Tiebout Progressivity: That Didn't Take Long

Yes, U.S. citizens are tax slaves. To free yourself of the claw of the almighty state, you must buy your freedom by obtaining citizenship somewhere else first and then paying an exit tax to renounce your U.S. citizenship and if the USA feels like letting you go, it will. If not? Too bad for you. I’m sure every European country would like to be able to shake down its citizens as well, but they simply lack the resources.

A French friend of mine informs me that the exodus from France is well underway. I remember a few years ago that Sarkozy had to make a campaign trip to London because 300,000 French citizens took refuge there.

To take Bruce Bartlett’s point a little further to its reality.

It isn’t that movement within the EU is very easy. It’s that the basic rules of the EU forbid there being any impediment whatsoever to such movement.

For a Frenchman to remove himself from the tax orbit of the French Government requires only that he get on the train (or bus, drives a car, whatever) to any of the other 26 EU states.

And that’s it.

France is not allowed to stop this move in any manner. A change of citizenship is not required. No work permit must be found for the new country. It is not possible to charge an exit tax. In most of Europe there isn’t even a passport check at the border. If you drive no one even knows you’ve gone or arrived.

Changing domicile (which can matter for capital and inheritance taxation) is more difficult, but changing tax residence really does just require that one move to some other tax jurisdiction for a sufficient period of the year.

You don’t even have to establish tax residency elsewhere: just being absent from a jurisdiction for more than 180 days a year means you’re free of that tax system in most cases.

The only place this doesn’t apply to is Monaco but that’s not in the EU anyway.

I’m not certain that I find the idea that you may be subject to some sort of ‘equivalent to estate tax’ when leaving to be in and of itself objectionable.

If you are going to institute an estate tax (which I’m not a big fan of, but that’s a government’s prerogative), then it seems pretty natural that you’re going to have to plug that particular hole to prevent citizens obtaining the benefit of citizenship while it was profitable for them to do so, and then renounce it before (one of) the major bills comes due.

So, Tom West, you don’t think that the slaves should not be able to escape, eh?

You see the USA as a kind of roach motel. Attract people with the promise of a better life, of freedom and property rights, and then trap them or the property they toiled to bring into existence. A bait and switch worthy of the most despotic despot.

Of course, people are smart and government is pretty ….not smart. Only the suckers or people who die young ever get stuck with that bill you’re talking about.

Methinks, you are right. My analogy to the Estate Tax was meant to capture the “spite” of the law, not the specific financial consequences. Of course, the actual financial consequences could be substantial when your net worth includes deferred compensation and appreciated property (I have to check on the inflation adjustment, which is usual for gains taxation) and/or the your basis of your property is low (depreciation?). The tendentiousness of the law includes the declaration that beyond a certain income/net worth level, expatriation is deemed to be for the purposes of tax avoidance. Also, there is a bill in the Senate that I believe raises the “exit cost” further. Taken in conjunction with the ongoing practice of worldwide taxation, this exit fee renders the US income tax system as possibly the most comprehensively (unavoidable) progressive in the world, and many don’t know this.

Sweet Lord in heaven! When the dam on the spam filter at EconLog breaks it releases everything. I swear, I did not intend share my opinion with Tom West thrice! Mea culpa for trying to solve the problem without consulting Lauren.

Methinks, I’m a little confused. (heh, just reread how that came out).

I understand the Roach Motel idea, although quite frankly, as I understand it, it’s not hard to leave, you just don’t get to take everything you made while here with you (at least while the US has an estate tax).

I don’t think people are stupid. Those migrating to the USA probably strongly consider the taxes they will pay worth the benefits of citizenship. Goodness knows we even get the occasional immigrant who comes to Canada as their first choice, and our taxes are even higher!

Only the suckers or people who die young ever get stuck with that bill you’re talking about.

This statement I don’t understand. The suckers and the people who die young are the people *least* likely to get hit with an estate tax. Would you be willing to clarify?

Tom West,

Well, there’s no estate tax issue with leaving the country, as MG clarified.

The problem with the U.S. in general is that no exit tax may exist when you come to the United States and then they can change the rules. And they do. So, I reject the notion that all immigrants come to the U.S. with some kind of knowledge of a tax that did not exist when they made the decision. Actually, tax uncertainty is a long term planning problem for businesses too. And what of natural born citizens? They made no choice at all.

Of course there’s no problem if the country charges a 100% tax of any kind – if you happen to think that your property belongs to the State and you are a mere slave of the State which has generously allowed you to use the property you created but it owns. Somehow, I doubt very much this is what the founders had in mind or what Americans consider freedom or protection of property rights.

Keep in mind, though, that we’re not talking about general taxation here but a shakedown in order to simply let you give up your citizenship – lose jurisdiction over you. If we’re a-okay with that (I don’t think we are here in the U.S.), then let’s just end the lie that America is a truly free country that hasn’t significantly closed its borders. A heavy exit tax (whatever form it may take) is a way of closing off your borders to people wanting to immigrate out.

Yes, of course, I’ll clarify what I said about the estate tax. The rich have multiple methods of avoiding estate taxes by setting up things like irrevocable trusts. The “suckers” are the people who are not very wealthy and can’t afford expensive lawyers who set up expensive structures from them. The estate tax is sold as a way to rob the rich, but it ends up robbing the families of people with small businesses who must liquidate the family business to pay the tax. The people who are very successful but die unexpectedly (I’m assuming it’s because they’re young, but “unexpectedly” is much more accurate) before they’ve had a chance to set up the legal vehicles to avoid the estate tax. You’re against estate tax, so you obviously understand why it’s a bad idea. But, the tax doesn’t even do what it’s supposed to do – rob the really rich.

Thanks for mentioning Tiebout. I didn’t know about that argument before.

It seems that consequently the federal government is bound to grow relative to local governments, as local governments are easier to escape.