Amerika: Keeping The Tax Mules In Harness

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[Editor's note: the following post is by Jim Karger, TDV Legal Correspondent]

If you are successful, the United Socialist States of Amerika does not want you to leave.  It is not because they like you but because you are paying them and they intend for you to continue to do so until your last breath.  They want you to stay so much that they are willing to threaten you, seize your assets, and imprison you, if necessary, to keep you and your money at home.  Herein, I discuss four examples, which, at first blush, may appear disconnected, but each of which acts to communicate this message to the Sheeple.

(1) "You Can Leave Us, But You Can't Stop Paying Us"

Most have now heard of the Ex-Patriot Act, authored by Charles Schumer, a rabid statist, and his accomplice, Bob Casey, in response to Eduardo Saverin's expatriation from the United States to escape its punitive tax system.

If this bill becomes law (and it may since the Republican Speaker of the House, John Boehner, also supports it), any "covered ex-patriot" (meaning an American who renounces or relinquishes his U.S. citizenship, and who has a net worth of over $2 million, or an average income tax liability of at least $148,000 over the last five years), “will be presumed to have renounced their citizenship for tax avoidance purposes.” 

What is the effect of that presumption?  1)  The ex-patriot will be expected to pay 30% on all their capital gains going forward for 10 years, and 2)  They will never be permitted to return, even as a guest, to the United States.

Only if the "covered expatriate" can demonstrate to the IRS that he or she did not leave for tax purposes, which they ironically call a “legitimate reason," will these penalties not apply.  Because proof of a negative fact is impossible, expect the government to impose a tax on every covered expatriate's investment gains “no matter where he or she resides.” 

In short, the U.S. claims to have the right to tax a non-citizen, non-resident former American on his worldwide gains for 10 years in the future and, simultaneously, banish him from the United States forever.  In other words, the expatriate is not treated as just another non-resident foreigner who pays no capital gains to the U.S. and most of whom can get a 10-year visa into the U.S. without much trouble, but rather, as a pariah, who must be punished and then banished forever, a financial leper.

Cruel and hubristic to be sure, but give the devil his due.  If the Ex-Patriot Act becomes law, it will have the intended effect, which is to close the door marked "Exit" to most successful entrepreneurs.  By leaving, they would be required not only to pay capital gains tax going forward for 10 years but also the punitive "exit tax" calculated by engaging in the fiction they sold all of their assets on the same day (even though in all likelihood they sold nothing) and pay tax on the fictional "gain." 

Until the last few years, the exit tax was enough to keep the herd in the coral.  But, in the last three years, expatriations have skyrocketed by 400%, some say far more.  Hence the need to up the ante and add a financial minefield around an already barbed-wire fence that encircles the United States to keep the successful in the pen. 

Government is not worried about Joe Lunchbucket.  While leaving should be the first thing on the average American's mind, it is the last.  Twelve to sixteen years of public indoctrination and disturbing debt loads keeps the tax slaves in harness.  The sole goal of the Ex-Patriot Act is to keep the best, the brightest, the most creative and productive in harness with them.

And know the Ex-Patriot Act is not all, but rather, just another in a long list of bills and laws intended to intimidate and harass Americans with the intent that they continue acting like sheep waiting to be shorn.

(2) "We Don't Want You To Give Us Your Passport, But We Want The Right to Take It"

Senate Bill 1813 authored by another statist, Barbara Boxer, is also pending, and if it becomes law will allow the federal government to prevent Americans who owe back taxes from traveling outside the United States.

Buried deep in a popular highway funding bill, it passed the Senate on a 74 – 22 vote last month.  Ironically called the “Moving Ahead for Progress in the 21st Century Act” or “MAP-21,″ the bill includes a provision that would allow for the “revocation or denial” of a passport for anyone with “certain unpaid taxes” or “tax delinquencies."  Specifically, any individual who owes more than $50,000 to the Internal Revenue Service will be subject to “action with respect to denial, revocation, or limitation of a passport."

Most troubling is the absence of any language requiring a taxpayer to be convicted of, or even charged with, tax evasion or any other crime in order to have their passport revoked or limited — only that a notice of lien or levy has been filed by the IRS.

And getting to a $50,000 problem is no problem for the IRS.  For those with foreign bank accounts or trusts that hold real estate outside the U.S., a single failure to file a timely FBAR form (Treasury Form TD F 90-22.1) in a single year on a foreign account can get one to a $50,000 problem.  And, the "owed" figures are generated by the IRS unilaterally, placing the burden on individuals to prove that they don't owe what the IRS says they owe, the proof of a negative fact problem again.

Separately, beginning with 2011 tax returns, the Foreign Account Tax Compliance Act (FATCA) requires U.S. citizens and permanent residents to file a separate report (Form 8938) listing “foreign financial assets” with an aggregate value of $50,000 or more with their annual tax return.  As with the FBAR, failure to file this form on time every time subjects the offender to Draconian penalties, both civil and criminal.

Such technicalities are important if a U.S. citizen wants to stay out of U.S. prison.  And now the ante may be further upped with the threat of passport revocation.  This is especially important to Americans living outside the United States who rely on the validity of their U.S. passports to allow them to return to the U.S. and to keep them legally in their country of residence. To the extent that one's U.S. passport is invalidated, their status in their country of residence becomes problematic.  Indeed, this bill implies not-so-subtly that the U.S. intends to begin extraditing those who owe too much to the homeland.

In an election year, odds are the transportation bill will be passed, and if passed, there is little doubt Obama will sign it with little, if any, public outrage or pushback.

It is not only the feds.  Other levels of government are similarly circling the wagons with the same message.  Even my former State of Texas, who some believe (wrongfully) is a last bastion of freedom in the United States, is sending the not-so-subtle message to young people - "You can't leave, not until we say so."  Might as well get them used to the idea, hey?

(3)  "Be Where We Tell You To Be, Or Else."

Diane Tran is a high school student outside of Houston, Texas, who works a full-time job and a part-time job to support her brother in college and her little sister who lives in another city, all while taking advanced placement and dual credit college level courses.  She makes good grades, but not surprisingly, with that grueling schedule she is often late for class.  Sometimes she is absent. 

A moving American success story?  Hardly.  Not in today's AmeriKa.  She was recently sentenced to jail and fined for missing school. 

The message?  The same as the federal government -- "You will be where we tell you to be when we tell you, or else."

(4) "You Can't Leave.  We Know Where You Are."

Also from Texas comes the Northside Independent School District that will join other districts in tracking students by implanting Radio Frequency Identification System (RFID) tags into their student identification cards.

The reason?  Same as the Ex-Patriot Act.  Money.  The school district gets more State money if they can prove the number of students not enrolled but actually attending each day.  The fact they learn nothing of value is irrelevant.  The question is whether they show up. 

“We want to harness the power of (the) technology to make schools safer, know where our students are all the time in a school, and increase revenues,” district spokesman Pascual Gonzalez said

Penalty for losing a student ID -- $15.  Penalty for not having $15?  You already know the answer to that question. 

The message?  Same as always.  "You will be where you are supposed to be when we tell you to be there.  You will leave only when we tell you to leave."

Students will be tracked via chips in IDs

ENDGAME

These are few examples of the U.S. government (and governments in the U.S. at all levels) cracking down, closing in, and circling the wagons, not to keep the bad guys out, but the good guys in.  U.S. citizens are told to pay their taxes or lose their passports, but never, ever voluntarily turn their passports in under penalty of law that includes draconian financial assessments and a prohibition of ever entering the U.S. again. 

To train the nation's youth to be frightened, controlled and bled dry along with their parents, silently, the States and the courts are following suit, making sure the young understand that they are being watched and if they don't show up for school-prison each day, they may find themselves in real prison the next day.

What's next?  I have no crystal ball but here are a few educated guesses, each of which is worthy of discussion:

- Capital controls.  This message in the form of legislation may be, "You can leave, but your money can't, not without 'permission,' which will only be granted to those who are not taking money out for a tax reason," leaving the tax donkeys trying futilely to prove that negative fact again.

- Revocation of passports for other offenses.  Why should the government limit its authority to revoke passports and limit travel for tax issues?  How about including anyone the government wants to target?  After all, they may be a "terrorist," whatever the definition may be on any given day.

- Prohibition of second citizenship/passports.  There are a few countries in the world that prohibit holding a second citizenship.  There is no reason the U.S. could not do the same, saying, "If you don't have a second passport already, you can't have one.  No more dual citizenship."  That is way of absolutely prohibiting expatriation since one has to have a second passport to expatriate under existing U.S. law.  And, for those who are lucky enough to already have a second passport, their choice may be, "You can have one citizenship - ours or theirs - make a decision."

There are countless other possibilities and we will soon know which manifest as law.  For now, though, no one knows.  And the fact that no one knows leads to an obvious conclusion:  Prepare.  Get money out while you still can.  Get a second passport so when the wagons circle tighter, as they most assuredly will, you, unlike the Sheeple, will have a choice -- to leave.

Jim Karger is a lawyer who has represented American businesses against incursions by government and labor unions for 30 years. He has been the subject of many feature articles, including, "Outlandish Labor Lawyer Gets No Objections From Staid Clients," published in the Wall Street Journal, and most recently was featured in an article entitled, "You Can Get There From Here," published by the American Bar Association. In 2001, he left Dallas, and moved to San Miguel de Allende in the high desert of central Mexico where he sought and found a freer and simpler life for he and his wife, Kelly, and their 10 dogs.

Today, Jim takes a handful of assignments each year, and speaks regularly to industry associations and employers on issues involving government regulation, overcriminalization, and privacy. His website is www.crediblyconnect.com

Nothing herein should be taken as legal advice, but is offered for educational purposes only.