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    The Tax Lawyer

    The Tax Lawyer: Winter 2021

    Taxing the American Emigrant

    Laura Snyder

    Feb 25, 2021

    45 min read

    Criminal Tax Expatriates FBAR Foreign Asset Reporting Individuals International Issues Tax Controversy

    Summary

    • American emigrants face many consequences from the extraterritorial application of U.S. taxation and banking policies.
    • The stigmatizing policies and their consequences are frequently justified on the basis that American emigrants are wealthy persons seeking to avoid taxation.
    • The policies have consequences for the countries in which American emigrants live: they negate legal protections provided by these countries in such areas as data protection, banking, human rights, retirement, savings and investment, and succession planning. They also undermine the fiscal and monetary policies of these countries and the authority of their policymakers. In short, U.S. policies toward American emigrants jeopardize the sovereignty of many countries around the world.
    • Citizenship is a human right. Leaving one’s country and returning to it are human rights. Countries, also, have a right to self-determination. The extraterritorial application of U.S. taxation and banking policies—which is justified through the stigmatization of American emigrants—places all of these rights in peril.
    • The stigmatization of American emigrants must, like other forms of stigmatization, be identified and held unacceptable. Otherwise, there is little hope for change.
    Taxing the American Emigrant
    Marina_Skoropadskaya via Getty Images

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    Abstract

    American emigrants face many consequences from the extraterritorial application of U.S. taxation and banking policies. Their names, addresses, and Social Security numbers are collected, placed on lists of “suspected U.S. persons,” and submitted to a “Crimes Enforcement Network.” They struggle with incompatible tax systems, resulting in penalizing taxation, the inability to make investments and save for retirement, the inability to hold title to family assets, the denial of bank accounts and other financial services, and the denial of employment, entrepreneurial, and community service opportunities.

    These stigmatizing policies and their consequences are frequently justified on the basis that American emigrants are wealthy persons seeking to avoid taxation. This is evidenced by the comments that U.S. policymakers and other public figures have made about American emigrants throughout the country’s history, as well as the manifest anti-emigrant bias in the academic literature and media.

    Further, the policies have consequences for the countries in which American emigrants live: they negate legal protections provided by these countries in such areas as data protection, banking, human rights, retirement, savings and investment, and succession planning. They also undermine the fiscal and monetary policies of these countries and the authority of their policymakers. In short, U.S. policies toward American emigrants jeopardize the sovereignty of many countries around the world.

    The stigmatization of American emigrants must, like other forms of stigmatization, be identified and held unacceptable. Otherwise, there is little hope for change.

    I. Introduction

    It is not unusual for U.S. policymakers and the media to stereotype immigrants to the United States. They are portrayed as dangerous and dirty and are blamed for “stealing” American jobs. These prejudices are reflected in U.S. policies, such as child separation, immigration detention centers, expedited deportation, travel bans, and efforts to denaturalize naturalized citizens, just to name a few. These policies criminalize and punish U.S. immigrants for simply being from someplace other than the United States.

    In a comparable manner, U.S. policymakers and the media also stereotype emigrants from the United States. Indeed, emigrants are frequently portrayed as necessarily wealthy (otherwise they could not have afforded a trip overseas) and as living overseas primarily to avoid taxation. These prejudices are also reflected in U.S. policies. This time, the policies criminalize and punish emigrants simply for living someplace other than the United States. Significantly, while the punishing effects of the country’s policies towards its immigrants are obvious, the punishing effects of the country’s policies towards its emigrants are insidious and pernicious.

    At first glance, the use of such words as “insidious” and “pernicious” to describe the effects of these policies may appear to be an overstatement. It is not. These words accurately characterize the effects of these policies because the effects are not often immediately apparent but instead are realized over time and are highly damaging. This is perhaps best exemplified by the persons who have been driven by these policies to take the drastic step of renouncing their U.S. citizenship—an act frequently referred to as “citizide.” The decision to renounce one’s citizenship is not made the day after moving overseas; on the contrary, the decision is frequently made only after a prolonged period of time—years if not decades—as individuals who eventually renounce their citizenship come to gradually realize that living under the policies is simply no longer tenable for them.

    These effects have been documented by a number of surveys of Americans living overseas. A number of scholars have called for changes to these policies. Further, the effects have been recognized on both sides of the political aisle in the United States. For example, the Republican Party’s election platform in 2016 called for a change to the policies, and the 2020 Democratic Presidential candidate and Senator, Bernie Sanders, promised he would “be that leader” to change these policies. And yet, the policies remain firmly in place.

    Part II of this Article describes the policies in question and their consequences for American emigrants; Part III examines the relationship between the policies and the stigmatization of American emigrants; and Part IV exposes how the stigmatization of American emigrants is used to maintain the status quo. Finally, Part V explains how the policies undermine the sovereignty of the countries in which American emigrants reside.

    II. The Extraterritorial Application of U.S. Taxation and Banking Policies: Consequences for American Emigrants

    The United States applies both taxation and banking policies on an extraterritorial basis. For American emigrants, the consequences of doing so are profound.

    A. Taxation Policies

    Unlike emigrants from other countries, when U.S. citizens (and green card holders) emigrate from the United States, they do not lose their U.S. tax residency. In fact, they cannot lose it without renouncing their citizenship (or relinquishing their green cards). At the same time, they also become tax residents of the country to which they immigrate. The result is that American emigrants are subjected to two tax systems, which continues as long as they remain U.S. citizens.

    The consequences of being subjected to two tax systems simultaneously are tremendous. Living as an American outside the United States means living with financial, psychological, and social limitations. For example, Americans living outside the United States face the following difficulties:

    1. Difficulties participating in tax-advantaged retirement savings plans that are not recognized under U.S. tax rules, with the risk that, upon retirement, they become public charges (burdens) in the countries in which they live;
    2. Difficulties making many other kinds of investments as U.S. tax rules heavily penalize non-U.S. (so-called “foreign”) investments, regardless of where the investor lives;
    3. Difficulties creating and owning a small business outside the United States as U.S. tax rules heavily penalize ownership by an American of any business located outside the United States. In 2017, Congress adopted especially punishing rules for U.S. citizens who own interests in non-U.S. companies. In addition to imposing retroactive taxation on retained earnings (referred to as the “Transition Tax” or “Repatriation Tax”), the rules also impose ongoing taxation on companies’ income. The name assigned to the ongoing taxation leaves no doubt as to the stigmatizing intent: Global Intangible Low-Taxed Income (GILTI).
    4. Difficulties holding title to real estate and other family assets outside the United States because of penalizing U.S. taxation, including taxation resulting solely from fluctuations in the value of the currency of the country or region in which the American lives as compared to the U.S. dollar;
    5. The taxation of social welfare benefits that American emigrants receive from their country of residence, such as unemployment, maternity, and disability payments;
    6. The need to expend considerable time and money to complete U.S. tax declarations, often made overly complex because of U.S. tax rules’ inherent distrust for anything “foreign” (again, anything outside the United States, regardless of where the taxpayer lives, is “foreign”), with errors resulting in severe penalties when, in most cases, no U.S. tax is actually owed.

    In essence, while double taxation does sometimes occur, the more consequential and far-reaching problem is that U.S. tax policies expect American emigrants to carry out their financial lives as if they were living in the United States. For persons living outside the United States on a long-term basis, this is impossible and prevents American emigrants from fully integrating into the communities in which they reside.

    B. Banking Policies

    Two U.S. banking policies, the first adopted in 1970 and the second in 2010, criminalize American emigrants.

    1. FBAR: Making American Emigrants Criminally Suspect

    The Bank Secrecy Act of 1970 established a number of financial reporting obligations purportedly to identify and collect evidence against money laundering, tax evasion, and other criminal activities. This purpose does not, however, explain the Act’s requirement for not only persons residing in the United States (regardless of citizenship), but also U.S. citizens residing outside the United States, to report annually all financial accounts held through any non-U.S. financial institution to the Treasury Department’s “Financial Crimes Enforcement Network” (FinCEN).

    In a manner similar to the income earned by American emigrants in their country of residence being classified as “foreign” under U.S. tax policies, bank accounts held by American emigrants in their country of residence are also classified as “foreign” under U.S. banking policies. Thus, the bank accounts that American emigrants hold in their respective resident countries—what are, for them, domestic accounts—must be reported to not only the United States but also a “Crimes Enforcement Network.”

    This requirement, referred to as the “Report of Foreign Bank and Financial Accounts” (FBAR), is triggered with a de minimis balance of only $10,000 USD at any time during the year. This balance applies not per account, but for the aggregate amount across all of the emigrant’s non-U.S. accounts. Consequently, if the same $5,000 USD had been deposited in one account during a part of the year and transferred to a different account during another part of the year, then the filing requirement is triggered because the aggregate amounts across all accounts would total $10,000 USD. Civil penalties for failure to file range from $12,921 to $129,210 USD, or 50% of the balance in each unreported account. Further, criminal penalties of up to $250,000 USD or five years imprisonment (or both) may also apply. Because these penalties apply per year and, in some cases, per unreported account, they can accumulate rapidly.

    Unlike Americans living overseas on a short-term basis, American emigrants hold most, if not all, of their assets in financial institutions situated outside the United States. Most adult emigrants, except those of the most modest means or residing in countries with the lowest cost of living, will have account balances exceeding the $10,000 USD threshold in non-U.S. institutions during any given year. Seen from this perspective, U.S. banking policies treat most American emigrants with criminal suspicion for holding ordinary—domestic—bank accounts in the countries in which they live.

    2. FATCA: Making American Emigrants Criminally Responsible

    The second banking policy further criminalizing American emigrants was adopted in 2010 following a decade of Congressional investigations into the practices of certain banks in reputed tax haven countries—such as Switzerland, Lichtenstein, and the Cayman Islands—to assist persons residing in the United States in hiding assets to avoid U.S. taxation. The investigations were led by Senator Carl Levin; his report asserted that “each year, the United States loses an estimated $100 billion in tax revenues due to offshore tax abuses.” The report justified the figure of $100 billion with references to studies of financial accounts held by persons outside the country in which they live (offshore accounts), as well as to studies of multinational companies engaged in fraudulent transfer pricing arrangements involving intangible property. Notably, neither the report nor the studies it relied upon addressed American emigrants who bank and otherwise carry out their financial affairs in the countries in which they live.

    Levin’s resolution to the problem was to develop a list of tax havens and impose special requirements upon U.S. persons who opened bank accounts or formed legal entities in those countries. But this did not go far enough for other legislators, specifically Representative Charlie Rangel and Senator Max Baucus. They successfully pushed through a much more extensive proposal: a law requiring all non-U.S. financial institutions to identify all their clients who are U.S. persons and to disclose detailed financial information about each of those persons to U.S. tax authorities.

    The law applies to anyone who is, or is “suspected” to be, a U.S. citizen, as well as to any green card holder, regardless of where in the world the person in question lives. For those who live outside the United States, the law applies to accounts held in the country in which they live—accounts that are not offshore. The law is called the “Foreign Account Tax Compliance Act” (FATCA), terminology purposely selected for its allusion to “fat cats,” a derogatory expression referring to persons who have become wealthy through questionable means. Implementing instructions for FATCA issued by the Service for non-U.S. financial institutions specifically refer to American emigrants and other Americans living overseas as “suspected” U.S. persons—terminology typically reserved for persons believed to have committed a crime.

    FATCA was adopted in conjunction with a law granting payroll tax breaks and other incentives for businesses in the United States to hire unemployed workers, which was expected to result in a loss of tax revenue; FATCA’s ostensible purpose was to offset this loss by increasing the collection of taxes from sources outside the United States. There is, however, no evidence that FATCA has resulted in any significant increase in tax revenue. This result is not surprising considering that, as mentioned above, even though American emigrants are required to comply with U.S. tax rules and file U.S. tax returns, most do not owe any U.S. tax.

    FATCA obliges non-U.S. financial institutions to (1) identify their “suspected U.S. person” clients and (2) report to the Service detailed information about all accounts held by those clients. The information includes the account holders’ U.S. tax identification (Social Security) numbers, names and addresses, and the accounts’ balances. Institutions who fail to comply risk a severe penalty: a withholding tax of 30% on all payments of the institutions’ U.S.-source income as well as on gross proceeds from the sale of assets that produce U.S source income.

    FATCA also imposes additional reporting obligations on U.S. persons, separately from, and in addition to, the FBAR. More specifically, FATCA requires U.S. citizens holding financial assets outside the United States—so, for American emigrants, assets in the countries in which they live—with an aggregate value of more than $200,000 USD to include a report about those assets with their annual tax return. The penalties for failure to file also exist separately from, and in addition to, FBAR penalties: the non-willful failure to file can incur a penalty of $10,000 USD per year and per account (to a maximum of $50,000 USD per year); the willful failure can incur penalties in the amount of 50% of the value of the asset or $100,000 USD, whichever is greater.

    While these penalties are draconian enough, they are the least of the injustices that American emigrants experience because of FATCA. The additional injustices include the following:

    • The inability to open a bank account in the country in which they live: Many banks outside the United States, fearing their own draconian penalties for failure to comply with FATCA, find it easier to simply refuse U.S. citizens as clients;
    • Removal as a joint account holder with the emigrant’s non-U.S. citizen spouse: Because many spouses of American emigrants do not want their accounts to be reported to U.S. authorities, they refuse to hold joint accounts;
    • The inability to hold certain jobs: Many non-U.S. employers refuse to hire U.S. citizens in jobs that include bank account authority because this would trigger the need to report the employer’s accounts to U.S. authorities. American emigrants are refused entrepreneurial opportunities for the same reason;
    • The inability to serve as an executive officer or in another position with signature authority for a non-U.S. not-for-profit organization;
    • The inability to serve as trustee or hold power of attorney for a family member or to serve as executor for a family member’s estate;
    • The inability to obtain a mortgage either entirely or without having to pay a higher rate.

    In sum, FATCA was adopted in response to tax abuses committed by multinational companies and persons living in the United States. American emigrants are the scapegoat for their actions: FATCA, a “global stop and frisk,” criminalizes American emigrants for committing personal finance abroad.

    C. Profound Effects

    What is it like for American emigrants to live under these policies? What experiences do they have as a result of these policies? The participants in the surveys cited above offer insight:

    The survey participants report being unable to engage in retirement planning, being subject to double or penalizing taxation on retirement and investment income, the heavy burden of completing complex U.S. tax returns each year, the fear of draconian penalties in the event of an innocent mistake, the resentment of non-U.S. spouses who are angered by the intrusion of the U.S. government into their financial lives, feelings of financial vulnerability because they are not able to hold title to family assets, being turned away from banks, being denied community service opportunities, being refused entrepreneurial opportunities and positions of employment, and being unable to operate a viable business.

    One survey participant wrote that U.S. citizenship means “being unable to live without severe restrictions on my life and with the ever present threat of financial ruin.” Another stated: “citizen based taxation is ruining our lives, [it is] unfair [and] I can’t take the stress and anxiety it gives me anymore.” A third wrote: “I feel as if I am a hunted criminal.” Finally, a fourth described: “My life has been turned upside down . . . , a real paradigm shift in my consciousness of having thought of the U.S. as the greatest country in the world and I was very proud to be a citizen, now I feel threatened by my very identity.”

    Many American emigrants have felt they had no choice but to renounce their U.S. citizenship, as the only path available to escape the policies. Renouncing was not a cause for celebration: on the day they renounced, they felt “angry,” “sad,” “torn up,” “grief,” “sick in my stomach,” “heavy heart,” “devastated,” “fraught,” and “holding back tears.” One did “burst into tears,” and another vomited. One former U.S. citizen wrote:

    On the day of my renouncement I was in a fugue state, the only way for me to emotionally survive. Once there I just wanted to punch, kick, scream at the consular official, tell her how much I HATED the U.S. government but obviously that was not the correct behaviour. I don’t think I really heard what she was saying, just put my hand up, signed my name, took a moment to stare right into her eyes and left. Since that day I live with rage, sorrow, relief and confusion about who I am. I am not a REAL Canadian, I am no longer an American, it feels groundless. In reality it doesn’t really matter but yet it does somehow. Americans abroad have become refugees without refuge, U.S. out to destroy them, home nations will not protect them. We are the citizenry of no one, it is actually terrifying and NO ONE CARES.

    Another former U.S. citizen wrote:

    [R]enunciation [is] not one of those things you “get over” . . . . I didn’t feel I had any choice. If I had a choice, I’d still be American.

    And another:

    I felt betrayed by the U.S. and will NEVER forgive them for forcing me to renounce my citizenship; it was part of who I am.

    It is clear from these statements that the extraterritorial application of U.S. taxation and banking policies has had severe financial, social, psychological, and even physical consequences for American emigrants. Given how damaging the policies are, why do they remain in place? This Article answers that question, at least in part.

    III. Placism: A Stigma with Far-Reaching Consequences

    Bigotries such as racism, sexism, ageism, and classism are well known. The terms allow us to call out prejudices and biases based upon race, sex, age, and class. It has been by coining and applying these terms that we have been able to call out previously commonplace attitudes and practices and render them unacceptable. But there are so many more bigotries in the world that we have not yet sufficiently called out, much less rendered unacceptable. One such bigotry is based upon place.

    A. The Stigma of Placism as a Device to Procure Consent for Punitive Policies

    Bigotry based on place relates to prejudices and biases that people, as well as institutions, hold—and the oppression and injustices that result—in connection with the place in which one or more persons reside or from which they originate. A concept akin to racism, the term to denote this particular class of bigotry has not been commonly agreed upon. “Prejudice of place” is used, as well as “placism,” “blemish of place,” “spatial taint,” “stigma of place,” and “territorial stigmatization.”

    Placism occurs when the residents—current and sometimes former—of a certain place are associated with damaging characteristics, such as criminality, immorality, laziness, lack of intelligence, littering or filth, disease, drug use, or danger of some kind, or some combination of these characteristics. As a result of their “collective defamation,” the residents of the place (again, not just current, but also former in some cases) face discrimination in multiple contexts—socially, academically, professionally, and legally. For example: friends and family refuse to visit, teachers label them as problem students, they are rejected by potential employers, and they are subjected to heightened police scrutiny and other penalizing legal measures. The residents adopt coping mechanisms, such as lying about having a connection to the place or taking great pains to explain why they are different from the stereotype assigned to them. Further, it is common for the residents—current or former—to experience anxiety, stress, frustration, dread, and other physical and mental health issues in response to the marginalization, criminalization, and inequality of opportunity that they face.

    While, in contrast to racism, placism is not as quickly understood, it has been recognized and studied in-depth. A common context for this study is urban neighborhoods referred to as “ghettos” (American) and “banlieues” (French). Notably, scholars such as Waquant; Wacquant, Slater and Pereira; Pinkster, Ferier & Hoekstra; Garbin and Millington; Schwartz; and Kornberg, have documented the prejudices that residents of certain urban neighborhoods face—prejudices based not on race per se, but because of the place in which they live. Keene and Padilla have documented the prejudices that former residents of one such neighborhood continue to face after they have moved out, solely because it is a place from which they came.

    Others have exposed placism in other contexts: persons of Liberian origin at the hands of their Dallas neighbors during the Ebola crisis, and those living on an “Indian” reservation in Costa Rica at the hands of persons of the same ethnicity living outside the reservation. Jimerson documented the systemic placism with respect to rural school systems and their students that was institutionalized under the American No Child Left Behind Act of 2001.

    These scholars have exposed placism occurring in different contexts and victimizing different kinds of people in different places in the world. In spite of these differences, their work has an important common thread: the stigmatization of place to justify discrimination in private and public settings (e.g., social situations, schools, businesses, workplaces, and laws themselves) and resulting in differential and unjust treatment by private and public institutions.

    As Tyler and Slater explain, stigma of any kind functions as a form of power and is a weapon of domination over populations—a “device to procure consent for punitive policies” directed at those without power. Stigmatization is a form of governance that legitimizes the reproduction and entrenchment of inequalities and injustices. For Tyler, it is impossible to think of stigma separately from power because it is the most common form of violence used in democratic societies. While stigma is experienced intimately through stigmatizing looks, comments, and slights, stigmatization is “always enmeshed with wider capitalist structures of expropriation, domination, discipline and social control.” In this manner, Tyler argues, stigma is a more “productive” form of power than is currently understood. As a form of statecraft, it legitimizes punitive regimes of citizenship, as well as violent practices of deportation and detention. As Kornberg continues, the stigmatization of place denies those connected to the place of their rights as citizens and forces them to bear the social costs of their own victimization.

    Once a place has been deemed criminal or otherwise deviant in some manner, authorities can more easily justify special measures—including, but not limited to, enhanced policing measures—which can have the effect, if not the intention, of destabilizing and further marginalizing the residents. While this can, and often does, occur on a local level, Kornberg warns that it can also occur on a national or international level. Notably, an international authority or national government may challenge another territory’s authority—that is, challenge its very sovereignty—based upon the criminalization of its residents.

    B. Immigrants to and Emigrants from the United States: Both Victims of Placism

    Certainly, many differences exist between immigrants to and emigrants from the United States. Nevertheless, immigrants and emigrants share at least one important commonality: as persons who either come from or live in a place outside the United States, they have been associated with damaging characteristics.

    This is revealed in comments made by policymakers and other public figures in the United States throughout the country’s history. Examples regarding immigrants follow:

    During the present decade . . . nearly four millions of aliens will probably be poured in upon us . . . nearly four-fifths of the beggary, two-thirds of the pauperism, and more than three-fifths of the crimes spring from our foreign population.
    (Gov. Henry J. Gardner, 1855)
    These sneaking and cowardly Sicilians, the descendants of bandits and assassins, who have transported to this country the lawless passions, the cut-throat practices, and the oath-bound societies of their native country, are to us a pest without mitigation. Our own rattlesnakes are as good citizens as they.
    (New York Times Editorial, 1891)
    There are citizens of the United States, I blush to admit, born under other flags but welcomed under our generous naturalization laws to the full freedom and opportunity of America, who have poured the poison of disloyalty into the very arteries of our national life; who have sought to bring the authority and good name of our Government into contempt, to destroy our industries wherever they thought it effective for their vindictive purposes to strike at them, and to debase our politics to the uses of foreign intrigue. [It has] made it necessary that we should promptly make use of processes of law by which we may be purged of their corrupt distempers. America never witnessed anything like this before.
    (Pres. Woodrow Wilson, 1915)
    [Immigrants are] taking our jobs . . . they’re taking our money, they’re killing us.
    (Pres. Donald Trump, 2015)
    [Immigrants] have come here to rape and murder our people. We know that.
    (Laura Ingraham, Fox television host, 2016)
    [The Potomac River] has gotten dirtier and dirtier and dirtier and dirtier. I go down there and that litter is left almost exclusively by immigrants.
    (Tucker Carlson, Fox television host, 2019)

    These quotes expose longstanding and deep-seated prejudices against persons who come from outside the United States. For these policymakers and public figures, immigrants are filthy, dirty, job-stealing criminals. The comments of these policymakers and public figures are an important preface to understanding the sources of current U.S. policies that criminalize and punish immigrants in the United States.

    The following comments about emigrants are equally revealing:

    If a man draws his income from our public debt, or from property here, and resides in Paris, skulking away from contributing his personal support to the Government in this day of its extremity, he ought to pay a higher income tax.
    (Sen. Jacob Collamer, 1864)
    There are a great many people, I am sorry to say, who go abroad for [the] very purpose [of escaping the obligations of U.S. citizenship]. They lived in luxury, at the same time at less cost, in a foreign capital; they had none of the voluntary obligations which rest upon citizens, of charity, or contributions, or supporting churches, or anything of that sort, and they escaped taxation.
    (Sen. George Hoar, 1894)
    These miserable souls are not fleeing conventional forms of oppression, such as the famine, dictatorship, torture, and murder that have caused millions to seek haven in the U.S. through the generations. These are rich folks who . . . are giving up their American citizenship [because] they “can’t pay the federal tax rate and live in the style they want.” Poor babies!
    (Michael Kinsley, political commentator, 1994)
    [Americans] are going to great lengths, thousands of miles to other countries, to avoid paying their fair share. In a metaphorical sense, burning the flag, giving up what should be their most sacred possession, their American citizenship, to find a tax loophole. . . . These are precisely the sort of greedy, unpatriotic people that FDR called malefactors of great wealth. . . . Let us not allow more of these rich freeloaders to get away.
    (Sen. Max Baucus, 1995)
    I would hope that one day we will just publish the names of people that America has given so much to and that they care so little about that citizenship that they would flee in order to avoid taxes.
    (Rep. Charles Rangel, 1995)
    How can you say that we should all do our share in America, including making all the kids, and the elderly people, and everybody else, have to contribute to the deficit, to bring it down, and at the same time allow these sleazy bums, who don’t want to pay their taxes, to leave this country, and renounce their citizenship, and expect me to have one iota of sympathy for them?
    (Rep. Neil Abercrombie, 1995)
    If you’ve gotten your riches from America, you should pay your fair share of taxes. These expatriates are really like economic Benedict Arnolds.
    (Leslie Samuels, Ass’t Sec. (Tax Policy), U.S.
    Department of the Treasury, 1995)
    When Silicon Valley billionaires run abroad, they go to Bermuda to avoid paying their fair share of taxes. What patriotism! What love of country!
    (Sen. Bernie Sanders, 2019)

    These comments expose longstanding and deep-seated prejudices against Americans who live outside the United States. For these policymakers and public figures, American emigrants are rich, unpatriotic, lazy, tax dodgers. And just as prejudices against immigrants are reflected in U.S. policies towards immigrants, prejudices against emigrants are similarly reflected in U.S. policies towards emigrants.

    IV. How Placism Is Used to Support the Policies

    The terminology “GILTI,” “FATCA[T],” and “suspected U.S. person” enshrines the prejudice towards American emigrants in the very texts of U.S. taxation and banking laws and official documentation issued by U.S. federal agencies (i.e., the Service). The policies are a reflection of the prejudices espoused by U.S. policymakers and other public figures, as seen above in Part III.

    U.S. policymakers did not develop their prejudices in a vacuum. To the contrary, both the academic press and the popular media contain multiple examples that stigmatize American emigrants. U.S. policymakers, as well as the American public more generally, are influenced by these examples.

    A. Placism in the Academic and Trade Press

    One example is that of economics professors Emmanuel Saez and Gabriel Zucman, who acted as advisors to Senator Elizabeth Warren during her 2020 Presidential campaign. During her campaign, Warren proposed a “Medicare for All” plan, which she explained could be paid for in part by increasing taxes on the wealthy—including “an exit tax of 40% of net worth” for those who renounce U.S. citizenship—and by strengthening the enforcement of FATCA in order to “crack down on tax evasion and fraud.” Saez and Zucman, considered the principal architects of the Warren proposal, have written and spoken extensively in support of current U.S. taxation and banking policies as they relate to American emigrants. In their work, Saez and Zucman refer to persons who contemplate emigration as “mobility threats.” Their work promotes current U.S. taxation and banking policies, as well as their reinforcement, as an effective way to address that threat and thereby reduce, if not end, emigration from the United States. Nothing in the work of Saez and Zucman suggests that anyone other than the extremely wealthy might emigrate from the United States or that anyone—wealthy or not—might emigrate for any reason other than tax avoidance.

    Zucman’s work goes further. It expressly denies that expatriation is a human right, stating, “there is no natural right to expatriation once one’s fortune is made.” This denial ignores four international human rights instruments, each of which specifically provides that expatriation—the right to leave any country, including one’s own—is a human right. These instruments do not make an exception for wealthy persons nor do they subject the right to expatriate to any kind of “acceptable” reason for seeking to expatriate or to any reason at all. Further, Zucman’s denial of this human right is in direct opposition to the stance taken by the U.S. Congress: in 1868, when protesting the forced military conscription by England of English emigrants to the United States, Congress declared that “the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty and pursuit of happiness.” Saez and Zucman disagree. They describe the “threat” of expatriation as “primarily a policy variable.”

    Other examples from the academic and trade press include the following:

    Michael Kirsch: When organizations representing American emigrants describe the effects that the extraterritorial application of U.S. taxation and banking policies have on American emigrants, Kirsch discounts their descriptions as insufficiently “neutral.” He does concede that these policies present “compliance burdens,” but only when this information comes from a source other than those actually experiencing their effects, such as the National Taxpayer Advocate. And even if the policies do present “compliance burdens,” Kirsch insists that Americans living overseas must remain U.S. tax residents because anything else would “create the perception” that U.S. citizens, including “athletes, entertainers, or other high-profile citizens,” can “voluntarily excuse themselves” from U.S. taxation, and thereby, “undermine the cohesion of American society.” For Kirsch, it is clear: if the United States were to tax on the basis of residency only and not citizenship, the necessary result would be an exodus of wealthy persons from the United States; conceivably most, if not all, wealthy persons who were in a psychological and professional position to leave would immediately do so, for no other reason than to reduce their tax liability. Thus, he concludes, the current policies must remain in place because they enable the United States to avoid the “potential to create a permanent class of wealthy U.S. citizens abroad who would not be subject to taxation.”
    Patrick Driessen: Driessen’s approach is similar to Kirch’s. Driessen concedes that there “may be” grounds for sympathy for overseas “taxpayers with limited resources,” but their numbers are simply not sufficient to justify a shift from a tax system based upon residency rather than citizenship. Such a move, he asserts, “could disproportionately benefit a select group of high-capital-income and high-wealth citizens residing in the United States and abroad.”
    Ahrens and Bothner: Ahrens and Bothner hail FATCA (together with the Common Reporting Standard) as “the first effective international cooperation against tax evasion.” Ahrens and Bothner do not countenance that FATCA might affect anyone other than “affluent households.” In their praise of FATCA, they do not envisage that FATCA might apply to or have an effect—any effect, positive or negative—on ordinary or low-income households or in countries that are not tax havens. Their defense of FATCA is premised upon dual assumptions: (1) individuals are citizens of only one country and (2) if an individual holds a financial asset of any kind outside his or her country of (single) citizenship, that individual can only be affluent and motivated by the desire to evade taxes.
    De Simone, Lester and Markle: De Simone et al. assume the righteousness of FATCA. They seem to approve of the stigmatizing nature of the law’s name, explaining it is intended to resemble “fat cats” as a signal of “cracking down on wealthy individuals.” They declare that “U.S. individuals will appear as foreign buyers when purchasing foreign real estate with hidden wealth.” This declaration makes it clear that for De Simone et al., if a U.S. citizen (dual citizen, permanent resident, or not) purchases real estate outside the United States, it is necessarily with “hidden wealth” as opposed to funds sourced, declared, and taxed in his or her country of residence.

    B. Placism in Popular Media

    The popular media also stigmatizes American emigrants by propagating depictions of them in a villainous light, seeking to avoid U.S. taxation while leading lives of indolence, typically on a tropical beach. Figures 1, 2, and 3 provide three examples. Using just an image and a headline, their message is clearly communicated.

    The examples in this Part IV demonstrate that within both academia and the popular media, stereotypes and prejudices towards American emigrants are deeply entrenched. The stereotypes and prejudices influence both U.S. policymakers and the American public. This rarely challenged stigmatization of American emigrants serves to entrench U.S. policies, which criminalize and punish American emigrants for no reason other than because they reside outside the United States.

    Figure 1

    Figure 1

    Figure 1

    Figure 2

    Figure 2

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    Figure 3

    Figure 3

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    V. How U.S. Taxation and Banking Policies Undermine the Sovereignty of the Countries in Which American Emigrants Live

    This Article uses the expression “American emigrants” to refer to persons holding U.S. citizenship who live in many countries around the world. The choice of the word “emigrant” was deliberate, intended to underscore that the persons in question are not short-term visitors with plans to return to the United States. On the contrary, they are long-term residents, many of whom are also citizens of the countries in which they live—for some as a result of naturalization and for many others from birth. Some were born in the United States to non-U.S. parents and, while still young, left with their families to return to their parents’ home country. Many are the spouses of, or in long-term relationships with, citizens of the countries in which they live, where many have raised their own children. All have a demonstrated commitment to their countries of residence. Some, in fact, are not emigrants at all: they were born and have lived their entire lives outside the United States and are U.S. citizens by virtue of the U.S. citizenship of at least one parent.

    Nevertheless, the injustices American emigrants experience because of the extraterritorial application of U.S. taxation and banking policies are typically portrayed as injustices experienced by “Americans overseas.” This framing allows for the inference that this is a problem confined to Americans and to be resolved among Americans, with no meaningful implications for the countries in which American emigrants live. This framing enables policymakers in those countries to overlook—indeed, outright deny—their responsibility as policymakers to protect their citizens and residents from the encroachment of a foreign power. This (lack of) response by those policymakers—to the injustices that originate from, and are maintained by, placism—was predicted by Kornberg when she observed that placism denies those connected to the place of their rights as citizens and forces them to bear the costs of their own victimization.

    Kornberg made another prescient observation: a single country may challenge the sovereignty of another by vilifying some or all of the residents of that other country. The extraterritorial application of U.S. taxation and banking policies does this by overriding at least seven different kinds of policies in the countries in which American emigrants live, in favor of policies prescribed by the United States.

    A. Data Protection Policies

    FATCA requires non-U.S. financial institutions to obtain and communicate detailed information about their U.S.-citizen account holders to the Service. The information includes sensitive personal data, such as the client’s home address, account balances, and, most notably, the client’s U.S. tax identification number (Social Security number or SSN). (American SSNs are especially sensitive data because they are used for many purposes beyond tax identification in the United States, and for that reason can be used to facilitate identity theft.) Non-U.S. financial institutions are required to obtain this data and communicate it to the Service for no reason other than the fact that the client is a U.S. citizen (or green card holder); any suspicion that the client has committed tax evasion or any other crime is not required.

    Taking the European Union as an example of how U.S. banking policies override the policies of the countries in which American emigrants live (many of whom, again, are also citizens of those countries), the Charter of Fundamental Rights of the European Union (Charter) provides both that “everyone has the right to the protection of personal data concerning him or her” and that “such data must be processed fairly for specified purposes.” Further, the European Union’s General Data Protection Regulation (GDPR) contains a number of additional requirements regarding the collection and use of personal data. These include the requirement that personal data be collected only for “specified, explicit and legitimate purposes.” While the GDPR allows for certain restrictions on data protection rights, these restrictions must be “necessary and proportionate measure[s] in a democratic society.”

    FATCA violates both the Charter and the GDPR. As Baker explains, data collected in accordance with FATCA is processed for the vague purpose of “taxation,” which is not sufficient to meet the Charter’s (or the GDPR’s) requirement for specificity. Further, as the European Union’s Policy Department for Citizens’ Rights and Constitutional Affairs explains, FATCA is neither necessary nor proportionate under the GDPR because (1) for Americans residing in Europe, the E.U. financial system is not a vehicle for offshore tax evasion, (2) FATCA does not require any indicia of unlawful behavior, thereby raising compliance costs for persons who do not demonstrate any conduct that can be connected to tax evasion, and (3) despite the fact that most “U.S. persons” residing in Europe do not owe U.S. tax, FATCA exposes them to onerous fines and penalties for commonplace and inadvertent reporting errors for no compelling reason.

    The conclusion that FATCA violates European Union data protection policies was strengthened by a July 16, 2020 decision of the European Union Court of Justice. This case concerned the objection by a privacy activist residing in Austria to Facebook’s routine transmission of data from its Ireland-based European headquarters to its parent in the United States. The activist objected to this transmission on the grounds that the legal framework for data protection in the United States is not sufficient to protect the personal data of residents of the European Union as guaranteed by the Charter and the GDPR. The European Commission argued that the protections offered by the United States are adequate, but the Court agreed with the complainant. In doing so, the Court invalidated the Privacy Shield, a framework designed by the U.S. Department of Commerce and the European Commission to enable data transfers from the European Union to the United States. This decision is expected to result in increased scrutiny of all forms of data transfers from the European Union to the United States, with transfers pursuant to FATCA being first in line.

    B. Banking Policies

    As discussed above, a key instigator for FATCA was a Congressional report issued by Senator Carl Levin. Levin’s Chief Counsel, Elise Bean, later wrote a book describing her experiences working for Levin, including her work on the investigations leading to Levin’s report and the subsequent adoption of FATCA. Her book includes a passage that openly acknowledges the violation by the United States of the sovereignty of other countries in the adoption of FATCA, as well as the failure of basic democratic principles (in so far as democracy generally involves a participatory role by the governed in the development of the rules applicable to them, even if indirectly through the election of representatives). Bean writes:

    Most foreign banks had little to no notice of FATCA until after it became law. . . . [M]any erupted in protest, but were unable to overcome the U.S. bank lobby or public anger with offshore tax abuse. They were stuck with the U.S. law. And if they wanted to keep investing in U.S. treasuries without paying the 30% excise tax, they were stuck with having to disclose their U.S. client accounts.

    In this passage, Bean does not just explain but boasts that neither non-U.S. banks nor individuals associated with them, let alone policymakers in countries outside the United States or their citizens, played any role in the adoption of FATCA. This was the case even though non-U.S. banks—and their operations in countries outside the United States—are one of the law’s principal targets. While FATCA has been implemented in different countries by means of “Intergovernmental Agreements” (IGAs), there is little illusion that these were entered into voluntarily by those countries, let alone on an equal footing with the United States. To the contrary, as Wisiackas explains and as Bean’s boasting confirms, the IGAs are representative of “coercion by an economic bully.”

    The manner by which FATCA subverts the sovereignty of other countries is also evidenced in its lack of reciprocity. Many of the IGAs establish purely one-way information transfers to the United States; indeed, the flow of data from the United States was not even considered. Other IGAs, such as those concluded with European Union member states, establish the one-way transfer of data to the United States while also anticipating that the United States will join a reciprocal exchange, notably the Common Reporting Standards (CRS) developed by the Organization of Economic Cooperation and Development (OECD).

    Despite intimations by some that FATCA is a reciprocal exchange, it is not. This fact was noted with “regret” in a December 2019 letter from the Council of the European Union to the U.S. Secretary of the Treasury, Steve Mnuchin. This letter politely inquired: “We would appreciate to be informed of the plans of the Government of the United States to achieve equivalent levels of reciprocal automatic information exchange as well as the schedule for such actions.” Mnuchin delegated to Deputy Assistant Secretary, Chip Harter, the task of responding; in his March 2020 letter, Harter would commit to nothing more than continuing “to work towards achieving equivalent levels of information exchange.”

    C. Human Rights Policies

    FATCA requires non-U.S. financial institutions to identify who among their customers are “suspected U.S. persons” and to collect personal data (including addresses and SSNs) with respect to those persons. As implemented under the various IGAs, FATCA then requires the financial institutions to transmit that data to the Service via the intermediary of the originating country’s taxation authority.

    Described another way, FATCA requires non-U.S. financial institutions, as well as their respective countries’ tax authorities, to treat people differently based upon their national origin-nationality. More specifically, private actors (the financial institutions) are required to compile and maintain lists of persons who have a certain national origin-nationality (i.e., American), together with their personal data, such as their home addresses. They are then required to transmit this data to a public agency (the country’s taxation authority), which, in turn, transmits it to a foreign power—the United States. As explained in Part I of this Article, the administrative burdens that these obligations place upon non-U.S. financial institutions, combined with the severe penalties they face if they do not comply, have resulted in many non-U.S. financial institutions simply refusing to hold accounts for persons whose national origin-nationality is determined to be American.

    Several human rights instruments outside the United States prohibit discrimination on the basis of national origin or nationality. Two examples are the Canadian Charter of Rights and Freedoms, which prohibits discrimination based on national origin, and the Charter of Fundamental Rights of the European Union, which prohibits discrimination on the grounds of nationality. Further, no fewer than three international human rights instruments, which many countries have signed or ratified, prohibit discrimination on the basis of national origin. These instruments include: The Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights, and the International Convention on the Elimination of All Forms of Racial Discrimination. These protections were developed in direct response to Europe’s experience of the holocaust before and during World War Two, another period in history when lists of undesirable persons were kept.

    Today, because of the stigmatization of American emigrants (again, many of whom are citizens of the countries in which they live), FATCA, which is U.S. law, supersedes these international human rights instruments as well as European Union and country-level human rights protections.

    D. Retirement Planning Policies

    Many countries around the world have developed retirement planning policies to encourage retirement savings by their residents. They are intended to assure that the country’s residents will have the resources required for retirement. Perhaps most especially, they are intended to minimize the number of residents who become a public charge upon retirement.

    One example is Australia’s superannuation. This is a retirement scheme to which Australian employers are required to contribute on behalf of each of their employees—all employees, regardless of citizenship status. The employee has the option of making additional voluntary contributions, from either pre- or after-tax income. The employer’s contributions, as well as the employee’s pre-tax voluntary contributions, are taxed at a rate lower than the rate that would otherwise be applicable and, after age 60, withdrawals are tax-free. Participation in the scheme is uneven: men make more voluntary contributions than women and high-income earners make more voluntary contributions than low-income earners. The Australian government has implemented measures to promote increased voluntary contributions, such as by making “co-contributions” to the accounts of some low- and middle-income earners in amounts that depend upon the amounts of their own contributions and by offsetting the contribution tax for certain low-income earners.

    While “simple” might not be the right word to describe the scheme, “especially complex” would be similarly inaccurate—except as applicable to American emigrants. The scheme is not recognized under U.S. tax rules. As a result, for American emigrants in Australia, participation can easily become complicated and expensive. To begin, contributions are included in the emigrant’s U.S. taxable income as the contributions are made. Further, income earned inside an account is subject to taxation in Australia, but this tax is not recognized under U.S. tax rules, meaning that this income is taxed again by the United States. Further, while the basic elements of superannuation are relatively simple to report to the Service, the reporting becomes complex if the emigrant seeks to make after-tax voluntary contributions (they can qualify as a grantor trust) or seeks to move the account to a new fund (this could be treated as constructive receipt and therefore taxable by the United States). Emigrants considered to be “highly compensated” under U.S. rules are required to include in their income any change in the value of the account. This is problematic in itself; however, the dilemma heightens when considering currency fluctuations, as an emigrant may be “highly compensated” one year but not the next. Finally, it is more likely than not that withdrawals will be included in the emigrant’s U.S. taxable income without the beneficial allowance of either the Foreign Earned Income Exclusion (FEIE) (it is not earned income) or a foreign tax credit (no foreign tax was paid).

    The end result is that many American emigrants in Australia participate in the scheme only to the extent mandated under Australian law, eschewing voluntary contributions and avoiding changing funds. They understand that, because they are U.S. tax residents, any greater participation would, at the very least, not be financially beneficial and, quite possibly, could even be dangerous, especially when considering the possible penalties in the event of a reporting error. This outcome disadvantages American emigrants relative to other Australian residents who are able to take full advantage of the tax incentives offered by superannuation. In addition, this outcome thwarts the intentions of Australian policymakers to encourage greater voluntary participation in the scheme. Ultimately, it results in American emigrants residing in Australia having fewer resources available to them upon retirement and increases the probability that they will qualify for a means-tested pension and thereby become a public charge.

    Another example concerns Canada. Prior to 2018, Canadian tax rules incentivized small business owners to retain earnings in their companies as a way to fund retirement. More specifically, because of differences in the applicable tax rates, business owners were encouraged during their active years to limit what they drew from the company in salary and dividends to only what was necessary to fund current needs. They were encouraged to accumulate the remaining income in the company as retained earnings as a form of savings. These savings could either be invested passively to accumulate additional income or held as cash. Either way, upon retirement, the owner could wind down the company’s activities except for the savings, which could be drawn down, through the payment of dividends, as a form of income during retirement.

    For American emigrants operating small businesses in Canada (including incorporated professionals, such as doctors and lawyers), the “Tax Cuts and Jobs Act” (TCJA) dealt a devastating blow to their retirement planning. The “Transition Tax” (or the “Repatriation Tax”) contained in the TCJA imposed a 17.54% retroactive tax on the retained earnings of their Canadian companies for tax years 1986 to 2017. The tax imposed was not on the companies themselves but on their American emigrant owners, as individuals. As a result, American emigrants operating small businesses in Canada found themselves required to liquidate large portions of their retirement savings—in amounts ranging from $200,000 to $4 million USD—to pay the U.S. Transition Tax—a liquidation that, in turn, triggered its own Canadian tax and, in many cases, resulted in double taxation.

    In a manner similar to Australia’s superannuation, this result disadvantaged American emigrants living in Canada relative to other Canadian residents who were (and are) able to take full advantage of the tax incentives offered by Canada. This result penalized the emigrants for saving for retirement and decreased the resources available to them upon retirement. Finally, it subverted the intentions of Canadian policymakers who intended that these emigrants have access to those resources upon retirement.

    E. Savings, Investment, and Succession Planning Policies

    Countries also adopt policies intended to encourage their residents to save and invest independent of retirement planning. Savings and investment by households benefit not only individuals and families—because they are better equipped to face their financial needs—but also a country as a whole, as savings and investment are important drivers of a country’s economic development, global competitive advantage, and standard of living for its populace.

    One example of a country encouraging its residents to save and invest is the United Kingdom’s Individual Savings Account (ISA). Highly popular, ISAs allow U.K. residents, regardless of citizenship, to invest up to £20,000 ($26,700 USD) per year into one of four types of tax-advantaged accounts. Payments into the account are made from after-tax income; thereafter, income generated by the account, as well as withdrawals, are tax-free. In addition to the allowance for cash to be held, the scheme allows various other investments, such as stocks and shares (including mutual funds) as well as so-called “innovative finance,” also referred to as “peer-to-peer lending.” The scheme includes a “Lifetime ISA” account, which encourages persons between the ages of 18 and 40 to save for the purchase of a home. Not only is a “Lifetime ISA” tax-advantaged similarly to other kinds of ISA accounts but, in addition, the U.K. government adds a 25% bonus to the account holder’s savings, up to a maximum of £1,000 ($1,340 USD) per year.

    For American emigrants in the United Kingdom, ISAs present many of the same kinds of problems that superannuation presents for American emigrants in Australia. The scheme is not recognized under U.S. tax rules. As a result, American emigrants in the United Kingdom cannot benefit from the advantages offered by ISA, like other U.K. residents. Moreover, the income generated by the account is taxable by the United States. This includes not only interest income, dividends, and capital gains (regardless of whether cash is distributed), but also likely, in the case of a Lifetime ISA, the bonus granted by the U.K. government. Further, mutual funds held in an ISA will often qualify as Passive Foreign Investment Companies (PFICs), which are subject to U.S. taxation; any penalties on such PFICs will often eliminate (or at least greatly diminish) the gains on investment. To add insult to injury, any investments deemed to be a PFIC or a trust that are held in an ISA will require compliance with highly complex U.S reporting requirements that will almost surely involve professional assistance, naturally at a cost.

    Unsurprisingly, many U.K.-based financial advisors either warn American emigrants away from most types of ISAs or frighten them with terrifying descriptions of the potential penalties and burdensome filing requirements. Even though ISAs are considered “fundamental pieces of a U.K. financial strategy,” they present many pitfalls to American emigrants while offering relatively insignificant benefits in return.

    For American emigrants living in France, “assurance vie” presents similar problems. Assurance vie is a versatile financial vehicle that can be used for tax-advantaged saving and investment, as well as inheritance purposes. It has been described as “one of the best ways” for French residents to invest money and organize their inheritance. Like ISAs, payments into the account are made from after-tax income and the income generated in the account is tax-free. Withdrawals are still taxed, albeit at lower rates than would otherwise be applicable, and some withdrawals up to a certain amount are tax-free after eight years. Assurance vie accounts offer another important advantage: they allow French residents to bypass what are considered archaic succession rules, which, most notably, favor a decedent’s children over his or her spouse, even if contrary to the decedent’s wishes. The holder of an assurance vie account can designate anyone as a beneficiary—including more than one person; therefore, the holder can better provide for a spouse as well as others, such as step-children, after death. Using assurance vie as a succession vehicle also offers tax advantages, as distributions up to a certain amount are tax-exempt.

    While the literal translation of “assurance vie” is “life insurance,” these accounts are not treated as typical life insurance policies under U.S. tax rules. Instead, like many forms of U.K. ISAs, assurance vie accounts are treated as PFICs. As explained above, this means that they trigger complex and expensive U.S. reporting requirements, and any gains are taxed at rates as high as 50% in some cases. Given these circumstances, it is, again, no surprise that France-based financial advisors caution American emigrants against holding assurance vie accounts or effectively do so through frightening descriptions of the U.S. tax consequences.

    These examples of the United Kingdom’s ISA and France’s assurance vie demonstrate how the extraterritorial application of U.S. taxation policies displace other countries’ savings and investment policies and, in the case of France, succession planning policies. Policymakers in both the United Kingdom and France intend to encourage their residents to save and invest in their respective countries by means of these investment vehicles. Moreover, French policymakers intend to allow French residents to use assurance vie as a tool for succession planning. U.S. taxation policies flout these intentions and impede upon the sovereignty of other countries by making these vehicles utterly impracticable for their residents who have emigrated from the United States.

    F. Fiscal and Monetary Policies

    As discussed in Part II, American emigrants remain U.S. tax residents after leaving the United States. Because they are also tax residents of the country in which they live, they are subject to two tax systems. Living subject to two tax systems means that an American emigrant will pay the higher of the two tax rates applicable under each system. If, for any given income, the applicable tax in the emigrant’s country of residence is higher than that of the United States, then the emigrant pays that higher amount in his or her country of residence and claims a tax credit for U.S. tax purposes; in many (but not all) cases, no tax will then be due to the United States with respect to that income. (If the tax rate of the American emigrant’s country of residence is higher than the U.S. tax rate, the emigrant may not elect to pay tax at the lower U.S. rate; an American emigrant must pay taxes in the country of residence at the same rate as other residents of that country, even when the applicable rate exceeds the U.S. tax rate.)

    If, however, for any given income, the applicable tax rate in the emigrant’s country of residence is lower than that of the United States, or if that country does not tax the income at all, then the emigrant will still be liable to the United States for the difference between the lower foreign rate and the U.S. rate; a foreign tax credit will not alleviate this taxation discrepancy as the credit is limited to the amount of foreign tax that is actually paid.

    It is at this stage that many persons who consider themselves knowledgeable with respect to U.S. taxation contend that the Foreign Earned Income Exclusion (FEIE), which allows Americans living overseas to exclude from U.S. taxation a maximum amount each year (i.e., $107,600 USD for 2020), would solve the problem. However, the FEIE applies only to earned income and not to interest, capital gains, insurance proceeds, or many forms of pension income or welfare benefits, such as unemployment, maternity, and disability. That is, the FEIE does not apply to the very types of income that American emigrants are likely to have the longer they live—and grow their families, grow ill, and grow old—outside of the United States. At the same time, many countries either tax many of those forms of income at low rates or do not tax them at all.

    The injustice of this situation for American emigrants is obvious: they are not in the same position as the non-U.S. citizens of the countries in which they live. If the United States taxes unearned income that is not taxed by the country in which the American emigrant lives, or is taxed at a lower rate, then the American emigrant will be required to pay tax on that income at the U.S. rate while the non-U.S. citizen—who could easily be the American emigrant’s next door neighbor—will not. This result—which cannot foster social cohesion in the countries in which American emigrants live—is ironic, especially considering Kirsch’s adamant insistence on American emigrants remaining subject to U.S. taxation under the same conditions as U.S. residents because anything less, in his opinion, would jeopardize social cohesion in the United States.

    This result does more than undermine social cohesion in the countries in which American emigrants live; this result overrides the fiscal policies of those countries in favor of U.S fiscal policies. A country’s decision not to tax a certain form of income, or to tax it at a low rate, is a deliberate policy choice. For example, upon the death of a spouse, a country may impose minimal (or no) tax upon the sale of the couple’s assets to ensure that the surviving spouse is able to preserve resources during a vulnerable time in his or her life. A country may impose minimal (or no) tax on certain forms of insurance proceeds, pension payments, welfare, or disability benefits for the same reason. When the United States asserts citizenship-based tax liability on such an individual (who, again, may also be a citizen of the country of residence), it undermines the intentions of the policymakers—and, indirectly, of the citizens who elected them—in those countries. This result is especially egregious when the benefits are paid from public coffers.

    This result also overrides the monetary policies of the countries in which American emigrants reside. When an American emigrant pays income tax to the United States based on income originating from outside the United States, this reduces the money supply in the American emigrant’s country of residence. This has at least two consequences: (1) It reduces the money in circulation for the purchase of goods and services in that country. While this is generally undesirable for any country, it is especially undesirable for countries in the euro-zone, as these countries do not control their own money supply; and (2) It increases inequality between the United States and the country in which the American emigrant resides. The tax payments represent the transfer of resources from the country in which the American emigrant resides to the United States, all of which occurs entirely outside the oversight or control of those responsible for monetary policy in the country in which the American emigrant resides.

    In sum, the extraterritorial application of U.S. taxation and banking policies negates data protection, banking, human rights, retirement planning, savings and investment, succession planning, and fiscal and monetary policies of many countries around the world. It thwarts the policy intentions and undermines the authority of the policymakers in those countries. Kornberg is correct: by stigmatizing and criminalizing American emigrants, the United States jeopardizes the sovereignty of every country in the world in which American emigrants live.

    VI. Conclusion

    “FATCA[T],” “GILTI,” “suspected U.S. person”: It is time to call out the prejudices and biases held towards American emigrants. Just as immigrants to the United States are not all filthy, dirty, job stealers, emigrants from the United States are not all filthy rich tax dodgers. They are ordinary people seeking to lead ordinary lives in the places in which they live, but they are prevented from doing so because of the extraterritorial application of U.S taxation and banking policies.

    It is only by calling out these prejudices and biases that society can render them unacceptable and thereby realistically seek changes to the policies that actively discriminate against American emigrants. Otherwise, as long as policymakers and other public figures, academic commentators, and the media continue to stigmatize American emigrants, the policies are unlikely to change.

    Citizenship is a human right. Leaving one’s country and returning to it are human rights. Countries, also, have a right to self-determination. The extraterritorial application of U.S. taxation and banking policies—which is justified through the stigmatization of American emigrants—places all of these rights in peril.

    The views expressed in this Article are the Author’s and do not necessarily represent the views of any other person or organization. The Author is grateful to Jeremiah Joven Joaquin and Hazel Biana for inspiring this Article. The Author thanks Karen Alpert, John Richardson, Jenny Webster, and Francine Lipman for their invaluable assistance. The Author further thanks The Tax Lawyer’s editorial team for their invaluable improvements and suggestions.

      Author