Is the taxation of US citizens abroad constitutional?

The United States of America started as a country very sensitive to tax issues. Thirteen colonies of King George’s England rose up in unified rebellion because the Crown did not respect the rights of colonists. Furthermore, they resented this extra-territorial taxation and insisted upon a basic principle of English democracy, “No taxation without representation”. This protest was in spite of Parliament’s claim to have protected the Colonists in the war with France.  The slogan helped to incite the American Colonies to rebel against the King and to declare independence in 1776.

Now 235 years later, the numbers of Americans living in foreign countries has grown to six million and Congress believes that it has right to tax them because it “protects”  them (for a history of taxation of non-resident citizens see renunciationguide.com)–mind you, Congress does not provide customary services, such as roads, post office, or social welfare, which are available to residents. I recently asked where the US Federal Toronto office for unemployment, food stamps and welfare could be located and found that no one has had a reply. Yet there are phone numbers to call for help from the IRS if you are living abroad.  It’s like that bad friend who borrows from you but never lends when you need help.

Now my question in this post is whether this extra-territorial taxation is legal in the first place.  From the standpoint of international law, it is highly suspect and the only other nation in the world which taxes its non-resident citizens is Eritrea, and most civilized people see Eritrea’s attempts to tax their citizens living abroad as “extortion“.  Yet since the US doesn’t care what the rest of the world thinks, we will get no where with that approach: you cannot shame this government.  But if we approach it from a constitutional perspective, then we have to deal with the superstructure of lower and Supreme Court case law wherein even legal experts disagree.  My contention in this post is that the Constitution belongs to the People and the People are the final arbiters of what it means. The Supreme Court gets its power from the Constitution and the Constitution gets its power from the People.  Therefore, if I can convince enough People that what I think it means is correct, then I will be satisfied.  Here then are my arguments:

Taxing people residing outside of the United States violates the fundamental right of “no taxation without representation”.   Very simply put, the US census doesn’t count those of us who live outside the United States and since the US Census determines the number of representatives for each state on the basis of population, the non-resident citizen does not have representation.  This is a fundamental principle of Constitutional law that extra-territorial taxation violates to the core.  I was alerted to this by a comment on Phil Hodgen’s blog (see below).

Applying the so-called exit tax, created by Heroes Earnings Assitance and Relief Tax Act of 2008, to non-resident former Americans is unconstitutional because it violates the fundamental right to expatriate.  From the standpoint of American law, the right to expatriate is supported by the Declaration of Independence.  It is also supported by an Act which Congress passed in 1868.  It says explicitly:

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That any declaration, instruc- tion, opinion, order, or decision of any officers of this government which denies, restricts, impairs, or questions the right of expatriation, is hereby declared inconsistent with the fundamental principles of this government.

Ironically, Congress was trying to protect those who would leave their countries to become citizens of the United States and to forbid other countries from not permitting their expatriation.  Now, the requirement that former U.S. citizens fill out Form 8854 to determine if they are covered expatriates or not, is a violation of this 1868 law, which to my knowledge has never been repealed.  I have other objections to the Form 8854: for one, it requires that I list all my assets, which I flatly refuse to do on the grounds that the IRS has no right to that information (has anyone in the IRS or Congress ever read the Fourth Amendment?).  But my understanding of fundamental rights, is that government is not allowed to tax you, require fees, or prevent you in any other way from exercising them.  For example, no impediment is allowed to hinder the right to vote.  This would apply also to the $450 renunciation fee, in my opinion, but you could whistle till you’re blue in the face, the State Department won’t budge.  The $450 is an impairment to expatriation and it is a violation of the 1868 law quoted above, which is based upon a “fundamental principle of this government”.  The exit tax is likewise an impediment.

Finally, in case anyone is worried that the Bill of Rights does not support the right to “no taxation without representation” or the right to expatriate, don’t ever forget that the Ninth Amendment covers those fundamental rights:

The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.

Thus, the Bill of Rights supports these fundamental rights and the attempt by Congress and the IRS to collect taxes from non-residents and an exit from those who would renounce their citizenship, is in my opinion unconstitutional.  Class action lawsuit anyone?

See also:  William Thomas Worster, “The Constitutionality of the Taxation Consequences for Renouncing U.S. Citizenship“, Florida Tax Reviw 9 (2010) 923-1020 (can be downloaded at link: see “One-Click Download”).

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The right of expatriation

Thanks to a reader comment I was able to find an excellent resource for expatriating from the United States:  http://renunciationguide.com .  The website is by US expatriates who wish to extend the wisdom of their experience to others who are contemplating the voluntary loss of their US citizenship.  In addition, they provided some interesting research on the history of expatriation in the United States.

According to renunciationguide.com, the United States is only one of two countries that requires not only residents but citizens living abroad to pay income taxes.  The only other country is Eritrea, which has made it a practice to harass loved ones in your country until you pay up.  The authors write:

Interestingly, a Canadian court in Toronto ruled in 2007 that the imposition of the 2% tax on its citizens abroad was illegal and that a dual Canadian-Eritrean citizen should be paid back the money he had given.

So in becoming a Canadian citizen on Monday, I will also hope that the Canadian government would protect me, if necessary, from the tax regime of the IRS, which may attempt to tax my Canadian sources of income, and if I were to die, to tax my inheritance in such a way as would strip my wife’s rights as a Canadian citizen to inherit her husband’s property (nearly all my assets are Canadian based).

Renunicationguide.com, however, asks the question if there is a right of expatriation in the US Constitution:  “It’s not there. And it’s not in the Declaration of Independence, either.”  Now here I have to differ.  Consider these lines:

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

So begins the Declaration of Independence.  Now in asserting the right of the people of the 13 colonies to expatriate from England, the Declaration of Independence sets an important precedent that makes it clear that liberty is a God-given right and that to be able to loose oneself from the shackles of government which constrict that liberty is the right of the people.  It is therefore not explicitly stated, but the precedent of declaring independence from the King of England would justify any individual who in the course of seeking life, liberty and the pursuit of happiness wished to be released from obligation to his native country; everyone has that right, given to him not by the Congress nor by the country of his choosing, but by the Creator Himself.

Thus, the right of expatriation, while not explicitly argued for by the founding documents of the US, is nevertheless a premise enshrined in the Declaration of the Independence.