Senators Chuck Schumer and Bob Casey are proposing a new law to deal with Eduardo Saverin and others like him. The Facebook co-founder renounced his U.S. citizenship this week prior to Facebook’s IPO in order to avoid taxes on his $4 billion. The senators’ law, the “Ex-PATRIOT Act,”
would impose a mandatory 30 percent tax on American investments for those who renounce their citizenship and would also prohibit individuals like Saverin from re-entering the country.
The law — which only applies to individuals with a net worth of over $2 million or an average income tax liability of at least $148,000 — would not apply to non-American investments by former citizens.
Under the proposed legislation, the IRS would decide soon after an individual relinquishes his or her citizenship if the renouncement was motivated by tax avoidance. The individual would then have the opportunity to provide reasons for the renouncement, but there would be a “strong presumption” the move was for tax purposes.
The expatriate would also have the opportunity to re-enter the country if he or she paid all back taxes.
Is there an argument to be made that it is ungrateful for Eduardo Saverin to renounce his citizenship? Yes, his family did flee to the United States after Eduardo’s name appeared on a list of potential kidnapping victims. But I would be hesitant to insist on a tax for those renouncing their citizenship. Also, why should bureaucrats at the IRS get to divine the intentions of someone who renounces their citizenship? Does anyone really think the IRS would ever not declare it for tax purposes? A more sensible solution to this problem would be to reform America’s tax structure so there would be less incentive for anyone to leave for more economically favorable countries. It would be better for America if the Eduardo Saverins of the world wanted to come here rather than leave. Finally, if I were Senator Schumer, I’d be careful about coming between Mr. Saverin and his money.