Cook v. Tait 2: The presumption of GOVERNMENT benefit

The presumption of GOVERNMENT benefit wherever the citizen may live

This is my second post on Cook v. Tait. The following comment to the first post appeared at the Isaac Brock Society.

Very well done! That was a lot of research on your part and a great starting point for meaningful thought-provoking discussion.

Although you covered some of them, the list of liabilities for Americans abroad keeps growing as time progresses. Lawmakers like Levin, Rangel, Grassley, Schumer etc will never stop dreaming up new ways for putting the screws to ex-pats.

What I am interested to know is, what government benefits would the Supreme Court try to use to justify the “….presumption that government by its very nature benefits the citizen and his property wherever found,”?

– The right to enter the US? Anyone with a foreign  ”visa waiver” passport has this.

– The right to work in the US? Americans abroad are obviously not there to exercise this. Besides, the unemployment and underemployment situation in the US has been less than desirable for many years.

– The protection of the US? How many US citizens abroad are sitting in jail somewhere on trumped up charges while the State Department takes the line that “we cannot interfere with the other country’s justice system?” Does the US government provide the citizen with a public defender if he cannot afford a lawyer him/herself? Does the Embassy charge a fee if the Consular prepares any paperwork on the citizen’s behalf?

– If the US citizen’s property located abroad is stolen, does the US send police to investigate the crime?

Anyone who understands the situation can see that citizenship-based taxation is a one-way street when it comes to cost vs. benefits. In my opinion, many more Americans abroad would have already renounced or relinquished US citizenship if the process were easier to navigate and people were not so afraid of being trapped by compliance and exit tax issues– barriers that were purposely put in place to block the outflow of productive people.

This second Cook v. Tait post is an attempt to answer this question.

In Cook v. Tait Justice McKenna writes that:

In other words, the principle was declared that the government, by its very nature, benefits the citizen and his property wherever found and, therefore, has the power to make the benefit complete

Note the language: “The government benefits the citizen wherever found”. The idea is that because the government “by its very nature” benefits the citizen wherever found, the government has the right to tax the citizen wherever the citizen is found.

The constitution and the government are different things:

The constitution is the document that describes the basic framework and structure of the country. This includes in the case of the U.S. Constitution:

– three levels of government: Executive, legislative and judicial

– jurisdiction between the states and federal government

– limitations on the powers of government in relation to citizens/residents (14th amendment, etc.)

The purpose of the document is to ensure that no one level of government can get too powerful.

The constitution is separate and distinct from the government. What does this imply on the issue of how citizenship and government interact?

The constitution and U.S. citizenship

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.

The 14th amendment says that anyone born in the U.S. or a naturalized citizen is a U.S. citizen. In the case of naturalized U.S. citizens Congress provides the rules for naturalization. But once naturalized the new citizen has the constitutional protections guaranteed by the 14th amendment.

This is why (at least in the case of citizens born in the U.S.) that the government cannot take one’s citizenship without demonstrating that the citizen voluntarily performed an expatriating act with the intention of relinquishing U.S. citizenship. This principle was established in a series of cases involving citizenship which started with Afroyim v. Rusk. An excellent discussion of this series of cases is here and here.

Citizenship is part of who you are

The purpose of the constitution is to establish certain rights that are independent of government and in the case of persons born in the U.S. – U.S. citizenship is a right. The principle that citizenship is a right of the individual is guaranteed by the constitution. It is not determined by government.

Incidents of citizenship

I am defining “incident of citizenship” as a right you get by virtue of being a citizen – without regard to whether it is recognized by government. An incident of citizenship” is not granted by government. It cannot be touched by the government. For example the right to keep your citizenship is an “incident of citizenship”. The right to “relinquish” is an “incident of citizenship”. What are other incidents of citizenship? What do they  include? Citizenship is owned by the citizen and the citizen can either keep it or relinquish its. I welcome your comments on the following:

– if a U.S. citizen has the right to enter the U.S., is this an “incident” or a “right” of citizenship?

– if a U.S. citizen has the right to leave  the U.S. (which I don’t think he does), is this an “incident” or a “right” of citizenship?

– if a U.S. citizen has the right to work in  the U.S., is this an “incident” or a “right” of citizenship?

Can it be that the “incidents of U.S. citizenship” are restricted to those enumerated in the Constitution?

Government granted “rights of citizenship”

I am defining “rights of citizenship” to be additional rights given by the government. For example a law that gave only U.S. citizens the right to wear blue shirts would be a “right of citizenship”.

Incident of citizenship vs. Right of Citizenship

An “incident of citizenship” exists irrespective of government. A “right of citizenship” would be a “benefit given by the  government”.

“Rights of citizenship” and “Incidents of citizenship” tend to be lumped together

It appears that little thought has been given to the rights of U.S. citizenship. Something can be a “incident of citizenship” only if it is something that the government cannot take away. The Supreme Court has suggested that an “incident of citizenship” is the right to renounce citizenship.

It is interesting to see what the U.S. Citizenship and Immigration Services says (this is a government document and is interesting but not binding) about the “Rights and Responsibilities of U.S. Citizenship“. This is also an interesting example of blurring the “rights” and “incidents” of citizenship.

Rights

Responsibilities

  • Freedom to express yourself.
  • Freedom to worship as you wish.
  • Right to a prompt, fair trial by jury.
  • Right to vote in elections for public officials.
  • Right to apply for federal employment requiring U.S. citizenship.
  • Right to run for elected office.
  • Freedom to pursue “life, liberty, and the pursuit of happiness.”
  • Support and defend the Constitution.
  • Stay informed of the issues affecting your community.
  • Participate in the democratic process.
  • Respect and obey federal, state, and local laws.
  • Respect the rights, beliefs, and opinions of others.
  • Participate in your local community.
  • Pay income and other taxes honestly, and on time, to federal, state, and local authorities.
  • Serve on a jury when called upon.
  • Defend the country if the need should arise.

Few “rights” are specified. Note the responsibility to pay taxes. Note also that the list on the left includes some “incidents of citizenship” and some “rights of citizenship”.

Who you are vs. What you can do

The government cannot change “who you are” (that is you are a U.S. citizen) but it can regulate what you can do (criminal law prohibits certain activity) and what you must do (example the payment of taxes). The power of the government to regulate the “incidents of citizenship” is more limited than the power to regulate the “rights of citizenship”.

And the answer to the question of what government benefits the could be used to justify a “presumption of benefits” is:

I don’t know. But, I think it is important to recognize that the government CANNOT  identify the “incidents of U.S. citizenship” to justify citizenship-based taxation. (“Incidents” do not come from the government.) The government would have to identify “rights of U.S. citizenship” to justify citizenship-based taxation. (“Rights of citizenship” are given by government.

The distinction between “incidents” and “rights” is important to answer the question proposed in the comment?

I would be grateful for comments that would help identify the “incidents of U.S. citizenship”. In other words what are the opportunities/liabilities/disabilities associated with U.S. citizenship that the government cannot take away?

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7 thoughts on “Cook v. Tait 2: The presumption of GOVERNMENT benefit

  1. AbusedExpat

    As a follow up to this excellent post, it is worth reading the article by Edward A. Zelinsky, University of Iowa Law Review, 2010

    “Citizenship and Worldwide Taxation: Citizenship as an Administrable Proxy for Domicile”

    http://www.uiowa.edu/~ilr/issues/ILR_96-4_Zelinsky.pdf

    The author’s Bio (seems to be an insider in policy making circles):

    http://en.wikipedia.org/wiki/Edward_Zelinsky

    http://www.cardozo.yu.edu/MemberContentDisplay.aspx?ccmd=ContentDisplay&ucmd=UserDisplay&userid=10580

    In his article, Zelinsky argues in favor of citizenship-based taxation because it is convenient for the state to administer and that the concepts of “citizenship” and “domicile” are close enough to be used interchangeably in order to justify it. Therefore, there is no significant difference between citizenship-based taxation and residency/domicile-based taxation (IMHO, a fallacy). Zelinsky makes his argument in this way because according to him, it is clear among scholars that Cook vs. Tait’s underlying “presumption that government by its very nature benefits the citizen and his property wherever found,”no longer holds water!

    It doesn’t take a rocket scientist (or Law Professor) to figure out that ex-pats don’t use the Homeland’s highways, bridges, dams, power grid, fire, police, courts, hospitals, schools, Medicare, Medicaid, unemployment insurance, food stamps, etc. because they are not physically present to use them. So why should they be required to pay for such things?

    Page 1289 of Zelinsky’s article states:

    “ABSTRACT: The United States’ worldwide taxation of its citizens is less different from international, residence-based norms than is widely believed and is sensible as a matter of tax policy. An individual’s citizenship is an administrable, if sometimes overly broad, proxy for his domicile, his permanent home. Both citizenship and domicile measure an individual’s permanent allegiance rather than his immediate physical presence. Because citizenship and domicile resemble each other, and because other nations often define residence for tax purposes as domicile, the U.S. system of citizenship-based taxation typically reaches the same results as the residence based systems of these other nations, but reaches these results more efficiently by avoiding factually complex inquiries about domicile.

    In contrast, the traditional justification of U.S. citizenship-based taxation, the putative benefits of such citizenship, is not persuasive. In this context, three models of U.S. citizenship are relevant, namely, the minimalist model, the psychological model, and the Tiebout / purchase model. None of these models justifies the worldwide taxation of U.S. citizens on a benefits basis. Rather, such taxation is persuasive because of administrative considerations, i.e., the close resemblance of domicile and citizenship that makes the latter an administrable proxy for the former.”

    Pages 1308-1312 go into detail about Cook vs. Tait and the three models of citizenship benefits, none of which, the author acknowledges, justifies citizenship-based taxation. In short, the author almost casually shoots down Cook vs. Tait’s underlying “presumption that government by its very nature benefits the citizen and his property wherever found.”

    Page 1314 states:

    “Governmentally furnished benefits are a traditional consideration for tax policy and, as we have seen, is the rationale of Cook. However, upon examination, the benefits rationale for citizenship-based taxation proves unpersuasive, both in theory and in practice. The most significant civil and social benefits extended by the U.S. polity are tied to U.S. residence, not to U.S. citizenship.”

    Page 1320 states:

    “However meritorious these arguments for the Code’s current rules may (or may not) be, the net result of those rules is a pattern of differential taxation of nonresident citizens, which in practice undermines the argument for worldwide taxation of U.S. citizens on the basis of the putative benefits of citizenship.”

    “In the final analysis, the benefits rationale for citizenship-based taxation is unpersuasive. That rationale has been part of our constitutional tradition since Cook. However, it does not survive scrutiny in light of the minimal legal benefits associated with U.S. citizenship; the absence of a convincing link between the psychological utility of citizenship and worldwide taxation; the lack of mobility among nations [thanks to the Exit Tax], which precludes active shopping among alternative citizenships; and the divergent tax prices the Code currently assesses different citizens for the same benefits of citizenship.”

    Page 1321 states:

    “…a nonresident U.S. citizen receives the bulk of her social and civil rights from the nation in which she resides, not from the United States.”

    From the conclusion on page 1348, the author reinforces that the argument of “presumption” in Cook vs. Tait fails to hold water:

    “The received wisdom about federal taxes and U.S. citizenship—the benefits of U.S. citizenship justify worldwide taxation of such citizen’s income and assets—is unpersuasive. The legal rights associated with U.S. citizenship are minimal. The psychological benefits of U.S. citizenship are significant for most of us, but, as a logical matter, do not justify the worldwide taxation of nonresident U.S. citizens. In theory, the Tiebout model justifies the worldwide taxation of U.S. citizens under a love-it-or-leave-it theory: Any U.S. citizen who finds the tax cost of U.S. citizenship inordinate can expatriate. In practice, however, U.S. citizens typically lack the mobility between nations necessary to make expatriation a practical alternative [Exit Tax is barrier to mobility]. Moreover, the Code taxes different U.S. citizens differently for the same benefits of U.S. citizenship.”

    “While the traditional benefits rationale for the worldwide taxation of U.S. citizens is not compelling, such taxation can be justified in terms of administrability. An individual’s U.S. citizenship is an bjective, enforceable proxy for his U.S. domicile.” [The only argument that can be made is that citizenship-based taxation is convenient for the State—but is it convenient for Expats? But they don’t matter because they have no representation in Congress anyway]

    “Both the benefits and ability-to-pay justifications for taxation point to worldwide taxation by the nation in which an individual resides. The country in which an individual lives provides his basic social and civil rights. Moreover, the nation of residence is typically best positioned to aggregate and assess an individual’s worldwide income and assets and to enforce its tax laws against him.”

    “However, residence is typically a fact-intensive inquiry, often manipulable by the taxpayer, frequently difficult for the tax collector to enforce. When residence is defined as domicile, citizenship serves as an administrable marker for such domicile, since both citizenship and domicile focus upon permanent political allegiance rather than immediate physical presence. From this vantage, U.S. citizenship-based taxation resembles other nations’ residence-based taxation when those other nations define residence as domicile, and the U.S. system of citizenship-based worldwide taxation is not the outlier it is often thought to be. [This argument is very weak. It does not define domicile, which in the simplest of terms would be “the center of a person’s life.”] Moreover, such global citizenship-based taxation reaches similar results more efficiently by obviating the need for factually intensive inquiries into domiciliary residence.”

    “For many reasons, a legal rule may persist after its initial rationale has ceased to be compelling. One good reason for the persistence of an old rule is that it serves a new, if as yet unrecognized, function. The United States’ traditional policy of taxing its citizens on their worldwide incomes and assets is such a rule. The traditional benefits rationale for citizenship-based taxation has ceased to be compelling. [Cook vs. Tait appears ripe for challenge] However, by serving as an administrable proxy for an individual’s domicile, citizenship-based taxation makes sense in the twenty-first century.” [An argument only a totalitarian State could uphold]

    Although Zelinsky argues in favor of citizenship-based taxation, his article is well worth reading because it confirms how weak the argument for citizenship-based taxation really is.

    Therefore, one cannot help but conclude that Cook vs. Tait is really vulnerable if challenged, particularly when one adds to the equation the liabilities/dangers of having US citizenship (complicated reporting, draconian fines, double taxation, exit tax trap etc) presently being experienced by ex-pats.

    One question though, is Cook vs. Tait the only thing propping up citizenship-based taxation? Is there something else such as JFK signing a law about taxing ex-pats?

    Reply
    1. renounceuscitizenship Post author

      Thank you very much for this! This is a great contribution to the discussion. I am going to elevate this comment to a separate post. Frankly, I don’t understand the presumed connection between “domicile” and “citizenship” at all. If anything, it seems to me that the whole problem is that (at least in many cases) there is no presumption whatsoever that “domicile” is linked to “citizenship”.

      This is course is also a great article in that it is “academic article” that accepts that factual presumption of “benefits” is ridiculous. On balance, it is pretty clear that the U.S. uses citizenship-based taxation because they just want to it, (perhaps punishment for leaving the country). As I wrote in another post above:

      https://renounceuscitizenship.wordpress.com/2013/01/06/us-taxation-of-green-card-holders-who-reside-outside-the-us/

      The policy of taxing “Green Card Holders” who live outside the U.S. is crazy, just crazy. It is nothing more than the practice of levying taxes on the residents of other countries.

      In closing: thanks again for taking the time to identify this article, reading it and summarizing it.

      I welcome your comments on the “domicile” vs. “citizenship” issue.

      Reply
    1. renounceuscitizenship Post author

      From Professor Allison Christians:

      “The paper you should be reading is prof avi-yonah’s response to prof zelinsky: The Case Against Taxing Citizens. You can find it at:

      http://www.law.umich.edu/centersandprograms/lawandeconomics/abstracts/2010/Documents/10-009aviyonah.pdf

      _________________________________________

      Thank you very much for this – excellent article. The conclusion reads as follows:

      Taxation of nonresident citizens is a relic of the past that is ripe for abandonment. Historically, it stems from the outrage felt during the Civil War at draft dodgers. It has been with us ever since, even though we no longer have a draft, and even though no other country in the world (with the possible exception of Eritrea) taxes nonresident citizens. The only way we can maintain the fiction that we actually tax most of our nonresident citizens is by enacting complicated credit and exclusion provisions that are difficult to administer and are frequently ignored in practice. For someone who acquired US citizenship by being born here and has lived almost their entire life overseas, filing tax returns and complying with sections 901 and 911 must be a highly unlikely proposition even if no tax burden would likely result.

      If we did not tax nonresident citizens, we could abolish section 911. We could also abolish IRC section 877, which has proven ineffective in deterring tax motivated expatriations, and simply apply the new IRC 877A (the exit tax on expatriation) to individuals abandoning US residency, like most countries do.

      Finally, we could give up on the “savings clause” in our tax treaties, which we insist upon to enable us to tax nonresident citizens but which we may well have to pay a price for in treaty negotiations.

      None of the traditional arguments for taxing nonresident citizens are persuasive. The benefits provided to nonresident citizens are much weaker than the benefits provided to residents (whether citizens or aliens) and are identical to the benefits provided by other countries that do not tax nonresident citizens. The ability to pay argument fails because we apply ability to pay taxation to resident aliens, thus showing that residence and not citizenship defines the relevant community for applying redistribution. And the administrability argument goes in the opposite direction: Taxation of
      nonresident citizens is both unadministrable in many cases and in others imposes heavy transaction costs. Finally, abandoning taxation of nonresident citizens could lead to significant simplification benefits.

      The main reason we continue to tax nonresident citizens is history‐ it’s a tradition that is 150 years old, and a significant part of American tax exceptionalism. But just as we joined the rest of the world in adopting corporate/shareholder integration, it is time for us to relinquish this part of our history and update our taxation to fit the globalized world of the 21st century, in which more and more US citizens should be able to move overseas in pursuit of economic opportunity without being incentivized to relinquish their citizenship.

      Reply

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