Today, Senators Charles Schumer and Bob Casey are expected to announce a plan they have to re-impose the taxes on Saverin, part of a bigger scheme to go after expatriates who give up citizenship in order to avoid taxes. On top of that, they want to make it official that people who do avoid paying their taxes by renouncing citizenship are unable from ever re-entering the country again.
So, let me make sure I’m getting this straight. Eduardo Severin was born in Brazil and lived there for the first 16 years of his life. He has lived in Singapore for the past few years. He created Facebook with Zukerberg, and with the impending IPO, is about to owe about $67 million in taxes. So he renounced his US citizenship to avoid paying the taxes. And now he needs his own law.
Ok, so let it be known right off that I’m not in favor of his actions. Seems to lack some (ok, lots of) appreciation for the what the American context provided to him, thus making it possible for him and Zuk to do their innovation. We rely upon our various communities to do our individual actions. Failing to support those who have supported you demonstrates a lack of generosity, commitment to distributive justice, and a fair measure of selfishness. Morally, there’s not a lot to respect in Severin’s actions.
At the same time, this legislation is ridiculous.
Judging From the Immediate Context
Let’s start by giving these senators the benefit of the doubt. Let’s say that this is one part of their work to improve the fiscal health of the nation. If so, this will likely do little. According to ABC, only about 1,700 people renounced their citizenship last year. How much money could we possibly be losing here? Even $67 million will do little to repair the structural issues that we face.
In the “less generous” camp, it is possible that this is simply a case of people acting in petty and vindictive ways. Like a jilted lover, we feel like we’ve been snubbed by someone who doesn’t realized just how much we did for them. So now, we’re going to get even. But to what effect? What possible positive effect could barring re-entry have for the US? What possible negative effect could barring re-entry have on those who chose to leave? PhysOrg notes that Severin is investing money in startups in southeast Asia, so barring re-entry has the potential of driving one investor’s money away from US startups.
The biggest concern I have is the glaring omission of any kind of recognition that the US tax code is an exercise in how to get by without paying your fair share. Now, I know that Shumer and Casey are Democrats, and so generally are in the “people and businesses should pay their share” rather than the “taxes kill business and home economies” camp. But, these guys know the score. They know that the US tax laws are rife with loopholes, exceptions, and ways to redirect income. Tax preparation companies make money off the promise that they can find you more ways to reduce your individual tax bill than you can. Businesses engage in elaborate schemes to shift funds, invest, amortize, and write off in order to pay as little as possible. Presidential candidate tax returns are a story because people want to know who got a way with what!
Severin didn’t act particularly morally, but he did find a perfectly legal way to reduce his tax burden. Why pretend that this isn’t just one many, many legal ways to avoid paying taxes? Many people shirk the same moral obligations that Severin did without ever leaving the country. How is that any less anti-American? It might be more useful for the Senators to save their righteous anger for the day congress finally decides to do its moral duty and close the rest of the loopholes.
The cynic in me says that Severin is considered less American because the Senators think it will play well in the press.
Judging In Light of Historical Context
In his influential work on the nature of law (it was a source text for the late-medieval/renaissance thinkers who put together what became basic framework of international law), Thomas Aquinas suggested that there are a number of legitimate purposes for law. Among these:
- Law instructs people about good things they should do.
- Law encourages people to act well.
- Law threatens people, so that they make good rather than poor choices.
- Law punishes people when they act poorly.
Good laws are those that accomplish these tasks. There are many laws that fit with reason and morality, yet fail as laws because they don’t accomplish these goals. Prohibition of alcohol for adults is a good example of that sort of thing. It didn’t change people’s mind about drinking, lots of people ignored it, and few were punished. Good sentiment, bad law.
Given these categories, it seems to me that there is little chance that the proposed law will accomplish any of these things.
- Perhaps in this one specific case, but the law does not provide sufficient instruction on the value of paying taxes. Indeed, what you learn through tax law as a whole is how to avoid paying taxes. The message of this law is overshadowed by other laws. And what is not overshadowed by other laws is shouted down by the American political and cultural truism that taxes are bad.
- Rather than encouraging people to pay taxes, it will encourage people to shift to other legal means of avoiding tax burdens.
- For folks like Savarin who were neither born nor live in the US, this is not an effective threat. They keep the money and simply live in one of the many other nations out there. Perhaps even where they were born. And for a tech guy like Saverin, there are many vibrant emerging tech centers around the world that could provide professional value and engagement.
- I’m guessing that the pool of possible people that this could target—people who make a ton of money and are renouncing citizenship—is pretty small. Once they leave the country with their money, what exactly is the punishment? If they chose money over the US, chances are they don’t see returning to the US as a punishment.
It makes sense to close that loophole in a reasonable way. But law is supposed to curb crime, not be vindictive. It is about fairness—give each their due—not vendetta. Unless the early reporting missed something significant, the proposals for the EX-Patriot Act suggest something short on good law, and long on political grandstanding.
Don’t we have an economic crisis to deal with?