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

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, namely, 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 justify 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 which makes the latter an administrable proxy for the former.

Number of Pages in PDF File: 120

Keywords: citizenship, citizenship-based taxation, residence-based taxation, worldwide taxation, foreign tax credit, Section 911 exclusion, Tiebout, domicile, resident, ordinarily resident, tax jurisdiction

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