When the Taxman Reaches Across Borders

Monday, 26 Sep 2011 05:19 PM

By Herbert London

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Suppose you oppose the tax-and-spend policies of New York state and have decided to leave. Although tax collectors will pursue you and you will have to demonstrate you spend more than half your time elsewhere, relocation is possible. An American citizen can march with his feet to a stale system consistent with his economic and political philosophy.

But suppose you want to vote with your feet outside the United States. Suppose you do not agree with Obama tax policy or universal healthcare or military policy and choose to relocate. What you will find is that taxes are imposed based on citizenship, not place of residence.

One may leave the United States but the United States will not leave you. Taxes will still have to be paid to a government with which one disagrees. In fact, the United States is the only country that taxes the global income of its citizens.

According to the IRS: “If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift-tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside.”

There is evidence that policies are moderated by the ability of citizens to leave their residence and find a congenial home for tax policy or other policy concerns. The French “wealth tax” was so onerous, that many wealthy residents moved to Belgium. In time, this led to policy reform in France.

According to Forbes, after Obama’s tax laws passed many Americans gave up their citizenship rather than pay taxes at an extortionate rate. However, their preference — in most instances — was to retain their citizenship even as they relocated.

In effect, the American government has a leash around its citizens. It says even if you wish to express your freedom of conscience by moving to another nation, the IRS will not let go. American citizenship means the payment of American taxes even if you are living in Sydney or Saigon and have decided not to return to the United States.

There is something odd about this arrangement in the land of the free. It is also a condition about which most Americans are ignorant, until that time when exasperation leads to a change of national venue. At that point the long hand of government reaches out for you whenever you may be.

Perhaps that explains why Mark Twain once asked “What is the difference between a tax collector and a taxidermist?” The answer: “A taxidermist leaves the skin.” President Ronald Reagan once noted that “the government is like a baby’s alimentary canal, with a happy appetite at one end and no responsibility at the other.”

Clearly a government that continues to impose its will on citizens who wish to leave the nation in body and soul is irresponsible.

It makes sense to tax those who live here and wish to retain their citizenship, but it makes very little sense to tax those who oppose the policies of the nation and, as a consequence, have moved elsewhere.

Herbert London is president emeritus of Hudson Institute and author of the book "Decline and Revival in Higher Education" (Transaction Publishers).

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