Senators Casey and Schumer Condemn Facebook's Saverin
May 17, 2012. Sen. Robert Casey (D-PA) and Sen. Charles Schumer (D-NY) held a news conference at which they announced that they will introduce a bill titled the "Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy Act", which comes close to producing the acronym of EXPATRIOT Act.
See, excerpts of CNN video [YouTube]. See also, Sen. Casey's release with bill summary.
The two Senators discussed the renunciation of US citizenship last September by Eduardo Saverin, one of the founders and owners of Facebook. Under US tax law he would have realized a taxable capital gain at the time of Facebook's initial public offering. Saverin resides in Singapore, which has no capital gains tax.
The two Senators asserted that Saverin renounced citizenship to avoid US taxes. Sen. Schumer asserted that "we aren't going to let him get away with it".
Sen. Casey's release states that this bill will provide that "any expatriate with either a net worth of $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. The individual will then have an opportunity to demonstrate otherwise to the IRS by meeting specific IRS requirements. If the individual has a legitimate reason for renouncing his or her citizenship, no penalties will apply. But if the IRS finds that an individual gave up their passport for substantial tax purposes, then it will prospectively impose a tax on the individualís future investment gains, no matter where he or she resides. This would eliminate any tax benefit and financial incentive from renouncing oneís citizenship. The rate of this capital gains tax will be 30 percent, in keeping with the rate that is already applied on non-resident aliens for dividends and interest earnings."
Also, "So long as the individual avoids these taxes, they would be inadmissible to the United States forever."
Sen. Casey stated that Saverin "has benefited greatly from being a citizen of the United States but he has chosen to cast it aside and leave U.S. taxpayers with the bill. Renouncing citizenship to simply avoid paying your fair share is an insult to middle class Americans and we will not accept it."
Saverin has denied the Senators' tax allegations. He stated in a release that "My decision to expatriate was based solely on my interest in working and living in Singapore, where I have been since 2009."
Commentary. There also exists the argument that US capital gains taxes are very high, both absolutely and relative to other countries, and that this is one source of competitive disadvantage for the US in the global economy.
Investors make investment decisions in large part on the basis of expected return on investment. This includes an assessment of tax consequences. Investors do not make investment decisions on the basis of how they will facilitate the spending ambitions of politicians around the world.
Senators Casey and Schumer could have advocated reforms to US tax policies that would draw capital to the US economy, rather than advocate new punitive policies that would further drive capital away.
There also exist the related arguments that US corporate taxes are both high relative to
other countries, and in need of reform to address the global scope of many companies, and
that these current tax policies further place the US at a competitive disadvantage.