or woman’s earnings – does nothing other than to confirm the wisdom and justice of Mr. Saverin’s decision."
ReplyDeletesource: http://cafehayek.com/2012/05/20340.html
First, I would like to point out that, with regard to copyright at least, it isn't as critical to Facebook as you make it out to be. Their software is open source, with the caveat that if you want to use it, you have to include the Facebook logo. Granted, it would be difficult to start a business with their software because of that, but it would also be difficult to acquire the hardware needed to run a Facebook site.
ReplyDeleteAnd I don't think you'll find many investors for a business plan that says "We're going to copy Facebook's software and compete with them!" The Facebook logo isn't even an issue.
I would also add that while the US Government provides infrastructure, they also provide a lot of disincentive, in terms of all the waste they do. The two things balance each other out. I do not begrudge anyone who wishes to pay less taxes--and Senator Schumer displays a certain amount of vindictive when he wants to pass a bill like this.
I am disgusted that someone wants to enjoy the benefits of the legal system in the U.S., without paying taxes to support it.
ReplyDeleteHuh?
Clayton, did you let Elizabeth Warren write a guest post under your name? This is not the reaction I expected from you, given your principles on other matters. I mean, this sounds exactly like Warren's infamous quote about how "There is nobody in this country who got rich on his own. [...] But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."
If there's a difference between the position you're taking on this issue and the position Warren is staking out, what is it?
But every successful business venture has to have a venue in where it can rely on the presence of some system of law and legal enforcement mechanisms, all the legally enforceable rigamarole that goes with that,and even on the stock markets in some manner, even if the business itself isn't listed, and therefore, on the U.S. legal system. The business about enjoying the benefits without paying the taxes, or with paying as little tax as possible is at the core of the concept of tax avoidance.
ReplyDeleteI am disturbed by the similarity of Shumer's proposal with the German law in the 1930's, where people seeking to emigrate were required to pay income tax on their income for the next year as well, a sort of double payment to escape.