Expatriation: A Last Refuge for the Wealthy?
| Date | 01 November 2015 |
| DOI | http://doi.org/10.1111/1758-5899.12218 |
| Published date | 01 November 2015 |
| Author | Robert T. Kudrle |
Expatriation: A Last Refuge for the Wealthy?
Robert T. Kudrle
University of Minnesota
Abstract
Emigration by the rich may increase substantially as persons seek to avoid home country taxation. Until recently those
with high income and wealth could evade taxes through the use of secret foreign investment. Recent policy initiatives
from the Obama Administration and the Organisation for Economic Co-operation and Development (OECD) with the
G20 promise to reduce such evasion. The US stands virtually alone in its insistence on global taxation of its citizens at
home and abroad. Other countries tax only residents and often levy only modest penalties for indefinite departure
from the home country. Modern technology coupled with increased international cooperation makes citizenship-based
taxation feasible. In a world of sharply varying income –and especially wealth –taxation, states will need to devote
increased policy attention to the tax-motivated international mobility of the rich. The attractions of citizenship-based
taxation will grow. It should not be abandoned by the US, and its efficacy should be studied by other states.
Policy Implications
•Increasingly effective global measures against tax evasion will significantly increase incentives for the rich to
migrate to low tax jurisdictions, and high tax states should begin serious consideration of policy responses.
•The US alone among major states practices global taxation of citizens, and relinquishing citizenship is penalized
more heavily than the abandonment of residency is by most other states. Citizen taxation is defensible, and its
administrability is increasing with international cooperation and technological advance.
•The US should not abandon its current approach, which not only taxes those relinquishing citizenship but also US
inheritors of expatriate wealth.
•All states should collect extensive data on the characteristics, particularly the income and wealth positions, of those
relinquishing residency and citizenship.
Developed countries today –and many lower income
ones as well –face a triple collision of increasing inequal-
ity, low growth and chronic fiscal pressure. Inequality has
moved higher on the political agenda in nearly all high
income countries in recent years than it has been for
decades. Thomas Piketty’sinfluential Capital in the
Twentieth Century (2014), which highlighted a ‘patrimo-
nial capitalism’of increasing wealth inequality transmit-
ted across generations, was preceded by many years of
accumulating evidence on increasing income inequality
in most rich states.
This article relates contemporary economic challenges
to personal taxation and emigration. The main argument
is straightforward: public concern and modern technol-
ogy will reduce the secret use of foreign investments to
evade domestic taxes. The increased difficulty of such
evasion will almost certainly push some of the rich
towards other measures of tax escape. A change of
residence or citizenship to a jurisdiction with lower taxes
provides one obvious option. This poses a vital policy
question: what national taxation practices are best suited
to prevent such tax escape or to exact an appropriate
price for its exercise? The US currently takes a global
approach to personal taxation that sets it apart from any
other major country; Americans can escape tax liability
only by abandoning citizenship and not just changing
national residence. In sharp contrast to many commenta-
tors who advocate that the US should make its system
more like that of other states, I will argue that increased
international mobility suggests skepticism about such a
change and more attention to US practice by other
states.
The article first briefly examines recent tax escape
through emigration. The effectiveness of policy changes
aimed at secret foreign investments is then assessed. The
unique practices towards personal taxation pursued by
the US are explored. Personal taxation based on citizen-
ship is defended. Current international differences in tax-
ation towards persons who leave the home country are
examined with special attention to US attempts to
enforce its singularly comprehensive approach. The
article ends with the claim that global policy changes
making tax escape through emigration more tempting
are increasing the advantages of citizenship taxation, and
©2015 University of Durham and John Wiley & Sons, Ltd. Global Policy (2015) 6:4 doi: 10.1111/1758-5899.12218
Global Policy Volume 6 . Issue 4 . November 2015
408
Research Article
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