Comment on the taxation of Green Card holders who reside outside the U.S.:
@Todundsteur
As always, thanks for your comment.
“That the US may constitutionally tax its citizens wherever they may reside is long and well-settled law in the only place where it counts: the US of A.”
I don’t think it is “well settled law”. I think it is “well settled that this is the law”. By that I mean that no case to my knowledge has considered the reasoning of Cook v. Tait. People just assume that the issue has been settled by the Supreme Court – that this is the law – and that there is no reason to examine it.
It is possible that Cook v. Tait could be justified in 1924, but no more.
Now I am not suggesting that the Supreme Court would consider this any time soon and I agree that the key is to get the law changed. But, I think it is as mistake to buy into the “well settled law chorus”.
IMHO the way to proceed is to be willing to attack on all fronts – legal and legislative.
As I suggested in the post, the abuses of citizenship-based taxation are getting so extreme that one may be able to argue that this is a massive human rights violation (not today but down the road). To expose the weakness of Cook v. Tait as a justification for the constitutionality of citizenship-based taxation cannot hurt and is likely to help. A plain reading of the judgment makes clear it is simply out of touch with present day reality. Therefore, these arguments should be explored in the event that there is a possibility that they can be made.
Second, an analysis of Cook v. Tait shows that there is no justification whatsoever for taxing Green Card Holders who reside outside the U.S. None. Again none.
What has happened in relation to Green Card Holders appears to be something like this (if you have any insight into this I would love to hear it):
In the beginning there was citizenship-based taxation and the Supreme Court saw that it was good.
Then the U.S. learned that there were immigrants and thought they were lucky to be in the U.S. and should have all the burdens of citizenship but not of the advantages.
In order to facilitate this, through a “slight of linguistic hand” the term U.S. citizenship-based taxation really became “U.S. person-based taxation”.
This could be justified because the court ruled that it was constitutional to tax citizens, and because “this was well settled law”, the result of the decision (even though there is nothing in the decision that possibly justify taxing “green card holders”) would become the justification for taxing Green Card holders outside the U.S.
So, here is the current deal:
The U.S. has no constitutional, no moral and a manufactured legal justification to tax Green Card Holders abroad.
Bottom Line: The U.S. is taxing people who are NOT U.S. citizens and living in other countries. This is a major step beyond citizenship-based taxation. This is absurd and this is why I believe it is important to begin (at least in an academic sense”) to unravel this fraud.
You are right that is will make no difference to the U.S. government. But as @Petros has noted, FATCA is sure to bring U.S. person-based taxation under the microscope. Let’s see what the microscope will reveal.
U.S. Persons Abroad - Members of a Unique Tax, Form and Penalty Club 