I recently wrote a two-part series about the inadequate justification for the United States’ worldwide taxation of its nonresident citizens (Part I is available here; Part II is available here). Professor Michael S. Kirsch offers a different perspective in defense of this system. Instead of assessing the propriety of U.S. worldwide taxation on the basis of the legal benefits associated with U.S. citizenship, which lies at the heart of the “benefits rationale,” Professor Kirsch argues that, “it is reasonable to conclude that the retention of U.S. citizenship reflects a self-identification with the population of the United States (or the belief that the benefits of citizenship are worth the tax cost).”[i]
In justifying the worldwide taxation of U.S. citizens, Professor Kirsch relies on the psychological benefits of U.S. citizenship, namely, the ability of nonresident citizens to identify on an emotional level with the United States. Professor Kirsch advances the theory that a nonresident’s retention of his U.S. citizenship, despite having the ability to expatriate at any time, reveals a subjective “belief that the benefits of [U.S.] citizenship are worth the tax cost.”[ii]
According to Professor Kirsch, the failure to renounce one’s U.S. citizenship while living abroad reveals a person’s true, heart-felt intentions: “that the advantages to him of U.S. citizenship outweigh its tax cost, in terms of worldwide taxation of his income and assets,” as onerous as that might be.[iii]
I respectfully disagree. First, due to the U.S. government’s recent overhaul of the expatriation process, expatriation has not only become more cumbersome, but more expensive. Many find it to be “cost prohibitive.” Second, the tax liability incurred by two or more U.S. citizens living abroad may be radically different depending on the countries in which they live, despite the fact that they receive the very same benefits of citizenship.
At a primitive level, I do not disagree that the symbolic and emotional benefits of U.S. citizenship, referred to by Professor Kirsch as “self-identification,” are very real. One need look no further than the excitement and joy experienced by an Immigrant after taking the “Oath of Allegiance” at a naturalization ceremony (taking the oath completes the process of becoming a U.S. citizen).
At the same time, I agree with Professor Edward Zelinsky that as real as the psychological benefits of U.S. citizenship might be, they fall woefully short of justifying the global taxation of nonresident U.S. citizens. As so eloquently stated by Professor Zelinsky,
“There is a missing link between the major premise – the psychological benefits of U.S. citizenship – and the asserted conclusion – worldwide taxation of U.S. citizens. Why does the latter stem from the former? I respectfully suggest that Professor Kirsch (or anyone else) cannot supply the missing minor premise in this syllogistic chain.”[iv]
Although Professor Kirsch’s arguments help to clarify the debate, I remain steadfast in my opinion that the justification for U.S. worldwide taxation of its nonresident citizens is unpersuasive.
What do you think? I would love to hear your comments in the “FATCA Tracker” Community. Click Button to access Community.
[i] Michael S. Kirsch, Taxing Citizens in a Global Economy, 82 N.Y.U. L. Rev. 443, 481 (2007).
[iii] Edward Zelinsky, Citizenship and Worldwide Taxation: Citizenship as an Administrable Proxy for Domicile, Iowa Law Review, p. 1322.
[iv] Id, supra, Note (iii), at p. 1322.
Original Post By: Michael DeBlis
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