Part 1 | Part 2 [to be published]

The U.S. border and the requirements for U.S. citizenship or residency are defining issues of this decade. But almost all the attention they receive focuses on one side of the coin: namely, how to control immigration and who is entitled to citizenship or residency. The other side: how easily can Americans emigrate and renounce their citizenship? Expatriation is rare in comparison to the deluge of immigration in recent years, but the ease with which a citizen can become an expatriate is a litmus test of a government's authoritarianism. How tight a grip does America claim to have over an individual and his wealth because of a geographical accident of birth?

Exit taxes provide an answer. They are a measurable cost of exiting that a government imposes on wealthy citizens who wish to live outside its tax jurisdiction. Many nations impose an exit tax. The details of these taxes vary, but their purpose is the same; they constitute a bill to be settled for the privilege of making a clean exit.

How it works

America's exit tax applies to those who renounce their American citizenship and to long-term residents who cease to be permanent residents; the financial thresholds that activate the tax are a net worth of $2+ million or a five-year average income tax liability of over $139,000. The government values the person's assets, including foreign ones, as though they had been sold on the day before the person's departure. A mark-to-market or fair-market price is used. Then, the hypothetical profit is taxed. The process can be grueling because wealthy expatriates are often assumed to be tax evaders whom the government wishes to discourage.