Billionaire Tax Proposal Commentary: Based On Concept Of Fake Income

Billionaire Tax Proposal

This comment is based on the interpretation of the proposal found in this post Proposed And Updated Version Of Billionaire Tax. I don’t have a week to read and digest the 100+ pages of the proposed law but based on the description in the proposal here are my comments:

The US currently has (in effect) separate tax systems for: Employees, small business people, those who live off investment income, Americans abroad, undocumented aliens, certain racial minorities (see the work of Dorothy Brown) and now a new tax system for billionaires is proposed. So, in America of today: Congress asks tell me who you are and we will tell you which tax system applies to you. (How can this be fair?) The proposed tax system for billionaires borrows from some of the most vicious aspects of the tax system for Americans abroad and would apply them to billionaires.

Prospectively – The billionaires tax once is is up and running:

Notably the billionaires tax (once it is up and running) is based on the concept of “fake income” – i.e. either no realization event or if there is a realization event an interest charge for deferral (think PFIC and the Foreign non-grantor trust rules). Taxation based on no realization event: This is a simple concept. They pay a tax (where does the money come from) on the increase in value from one year to the next (without any actual income). So, Congress will simply define the increase in capital value as income (even though its not). Deferral: For the assets that are not tradeable an interest charge is imposed in addition to the tax on the actual realized gain. This is exactly the same principle that is used in the PFIC and foreign nongrantor trust rules. (Americans abroad welcome billionaires to the hell of taxation on fake income.)

Retroactively – Getting it up and running

This is where it gets really good. This is clearly a retroactive tax on unrealized capital gains. How cool is that? It’s exactly the same principle as the 965 Transition tax that was part of the 2017 TCJA (right on down to being able to spread the payment over five years). Seriously you can’t make this kind of injustice up!

In 1917 the Russian Tsars were simply shot and their assets were confiscated. The shooting was necessary only because Russia did not have a modern tax code that could be used to achieve the same result.

Interestingly this is marketed as a tax on billionaires. In 2008 the 877A Expatriation Tax was marketed as a tax on billionaires that turned out to be a way that America could confiscate the non-US pensions of Americans abroad. (But, who cares about Americans abroad.) Make no mistake about it. This (like all the other US “class” taxes that become “mass taxes”) will work it’s way down to the middle class.

Maybe the billionaires who live in America will follow the example of the Americans abroad of modest means who feel they must renounce their US citizenship. As it stands the billionaires can probably renounce now and keep some of their assets. That’s certainly better than staying in America and losing all of their assets.

The fact that this proposal in intentionally aimed at such a small number of people is despicable.

What do you think? John Richardson, Lawyer, Citizenship Solutions.

The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a Toronto based lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.

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