This is in response to all the comments received on my post from last week entitled: Are the Psychological Benefits of U.S. Citizenship An Adequate Justification For The Worldwide Taxation of Nonresident U.S. Citizens?
Thank you everyone for the lively discourse. I have to admit that when I sought off writing this blog, I had no idea that it was going to generate as many comments as it did. I just recently learned that it made the WSJ Expat Facebook page (thanks for the “heads up” Walter).
While I recognize that this topic inspires deeply-held beliefs and passionate debate, I have to compliment everyone for keeping the level of discourse both courteous and professional.
I am very impressed (although not surprised) with the vast knowledge that so many of you possess on a topic as arcane as the justification for the U.S. system of worldwide taxation. Ask many people what gives the U.S. the right to tax its citizens and residents on their worldwide income, and the answer you usually get is, a “statute” or “the Internal Revenue Code.”
I can’t help but to respond to some of the comments made about the other justification for U.S. worldwide taxation, namely the perceived “benefits” of being a U.S. citizen. Many of you did a stellar job debunking this myth, backing it up with hard facts.
I recently wrote an article on the alleged “political, civil, and social rights” derived by U.S. persons who reside outside of the U.S.: Is the Justification For The United States’ System of Worldwide Taxation A Hoax? – Part I. You can find it on the TaxConnections blog here, http://www.taxconnections.com/taxblog/is-the-justification-for-the-united-states-system-of-worldwide-taxation-a-hoax-part-i/#.VL_3hItN38s
Against these rights, how did Mr. Cook fair? He fell woefully short of enjoying most, if any, of these rights. With respect to political rights, Mr. Cook lacked the most fundamental one: the right to vote. Why? Because back in 1924 when Cook was decided, a U.S. citizen living abroad did not have the right to vote.That’s because such a person “did not live in any state and thus had nowhere to cast a ballot.”
In terms of civil rights, Mr. Cook, not unlike any contemporary U.S. citizen living abroad, could “have called on the U.S. for formal diplomatic protection, including representation in international negotiations or arbitration.” Mr. Cook could have also requested “less formal assistance” from the American Consulate in Mexico or, at the extreme, “military protection, including evacuation” by the U.S. military.
The problem of course, is that there is no telling whether the U.S. would have granted these requests. In other words, Mr. Cook “merely had the right to ask.” Beyond that, because Mr. Cook was a Mexican resident, his civil rights were guaranteed not by U.S. law, but by Mexican law.
Searching long and hard, perhaps the only vestige of U.S. civil rights that Mr. Cook retained was the ability to return to the U.S. at anytime. In terms of this right, Mr. Cook had a “leg up” on a permanent resident. Very simply, permanent residents can be stripped of the right to permanent and continuous presence in the U.S. if they commit any one of a number of certain types of crimes, aptly referred to as “aggravated felonies.”
With respect to social rights, there are few U.S. social benefits that the “contemporary Mr. Cook” would be entitled to while living in Mexico. For starters, unemployment insurance and Medicaid are state-run programs to which Mr. Cook would not be entitled to today since he has no state of residence.
On the other hand, if the contemporary Mr. Cook was self-employed or worked for a U.S. employer, he would be eligible for U.S. social security benefits, since there is no totalization agreement between the U.S. and Mexico.
If, however, Mr. Cook had lived in one of the twenty-four nations with which the U.S. had a totalization agreement, then he would not be eligible for U.S. benefits.
In order to see how paltry a nonresident U.S. individual’s rights actually are, it is helpful to compare the U.S. legal rights of such an individual with the U.S. legal rights of a resident alien. It certainly reveals a lot.
Thank you everyone for weighing in. Please join my new Community “FATCA Tracker” on TaxConnections where we cover recent developments in the area of FATCA.
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