The U.S. has become a prison which no one could afford to leave

Discussion in 'Politics' started by trillenium, Feb 9, 2007.

  1. On 10 January 2007, the U.S. House of Representative passed a bill, H.R.2, The Fair Minimum Wage Act of 2007, to raise the U.S. minimum wage by US$2.10 over the next 26 months. In doing so, the House Democrats were fulfilling one of their key election promises which swept them to victory in the November, 2006 elections. This increase is long-overdue and thus should not be controversial. The bill was passed 315 to 116, with many Republicans supporting the bill. No rational person could object to this increase; in fact, it does not go far enough.



    The bill was then sent to the United States Senate for its consideration. In that chamber, where the Republicans are almost as strong as the Democrats, compromise would be needed to get the minimum wage passed. The Senate had made clear that it could not and would not pass the wage increase without providing some relief to small businesses which employed large numbers of persons on or near the current minimum wage. The Senate was aware that the House opposed such business relief as just another Republican give-away, so the Senate decided that it needed to enact a revenue-neutral bill. On 1 February 2007, by a vote of 94 to 3, the Senate passed its S. 349, The Small Business and Work Opportunity Act of 2007. This bill raises the minimum wage, just as the House bill does, but contains various relief provisions for small businesses and also contains miscellaneous new measures to raise the US$8 billion needed to pay for these relief provisions and thus make the whole bill revenue-neutral. One of these provisions, Section 205, is so pernicious that it would have embarrassed even the former Soviet Union ; yet, not one of the 100 Senators spoke out against it. Such is the health of the United States today.



    What does Section 205 do? Firstly, it imposes an "exit tax" on every person who, regardless of their net-worth, gives up (renounces or relinquishes) U.S. citizenship or loses the status as an immigrant (green card holder), if such person held the green card of at least 8 out of the last 15 years. (This would pick up the in-and-out people, i.e. holders of the card for 7 years, out for a year, then holders again for up to another 7 years.) Such an "expatriate" is deemed to have sold everything he/she owns in the whole world at what the IRS considers to be the fair-market value, and then U.S. income tax is due within 90 days of the date of expatriation. The first US$600,000 of gain is not taxed. But do note that persons who become green card holders do not get a step-up in the cost basis of what they own when they begin their period of U.S. residence, so the exit tax will reach gain accrued before one ever set foot on U.S. soil. An expatriate can elect to avoid payment of the tax by agreeing to continue to be taxed as if a U.S. citizen and by posting security and by agreeing to waive any claims to relief under any income tax treaty. An expatriate alternatively could elect to defer paying the tax but again by posting security, e.g., a bond. There is an increased interest rate for unpaid taxes. Property which would be subject to U.S. tax even if held by a non-resident alien at all events, e.g., U.S. real property, is not covered because there could be no tax advantage in giving up U.S. citizenship or a green card with respect to such property. Interests in U.S. retirement plans are deemed distributed and are immediately taxable.



    Secondly, the exit tax also reaches an expatriate's presumed interest in any trust, even one set up by his non-U.S. relatives decades ago. The law presumes that the trustee of a discretionary trust would exercise its maximum discretion in favour of the expatriate, and as to non-discretionary trusts, the law takes into account previous patterns of distributions (if any), the terms of the trust and/or letters of wishes which create a vested interest, in order to calculate the amount of the fictional distribution to that expatriate/beneficiary, followed by a real U.S. tax liability, followed by a fictional re-transfer to the trust. All of which can apply even if the trustee never has and never does give a penny to the expatriate/beneficiary. In short the U.S. has become a prison which no one could afford to leave. Note also that the tax due on this imaginary distribution must be "withheld" by the trustee which becomes personally liable therefor, under U.S. civil and criminal laws, as does the expatriate.





    Thirdly, do note that "expatriation" can occur involuntarily. An immigration official could take away the green card of a Hong Kong Chinese person on the ground that he is not really living in the United States , and that person will now be deemed to have sold his shoe factory in China . Claiming to be a resident of another country under a tax treaty causes immediate expatriation for purposes of these rules.



    Fourthly, any U.S. person who later receives a gift or a bequest from an expatriate must pay INCOME tax on this gift or bequest, even if that gift or bequest comes from money or property earned long before one first set foot on U.S. soil or long after one left.



    Fifthly, if the IRS decides that a former citizen/expatriate has not complied with all U.S. tax rules -- and no one can ever be certain that he/she has given, for example, the uncertainly of what is fair-market value, that person may never return to the United States and would be barred as if a war criminal.



    Lastly, these rules replace the old anti-expatriation regime and are effective only with respect to persons who expatriate on or after the date of this bill, i.e., when it is also passed by the House and signed by the President.



    It was to be hoped that the House might balk at the Senate's small business relief; but, as of today, 8 February 2007, the House appears agreeable to a compromise and will most likely pass the Senate's version of the bill by 16 February. The anti-expatriation provisions are not controversial as the Chairman of the House Ways and Means Committee, Charles Rangel, has long championed an exit tax. For those of you who saw the train coming and got off the tracks, rest easy. None of this will apply to you; and the IRS will, if anything, lose all interest in the old expatriates under the 10-year regime. For those of you have waited, unless you are a green card holder who can surrender it right away and file a complete and accurate Form 8854, or someone who is eligible to relinquish U.S. citizenship, you are almost certainly too late. There are no appointments to renounce U.S. citizenship readily available at any embassy or consulate known to me.