Charles M. Bruce (Moore & Bruce, Washington, D.C.), Lewis Saret (Moore & Bruce, Washington, D.C.), Stéphane Lagonico (Byrne-Sutton Bonnard Lawson Meakin & Associes, Lausanne, Switzerland) & Steve Trow (Trow & Rahal, Washington, D.C.) have published The Exit Tax — A Perfectly Bad Idea, 110 Tax Notes 1225 (Mar. 13, 2006), also available on the Tax Analysts web site as Doc 2006-3913, 2006 TNT 49-34. Here is the Introduction:
The pending tax reconciliation bill (H.R. 4297) contains provisions that would impose an exit tax (or mark-to-market tax) on some U.S. citizens and long-term residents. Different versions of an exit tax have been proposed several times over the last six to seven years and, in fact, the Senate has passed an exit tax on three previous occasions. While conventional wisdom is that those proposals, which have been voted down in the past, will again be dropped by the conference committee, many people have a queasy feeling this time.
The exit tax is a bad idea for policy and technical reasons. It has been considered in the past and rejected. The Joint Committee on Taxation, in its comprehensive February 2003 study, did not embrace the approach. Not only should it not be enacted into law, but it should also be dropped once and for all.
This discussion is summary in nature. Renunciation of citizenship or relinquishment of permanent residency status (both commonly referred to as expatriation) is a very serious step and should be undertaken only after the most careful consideration of all the legal and personal consequences. It is unfortunate that individuals and families must worry about developments like this. They should not have to arrange their lives on short notice around U.S. tax legislative proposals.
2 responses to “The Exit Tax — A Perfectly Bad Idea”
I’m surprised they didn’t mention Canada, which has an exit tax very similar to what was mentioned.
While Canada’s situation is quite different as our country taxes on residency, not citizenship, some of these effects should have been seen in our country.
Also, some alleviating provisions exist – assets are revalued when newly arrived residents arrive, and an immigration trust can be created for the first five years. So short term (<5 years) residents can be excluded for world-wide assets,
The gift provisions are uncomparable since Canada doesn’t have a gift tax. But I’d have expected someone writing for tax notes should at least have referred to a very similar policy in a neighbouring country that has been in effect for close to a decade especially where the article refers to policy reasons (which should be comparable country to country even though the underlying tax code might have significant differences)
I noticed an exclusion in the law for Jewish Americans: anyone born with citizenship in another country is exempt from the tax; all Jews are ‘born’ with citizenship in Israel.