December 19, 2012
Schneider: A New Tax Regime for U.S. Expatriates
Bernard Schneider (Queen Mary, University of London School of Law), The End of Taxation Without End: A New Tax Regime for U.S. Expatriates, 32 Va. Tax Rev. ___ (2012):
The United States is the only major country to tax its citizens and foreigners admitted as permanent residents (lawful permanent residents (LPRs) colloquially known as “Green Card holders”) on their worldwide income, regardless of residence. This article gives an overview of the history of the United States’s approach. It then reviews the different types of expatriates, their connection to the United States, and their tax and reporting burdens. This article discusses the various justifications for the worldwide taxation of nonresidents and concludes that it is no longer justified. In an era of economic globalization and increased personal mobility, worldwide taxation of nonresidents is increasingly dysfunctional. It is challenging to justify on economic or moral grounds; it is difficult, if not impossible, to enforce against many expatriates; and it sends the wrong message regarding the value of citizenship. This article proposes that the United States follow the approach of several other countries and eliminate the worldwide taxation of expatriate citizens and LPRs and replace the exit tax on those renouncing U.S. citizenship or relinquishing LPR status with a departure tax regime that would apply to all U.S. citizens and LPRs who emigrate from the United States. It also proposes that the definitions of permanent resident for tax and immigration purposes be aligned. The proposed new tax regime for U.S. expatriates would be more equitable and easier to enforce. It would also be more consistent with international tax norms and the purposes of U.S. nationality and immigration law.
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