Citizenship Taxation

72 Pages Posted: 17 May 2015 Last revised: 13 Sep 2023

See all articles by Ruth Mason

Ruth Mason

University of Virginia School of Law; Max Planck Institute for Tax Law and Public Finance

Date Written: February 10, 2016

Abstract

The United States is the only country that taxes its citizens’ worldwide income, even when those citizens live indefinitely abroad. This Article critically evaluates the traditional equity, efficiency, and administrability arguments for taxing nonresident citizens. It also raises new arguments against citizenship taxation, including that it puts the United States at a disadvantage when competing with other countries for highly skilled migrants.

Views on citizenship taxation diverge, even among its defenders. For example, Cynthia Blum and Paula Singer argue that although the equity arguments for citizenship taxation have merit, citizenship taxation should be abandoned because it is inadministrable. In contrast, Edward Zelinsky argues that one of the principal virtues of the citizenship tax is how easy it is to administer compared to other jurisdictional bases that are commonly used.

Michael Kirsch, the best-known defender of the citizenship tax, argues that the tax is both fair and efficient. Defenders of citizenship taxation make two main fairness arguments. First, they argue that because nonresidents receive benefits from the United States, they should pay U.S. tax. Although this argument carries some weight, it cannot justify taxing nonresident Americans similarly to resident Americans who receive far more benefits. Second, commentators argue that citizens’ membership in the national community obliges them to contribute to taxes and so failure to tax overseas Americans’ total income, no matter where earned, would be unfair. Under this view, we need citizenship taxation to ensure equal treatment of resident and nonresident citizens. But tax scholars generally have avoided the questions of how nonresidence impacts national community membership and what impact, if any, a taxpayer’s connections to more than one national community should have on her tax obligations. This Article draws on immigration literature and political theory to explore the connection between nonresident citizenship and taxation. It concludes that, of the traditional arguments, the social obligation theory of taxation provides the best support for citizenship taxation as applied in many, but far from all, cases

Keywords: citizenship, immigration, taxation, benefits theory, ability to pay, FATCA, FBAR

JEL Classification: H24, H26, K34

Suggested Citation

Mason, Ruth, Citizenship Taxation (February 10, 2016). Southern California Law Review, Vol. 89, Forthcoming, Virginia Law and Economics Research Paper No. 2015-07, Available at SSRN: https://ssrn.com/abstract=2606744

Ruth Mason (Contact Author)

University of Virginia School of Law ( email )

United States

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

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