[Pages S5304-S5323]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

FIRST 100 DAYS OF SO-CALLED REVOLUTION

Mr. BYRD. I thank the Chair.
Mr. President, tomorrow we will hear about the first 100 days of the
so-called revolution, and about the success of the misnamed contract
with America. I call the contract misnamed because so many Senators on
both sides of the aisle claim never to have signed it, and many
Americans have no idea what it is, much less any idea of its various
provisions. The term ``contract'' is usually reserved for binding
documents which two or more parties have agreed to and signed. But, not
so with this so-called contract with America. It is simply the wish
list of the extreme faction of one political party, packaged to sell
better by giving it the legitimacy of the word ``contract.'' It is
clever, essentially meaningless ad-man lingo, probably conjured up by
some pollster.
But, in any event, the Nation will, no doubt--at least part of the
Nation--be glued to the TV sets on Friday evening to hear the 100-day
report on the progress of the so-called contract, as promised. But
everything about this made-for-TV drama will be somewhat of a fantasy.
First, as I have already indicated, the contract is merely a made-up
device. Second, the so-called 100-day report is not occurring after 100
days. Friday, April 7, will only be the 94th day since the convening of
the 104th Congress. The real 100th day will occur on Thursday, April
13th, smack in the first week of the April congressional recess. So we
will be getting the report on the so-called contract, which is not
really a contract, on the so-designated 100th day, which is really only
day 94. But, then of what import are messy details when one is busy
manufacturing non-news while conducting a pseudo revolution?
We will undoubtedly hear of the wild success of the so-called
contract when, in fact, only two of its provisions have been enacted
into law, and these two were relatively noncontroversial. In reality,
two of the contract's major tenets, the balanced budget amendment and
the term limits proposals have gone down to defeat, while a third, a
misnamed proposal being loosely called line-item veto which, by the
way, may be found to be unconstitutional, may be stuck in a House/
Senate conference for perhaps a long time. Only in Washington would
this type of report card be touted as successful. Rather than a 100-day
report on the progress of the contract, this coming performance might
be better billed as a 94-day alibi for the failure of an extremist
agenda.
The truth of the matter is that the so-called contract is pretty much
of a flop. And just like a bad play in the theatre, a bomb is a bomb.
You can punch up the dance numbers, spice up the dialog and gussy up
the costumes a little bit, but in the end a flawed script will flop and
nothing on God's green earth will save it.
Likewise, at the end of this particularly bad show this so-called
contract will also be judged a flop and a failure. That will happen
because the contract is a giant gimmick comprised of other lesser
gimmicks, and it does not address real problems in our Nation. It
merely packages several old canards which are holdovers from the last
popular Republican administration and calls them reform. It reruns a
lot of 1980's political bumper sticker slogans and calls them a program
for change. The Revolution has come to Washington! Rejoice all mad-as-
hell citizens! Well, if this is a revolution, it must certainly be
called the retread revolution. Term limits, balanced budget amendment,
line item veto, enhanced rescission, separate enrollment, tax cuts--
there is a tough one; there is a tough one--all of these old bald tires
have been around for years.
And what about those tax cuts? Mr. President, earlier this year the
House of Representatives passed the balanced budget constitutional
amendment in just 2 days--2 days.
A similar measure failed to pass the Senate by only two votes. During
the debate on these proposals, Republicans nearly drowned the American
people in a sea of rhetoric proclaiming the need for such an amendment.

Deficit reduction, it was claimed, was the most pressing issue facing
Congress today. We heard a lot about our responsibility to future
generations, about the need for fiscal discipline, and about the need
to make tough choices. The American people were told that there would
be shared sacrifice among all for the good of the Nation. Everyone was
going to do his fair share to beat back the economic dragon of deficit
spending.
For weeks we heard lofty speeches in this body over the need to
reduce deficits. Now, for the House to come right along behind that
debate and enact a huge tax cut financed by cuts in general spending
makes a mockery of all the hot air we heard in this body about deficit
reduction. To suggest squandering our budget savings on tax favors for
the well to do and for big corporations is just plain crazy. For the
House of Representatives to pass a tax cut giveaway which will cost the
American people $189 billion over 5 years and approximately $700
billion over 10 years is clearly walking away from any serious attempt
to reduce the deficit.
We will hear a lot of talk about the winners and the losers under the
so-called contract in the coming days. But, in my view, there are no
winners when what should be a serious attempt to address the Nation's
problems is replaced with glitzy media shows, overblown rhetoric, one-
line solutions, and junk legislation enacted in a rush to meet a phoney
deadline, and huge tax cuts designed to benefit the well to do. We all
lose. We all lose when that kind of superficial excuse for leadership
is offered to the people as a substitute for the real thing.
The truth is that Barnum and Bailey's is not the only show in town
this week. All of this touting of a revolution and praising of a
nonexistent contract with America is nothing more than a less
entertaining version of the same sort of circus.
This contract is a sham and it will ultimately be judged a failure
because the American people will never choose
[[Page S5305]] the so-called contract over the Constitution, the
Constitution of the United States of America. It will fail because it
is mostly form devoid of substance. It will fail because it opts out of
trying to find solutions to real problems, and instead tries to rig the
game and rearrange our cherished checks and balances in order to
further a misguided political agenda. And it will fail because it plays
on people's fears and anger, instead of nourishing their hopes and
their dreams.
It will also fail, I believe because of the genius of the Framers in
their crafting of a U.S. Senate, designed to slow things down, educate
the public and talk things through in extended debate.
For my part, I only wish that tomorrow night, instead of the touting
of some made-up, fabricated so-called Contract With America in a
partisan attempt to manufacture fervor for a political agenda, the
American people will hear a detailed explanation of how the last 94
days have once again demonstrated the innate wisdom, power, and
grandeur of the only contract ever agreed to by the people of America
and sworn to by all of the Members of the Senate and the House. That
contract is the Constitution of the United States of America.
Mr. President, I yield the floor.
The PRESIDING OFFICER. The minority leader is recognized.
Mr. DASCHLE. Mr. President, I have consulted with colleagues on this
side and I think as a result of our discussions in recent minutes that
we will be able to enter into a fairly short-time agreement on this
particular amendment.
Whatever length of time the distinguished Senator from Massachusetts
would like to speak I think will be all the time required on this side.
We would be prepared to vote.
Mr. KENNEDY. Mr. President, could we have 15 minutes, evenly divided?
I will be glad, as I had previously indicated to the leadership, make a
brief presentation. And I am glad to accommodate the timeframe. I could
complete my statement in a shorter period, or take a few extra minutes.
I will be glad to begin, and when the leaders work out a time
agreement, I will accommodate it.
Mr. DASCHLE. Mr. President, I suggest the Senator begin his remarks,
and in the meantime we will try to work out an agreement.

Amendment No. 448 to Amendment No. 420

(Purpose: To state the sense of the Senate regarding tax avoidance by
certain former citizens of the United States)

Mr. KENNEDY. Mr. President, in a few moments, we will consider the
amendment numbered 448. To again familiarize the Members of the Senate
of its intent, I will read it. It is a brief amendment.
This amendment states that it is the sense of the Senate that
Congress should act as quickly as possible to amend the Internal
Revenue Code of 1986 to provide for taxation of accrued gains at the
time that a person relinquishes U.S. citizenship; and it is the sense
of the Senate that the amendment referred to should take effect as if
enacted February 6, 1995.
This is defined as the billionaires' amendment.
Just to review the amendment very quickly, Mr. President, it was part
of the small business health care deduction bill to permit the self-
employed to deduct 25 percent of their premiums.
It had been included by the Finance Committee, and was a part of the
legislation which we passed. This provision addressed a serious
loophole in the Internal Revenue Code.
That loophole can be explained as follows: An individual can
accumulate massive sources of wealth, owe their fair share of taxes to
the Internal Revenue Code, renounce their American citizenship, become
what I consider to be a Benedict Arnold, change their residency to
another country, and effectively avoid and evade any responsibility to
pay their fair share of taxes on all unrealized gains.
It has been estimated that the cost of this tax avoidance is $3.6
billion, including both American citizens and permanent resident
aliens.
It is important to note that the measure reported out of the Finance
Committee related only to American citizens. I am hopeful that the
Finance Committee and the Ways and Means Committee, when they revisit
this issue, will consider the administration's proposal, which would
include both American citizens and permanent resident aliens.
This provision only affects about 25 Americans a year. But the
cumulative loss to the Federal Treasury is $1.5 billion over a 5-year
period and $3.6 billion over a 10-year period.
This matter is of major importance, Mr. President, because the Senate
is now debating the rescissions legislation, rescissions meaning cuts
in a number of different programs. These are programs that the Congress
has authorized, and for which we have made appropriations. The
President has signed these measures into law, and now Congress is
revisiting these commitments and deciding how to cut the various
programs.
The Daschle amendment that is before the Senate would restore funding
for some of these programs: the voluntary community service program
called AmeriCorps; the drug-free schools program, which assists
parents, schoolteachers, and school boards with the problems of
substance abuse and violence in the schools; the chapter 1 education
program, which assists disadvantaged children; the Goals 2000 Program,
which would provide sufficient funding for 1,300 school districts
around the country for needed reforms and improvements in academic
achievement; the well-known Head Start Program, that has been extended
to 0- to 4-year-olds, so that intervention can take place to help
children, particularly toddlers, as defined by the Carnegie Commission
report; the Program for Women, Infants, and Children [WIC], which
provides expectant mothers with high-quality nutrition; the School-To-
Work Program, that is being reviewed now before our Human Resources
Committee and will provide one-stop shopping for youth trainees;
and the child care program, which is so essential for working families
to ensure that their children are adequately cared for.

The amendment restores approximately $700 million in these programs.
Other programs in the amendment for training and housing total $700
million. That requires a restoration of $1.4 billion, and we have spent
days debating this amendment. By and large, most members of the Senate
have voted in favor of these programs. A handful have not, but by and
large it has been a bipartisan effort.
At the same time, we are not recovering the $1.4 billion from those
Americans who are renouncing their citizenship and turning their backs
on America. If they were not renouncing their citizenship, they would
owe that money to the Federal Treasury. We have not recaptured that
money. It was dropped in the conference committee on the small business
legislation. The small business legislation with the appropriate
language, which had been accepted in the Finance Committee, accepted on
the floor of the Senate, and went to the conference, came back without
the necessary language.
With this amendment, we are saying that the membership feels that
this loophole must and should be closed, and will be closed at the
first opportunity. And the date will be made retroactive to the date of
original introduction by President Clinton, who has taken a personal
interest in closing this loophole.
The majority leader has indicated that he will support it. The
chairman of the Finance Committee has said that he will support it. The
Senator from New York, Senator Moynihan, as well as Senator Bradley and
other members of the Finance Committee, have all expressed their
support.
The vote is important because we want to make sure that the Senate's
hand is strengthened when the measure goes to conference. Hopefully,
this will be a unanimous vote, which will further strengthen the hand
of the Senate. It will be a clear indication that the Senate of the
United States wants this loophole closed, and that the renunciation of
citizenship, after an individual has taken advantage of the American
free enterprise system, and the avoidance of the responsibility to pay
a fair share of taxes, is unacceptable.
An individual has every right to renounce his or her citizenship and
leave America, and we have some 800 every year who do so. We are not
saying that they cannot leave. We are saying that
[[Page S5306]] if they decide to leave, they should pay their taxes
prior to their leaving.
Mr. DORGAN. Mr. President, I wonder if the Senator will yield for a
question?
Mr. KENNEDY. Yes. Let me finish with one thought.
This provision is not a new concept. The concept itself is already
included in the Internal Revenue Code but is drafted such that it does
not protect against this egregious loophole. This new provision will
close the loophole.
I am glad to yield.
Mr. DORGAN. I appreciate the Senator yielding. I know he has been
waiting for a week to offer this sense-of-the-Senate amendment. I know
also this was dropped from a previous piece of legislation that has
been through this Chamber and I cannot conceive of anyone in this
Chamber who would vote against this proposition.
As I understand the current tax law--and I might ask the Senator to
confirm this--that if you have accumulated substantial assets and
wealth in this country and have substantial gains on those assets and
then decide to renounce your citizenship and leave the country, we'll
give you a special deal. You do not have to pay tax on the way out on
your gains.
I am going to bring something to the floor later this session on
another perverse tax incentive that says, ``Close your manufacturing
plant in America and move it overseas and we will give you a tax break
for that as well.''
As I understand it, what the Senator is offering is a sense-of-the-
Senate amendment saying let's close the loophole by which people can
renounce their citizenship and leave this country with substantial
amounts of accumulated gains in income and end up paying no taxes. Is
that the current tax circumstance?
Mr. KENNEDY. The Senator has stated it accurately and correctly. It
is a provision that is probably as inoffensive to all fair-minded
Americans as any other before this body. As we debate our priorities on
the floor, we have an opportunity to reduce the deficit or invest these
resources in our children and our educational system.
We can give a clear, resounding message to our members of the Finance
Committee so that this egregious loophole will be closed at the next
possible opportunity.
Mr. DOLE. Is the Senator prepared to vote at, say 5 after 3?
Mr. KENNEDY. I will be glad to vote at 5 after 3.
Mr. DOLE. Up or down on the amendment?
Mr. KENNEDY. I appreciate that.
Mr. President, I call up amendment 448.
The PRESIDING OFFICER. Without objection the pending amendments will
be set aside.
The clerk will report this amendment.
The bill clerk read as follows:

The Senator from Massachusetts [Mr. Kennedy] proposes an
amendment (No. 448) to amendment No. 420.

Mr. KENNEDY. Mr. President, I ask unanimous consent that reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:

At the appropriate place in the amendment, insert the
following:

SEC. . SENSE OF THE SENATE REGARDING TAX AVOIDANCE.

(A) In General.--It is the sense of the Senate that
Congress should act as quickly as possible to amend the
Internal Revenue Code of 1986, to eliminate the ability of
persons to avoid taxes by relinquishing their United States
citizenship.
(b) Effective Date.--It is the sense of the Senate that the
amendment referred to in subsection (a) should take effect as
if enacted on February 6, 1995.

Mr. DOLE. Did we get the yeas and nays?
The PRESIDING OFFICER. We have not gotten the yeas and nays.
Mr. KENNEDY. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. The yeas and nays are ordered, vote at 5 after
3.
Mr. KENNEDY. Mr. President, I will be glad to yield the floor if
others want to address the issue. I will just take a few moments to
mention one or two other facts.
The question was raised about this provision's constitutionality. I
will place more complete statements in the Record, but I will now note
the opinions of three very thoughtful international law experts. Prof.
Andreas Lowenfeld of NYU said:

I am confident that neither adoption nor enforcement of the
provision in question would violate any obligation of the
United States or any applicable principles of international
law.

Prof. Detlev Vagts of the Harvard Law School said:

The proposed tax does not amount to such a burden upon the
right of repatriation as to constitute a violation of either
international law or American constitutional law. It merely
equalizes over the long run certain tax structures.

And Michael Matheson, a legal advisor at the State Department, said:

This provision does not conflict with international human
rights laws concerning an individual's right to freely
emigrate from his or her country of citizenship . . . . These
are comparable taxes to those which U.S. citizens or
permanent residents would have to pay were they in the United
States at the time they disposed of the assets or at their
death.

The overwhelming international law opinion on this measure is that it
in no way restricts the constitutional right of exit or of renunciation
of one's citizenship.
These international law experts understand this measure, and
recognize that these individuals have accumulated this wealth through
the American economic system, and have a responsibility to pay their
fair share of taxes. As they understand it, the amendment would only
recover what is owed to the Internal Revenue Service, which is part of
one's responsibilities of citizenship.
Mr. President, we have appreciated the strong support that we have
received on this measure.
This matter was brought to the attention of the President of the
United States a number of months ago, and he personally pursued it with
the appropriate committees and the Treasury Department. Through his
individual oversight, the matter was spotted and will be corrected.
With the vote today, we are telling our good friends in the House of
Representatives that we are serious about this measure, and that it is
a significant issue of justice. The renunciation of one's citizenship
is deplorable, but it is a right that we respect. But the renunciation
of citizenship by individuals so that they do not have to pay their
fair share of taxes is wholly unacceptable. It is sufficiently
compelling to generate a resounding vote.
Mr. President, I would just take another moment of the Senate's time.
We were questioned earlier about the revenue estimates. It is
interesting that the figures of both the Senate Finance Committee and
the administration are very similar. The administration's proposal
estimated a cost of $1.5 billion, and the Finance Committee estimated a
cost of $1.359 billion. Those figures are remarkably close. The Finance
Committee's estimate was less than the President's figures because the
Finance Committee estimated the cost for only American citizens, not
permanent resident aliens. If we included permanent resident aliens,
the committee estimate would perhaps exceed the President's estimate.
Nonetheless, we have two solid estimates approaching $1.5 billion.
The President's proposal estimates a cost of $3.6 billion over a 10-
year period. That is a very substantial amount, which, if not
collected, will either add to the Federal deficit or deny us the
opportunity to invest in our first order of priorities, our children
and our education system, through the Head Start Program, the chapter 1
program, child care programs, job training programs, the student loan
program, and our School-To-Work program. All of these programs reach
out to the youngest of our citizens to make certain that they are going
to get a healthy start, an even start, and a fair start in life, and be
able to provide for themselves and for their own children in the
future.
Mr. President, I ask unanimous consent that a November 21, 1994,
article from Forbes magazine that explains this egregious tax loophole
be printed in the Record.
I look forward to the vote itself.
I yield the floor.

[[Page S5307]]

There being no objection, the article was ordered to be printed in
the Record, as follows:

[From, Forbes, Nov. 21, 1994]

The New Refugees

(By Robert Lenzner and Philippe Mao)

``Over and over again courts have said that there is
nothing sinister in so arranging one's affairs as to keep
taxes as low as possible. Everybody does so, rich or poor,
and all do right, for nobody owes any public duty to pay more
than the law demands: taxes are enforced exactions, not
voluntary contributions. To demand more in the name of morals
as mere cant''--Judge Learned Hand.
``I talk to a new client interested in expatriating every
week. Many people can't pay the federal tax rate and live in
the style they want.'' So said Francis Mirabello, the head of
the personal law department at the Philadelphia office of
Morgan, Lewis & Bockius, speaking at a Bermuda conference on
offshore money early this fall.
Expatriating? Give up U.S. citizenship? Who in his right
mind would give up his U.S. citizenship? Lots of people. You
could practically fill a Boeing 747 with well-heeled U.S.
citizens who have taken of foreign citizenship rather than
submit to what Learned Hand called ``enforced exactions'' at
a level that amounts to virtual confiscation. The exodus may
speed up under an Administration that campaigned for office
on a tax-the-rich platform.
In 1981 Ronald Reagan lowered taxes. The following year not
a single American gave up his citizenship. In 1993 the
expatriate community grew by 306 names.
The expatriates of recent years have included:
Michael Dingman, chairman of Abex, and a Ford Motor
director. Dingman is now a citizen of the Bahamas and lives
there.
Billionaire John (Ippy) Dorrance III, an heir to the
Campbell Soup fortune. Dorrance is now a citizen of Ireland
and lives there as well as in the Bahamas and Devil's Tower,
Wyo.
J. Mark Mobius, one of the most successful emerging market
investment managers. Born a U.S. citizen, Mobius has the
German citizenship of his ancestors and lives in Hong Kong
and Singapore.
Kenneth Dart, an heir to Dart Container and his family's $1
billion fortune. He is a citizen of Belize and works in the
Cayman Islands.
Ted Arison, founder of Carnival Cruise Lines. He kept
Israeli citizenship and now lives there.
These newer emigrants join others of longer standing,
including Robert Miller, the co-owner of Duty Free Shoppers
International Ltd. Miller has a British passport obtained in
Hong Kong, though he was raised in Quincy, Mass.
The U.S. is virtually the only country in the world that
imposes significant income and death taxes on the worldwide
income and assets of every citizen, even if the citizen is
domiciled elsewhere. Even Canada, semisocialist, did away
with estate taxes.
``Expatriation has been called the ultimate estate plan,''
says William Zabel, senior partner of Schulte Roth & Zabel,
one of the nation's foremost authorities on trusts and
estates, and author of the upcoming book The Rich Die
Richer--And You Can Too.
The arithmetic is simple and brutal. A very rich Bahamian
citizen pays zero estate tax; rich Americans--anyone with an
estate worth $3 million or more--pay 55%. A fairly stiff 37%
marginal rate kicks in for Americans leaving as little as
$600,000 to their children. The marginal rate--what you pay
on an additional dollar of assets--ranges upward from there
to 60%. You get a credit for some or all of your state
inheritance taxes, but your combined rate will still be in
this range, or higher.
There are huge potential income tax savings, too, in giving
up U.S. citizenship. St. Kitts-Nevis and the Cayman Islands,
among others, levy no income taxes. Little wonder so many of
the expatriate Americans have gone to the Caribbean for a
year-round suntan.
Not that living in the Bahamas is any great sacrifice.
Michael Dingman is building a 15,000-square-foot home at the
exclusive Lyford Cay club in Nassau that will include a dock
for his personal yacht. Cost: more than $10 million, but--who
knows?--he might save more than that much in taxes.
The heirs of John (Ippy) Dorrance III, the Campbell Soup
heir, won't have to pay Uncle Sam the maximum bite of 55% of
the 26.7 million shares of Campbell Soup that make up most of
his $1-billion-plus fortune. His new fatherland, Ireland,
levies a 2% estate, or probate, tax. In any event, Dorrance
doesn't escape the full federal income taxes. There's a U.S.
withholding tax of 30% on the $30 million he gets in
dividends every year from Campbell.
Many of these expatriates agonize over the decision,
however. ``I have serious reservations about expatriation for
patriotic and practical reasons,'' says tax expert Zabel.
``It is extraordinarily difficult for Americans to get back
their citizenship once it is given up. To get it back you
have to start like any other nonresident alien, with a green
card, and go through the naturalization process.
``Before expatriating I make my clients consider all the
limitations on loss of citizenship--like giving up the
ability to travel to the U.S. more than 120 days a year.''
But losing that American passport isn't as hazardous as it
once was. Profligate government policies are steadily eroding
the value of the U.S. dollar, making overseas investments
increasingly preferable for the wealthy. Investments in
emerging markets look increasingly attractive. The end of the
cold war means wealthy Americans can live in many developing
nations safely. Global communication and jet travel
facilitate an offshore lifestyle. What with computers and
cable TV, you can be as well informed, and as quickly, living
in Antigua as in New York City.
It certainly seems that way to Frederick Krieble, a
director and former treasurer of Loctite Corp., the Rocky
Hill, Conn. manufacturer of sealants and adhesives. Krieble,
whose father, Robert, was formerly Loctite chairman, moved to
Turks and Caicos Islands, where he runs an investment
company. Krieble owns almost 1 million shares of Loctite,
worth over $43 million.
``It's 85 degrees, but the market's down 35 points,''
Krieble told Forbes recently. When he heard we wanted to
discuss the subject of expatriation, Krieble clammed up. ``I
don't wish to discuss that. Have to run now.''
Yes, it's a bit embarrassing, but consider the
consequences: decimation of your estate and huge reductions
in your aftertax income.
Thus many money managers, senior executives and self-made
entrepreneurs are on the phone quizzing their lawyers and
accountants about how to leave the high-tax U.S.
Jane Siebels-Kilnes, a vice-president of Templeton,
Galbraith & Hansberger, in Nassau, told Forbes she was
``following in the footsteps of Sir John Templeton,'' who
gave up his U.S. citizenship in 1962 and moved to Nassau.
Thus when Templeton sold his mutual fund management company
in October 1992, he may have saved more than $100 million in
capital gains taxes. Templeton, an extremely generous and
public-spirited man, gives most of his money away. Apparently
he wants to decide who gets the benefits rather than letting
Donna Shalala or Mario Cuomo decide.
Siebels-Kilnes became a Norwegian citizen this year and
moved her residence from Fort Lauderdale, Fla. to Nassau.
``I've spoken to a number of hedge fund managers who are
thinking of giving up their citizenship. It may be better to
be offshore running offshore money before American
authorities clamp down on the advantages,'' says Siebels-
Kilnes.
A hot spot: St. Kitts-Nevis. All it requires is owning
$150,000 worth of local real estate and paying $50,000 in
fees, and presto. St. Kitts-Nevis levies neither a personal
income tax nor an estate tax.
Top executives of midwestern industrial companies nearing
retirement are considering expatriation as a way to ensure a
high standard of living in a comfortable environment.
Is it greed alone that impels these citizenship changes?
Not necessarily.
``These people love to challenge all the rules, even
recognizing they may isolate themselves,'' says Carol
Caruthers, a partner of Price Waterhouse in St. Louis. ``We
are doing preliminary planning for a few of them.''
Expatriation is a fairly easy choice for many wealthy
Americans who hold dual citizenship--as Mobius already did--
and whose wealth is heavily concentrated abroad anyhow.
``Since they may inherit these assets, a planning
opportunity might be to give up U.S. citizenship in order to
avoid taxation on assets and income that have no connection
to the U.S.,'' says Robert C. Lawrence III, a Cadwalader
Wickersham & Taft partner in New York who is advising on
several such expatriations.
You'll need an ace attorney. If the Internal Revenue
Service suspects you are renouncing your citizenship to avoid
taxes, it will try to tax your holdings for another ten
years, no matter where you live. All the IRS need establish
is that it is reasonable to believe you gave up citizenship
to avoid taxes. Then, the burden of proving the move was not
for tax reasons falls on the former citizen.
But whatever the drawbacks, many nations put out the
welcome mat for tax-averse Americans.
Lawyer Mirabello, who is working on six expatriations, is
changing citizenship for a superwealthy Chinese-American
whose headquarters is in Hong Kong. He has never set foot in
the U.S. and wants to avoid estate taxes when he passes the
empire to his children.
Some of Mirabello's clients are considering becoming Irish
citizens. What does that require? Certainly no hardship,
given what a pleasant place Ireland is for those with money.
They need only buy a home there and reside there at least
part of the year.
Why Ireland? An Irish passport lets its holder travel
hassle-free in any member of the European Union. It also has
more panache than a passport from Belize or St. Kitts, two
small tropical outposts. And, Dublin is being developed as a
global money center with tax advantages for individual and
corporate investors.
How do you get an Irish passport? It should be fairly easy
for the rich. New regulations will probably require a $1.6
million investment in a job-producing operation like the
reforestation of an area or modernization of a shipbuilding
concern. This is the so-called business migration scheme,
administered in Dublin by the Department of Justice. Its
guidelines are currently being reexamined for political
reasons.
Another attractive destination is Switzerland. ``You can
pretty well negotiate your
[[Page S5308]] own private agreement with a Swiss canton
about your annual income taxes,'' asserts Lawrence.
Can an affluent American keep the politicians at bay
without sacrificing citizenship? It's not easy. Wealthy
people hold over $2 trillion in offshore accounts from Zurich
to the Cayman Islands. No doubt some of these accounts are
held by Americans who--illegally--omit mention of them on
their tax returns.
Merrill Lynch, like all major investment firms, has a piece
of this business. Merrill will not accept offshore accounts
from U.S. citizens, but it is eager to service foreigners.
``Offshore money is growing faster than any other part of
the financial services industry. It's multiplying at a
double-digit rate of growth,'' says Nassos Michas, head of
Merrill Lynch's private banking division. Merrill's trust
bank in the Caymans, with assets growing at over $100 million
a month, has almost $5 billion of wealthy individuals'
holdings.
Actually, the Caymans trust is just a file for legal
purposes. Merrill's banks in Geneva, New York and London hold
the securities. The accounting is done in Singapore, the
administration is done on the Isle of Man, famed for its
trust business.
Wealthy Europeans, Latin Americans, Asians and Middle
Easterners are Merrill's principal clients here. They want to
buffer their fortunes against expropriation, political
unrest, economic instability, angry first wives, kidnapping,
family members, creditors and potential litigants.
Wealthy Europeans have expatriated their money to safety
ever since the French Revolution, when they began hiding it
in Switzerland.
When the Germans occupied the Netherlands in 1940, this
activated a trust instrument transferring ownership from the
homeland to a trust at a U.S. bank. In Europe, where the
pounding of marching feet and air raid warnings are of recent
memory, use of such trusts was common, at least up until the
collapse of the Soviet Union.
Today many wealthy Kuwaitis have trusts offshore to protect
their fortunes from Saddam Hussein. The rich in Latin
America, Southeast Asia and the Middle East remember that it
was only yesterday that their countries were ruled by
thieving populists or arbitrary soldiers.
What is new is that Americans are beginning to feel the
same sort of residual uncertainty about their posessions.
They see courts eroding property rights. They read about
bureaucrats who talk about ``tax expenditures'' when
referring to that part of your earnings that they permit you
to keep. They are subjected to retroactive taxation under the
Clinton ``deficit reduction bill.'' They live in a society
that changes the tax rules so frequently that long-term
planning is almost impossible.
So they consult legal experts like Cadwalader's Lawrence,
who is an authority on generational and international
planning, including the use of trusts, and taxation. ``They
want to sequester, organize and protect the privacy and
maintenance of their wealth, plus the freedom to transfer it
as they wish,'' says Lawrence.
But how, short of leaving for some sand dune in the
Caribbean?
There are several clever strategies you can use to minimize
the future tax bite on your estate, but the fact is that
Congress has done a very thorough job of plugging chinks in
the tax code. Parking assets abroad or setting up holding
companies will not get you out of the U.S., steep income and
estate tax rates. You really have to give up citizenship to
get a big tax savings.
It's easier for foreigners who have property in the U.S. to
avoid the worst of American taxation, but even for them there
are pitfalls. They must pay U.S. estate taxes on assets held
in the U.S. unless they safeguard them by means of an
offshore legal structure. Only certain fixed-income
investments are immune from the IRS.
A foreigner can shelter his U.S. assets in the following
way: Set up a trust outside the U.S. in some tax-advantaged
locale, such as Bermuda, the Cayman Islands or the British
Virgin Islands. ``The foreign trust must own an underlying
holding company, called a private investment company (pic),''
Lawrence says.
``The pic opens an investment account in the U.S.
Otherwise, a foreign individual who has a stocks-and-bonds
portfolio of U.S. companies would be subject to U.S. estate
tax. If the securities are owned by a true foreign
corporation, the individual is not subject to the estate tax.
The foreign corporation acts like a shield to the estate
tax.''
The IRS can't be happy about these paper shuffling
arrangements. Indeed, Lawrence is afraid it may crack down on
them. But before you cheer at the prospect of making them
furriners pay up, remember this: The U.S. needs foreign
capital because we don't save enough. We must compete for
that capital with lots of other places. Treat the capital
shabbily and it can go elsewhere.
``I'm afraid that foreign capital may be scared away from
the U.S. because of taxes and the complexity of our
regulation,'' Lawrence warns.
It could happen, Lawrence insists. He points to the Foreign
Investment in Real Property Tax Act, passed in 1980, which
forces foreigners to pay a capital gains tax when the sell
real estate in the U.S. We shudder to think what would happen
to the U.S. stock and bond markets if foreign paper holdings
were similarly taxed.
It will come as a shock to many people to learn about the
growing band of expatriates. But it is not unpatriotic to
remind Americans that ours is no longer the only show in town
as a place to invest. At a time when we urge developing
countries to cut taxes and make capital more secure, a lot is
happening to make it less secure and more heavily taxed at
home. Those who give up their citizenship to escape
Clintonomics and wealth redistribution are only the extreme
part of a worrisome trend.
____

Avoiding Confiscation

Short of renouncing citizenship, how do you protect the
family fortune from confiscation by the tax code writers in
Congress and in the U.S. Treasury?
The first, and easiest, tax-saving maneuver is to give
money away while alive. If the heirs are young or
irresponsible, you can put the gift in a trust and get the
same tax advantages.
There are two advantages to gifts over bequests. One is
that the first $10,000--per year, per recipient, per donor--
is free from gift tax. If both you and your spouse give for a
long time and you have many heirs, that exclusion can make a
serious dent in your estate. With five heirs, two donors and
20 years to make the transfers, you can get $2 million out of
your estate scot-free.
The other advantage is that the gift tax is somewhat lower
than the estate tax. The two taxes use the same rate
schedule, but the gift tax is calculated in a way more
favorable to the tax-payer. Say you give $1 million to a
grandchild when you are in the 60% bracket for federal gift
tax. (That rate applies when your cumulative gifts, after the
exclusion, are between $10 million and $21 million.)
The total cost of the gift will be $1.6 million--$1 million
to the grandchild, $600,000 to the IRS. But at your death,
that $1.6 million would be divided $960,000 (60% of $1.6
million) to the IRS, only $640,000 to the grandchild.
Caution. If you die within three years of making a gift,
your taxes will be recalculated to negate the advantage of
giving over bequeathing.
Another defensive maneuver is the grantor retained annuity
trust (Forbes, Jan. 31). You transfer your business to a
trust whose beneficiaries are your heirs. Out of the trust
you carve yourself an annuity. The trust pays your annuity
out of business earnings.
You figure the discounted present value of the annuity you
retained, and subtract this amount from the value of the
business in order to arrive at the value of the gift. The
annuity gives you income while keeping your tax able gift to
a minimum.
Business owners are also availing themselves of the
``minority discount'' rule (Forbes. Mar. 1, 1993) For
example, your software firm is worth $10 million. Carve it up
into ten shares and give one share each to ten heirs. Each
share may be worth only $700,000 on a gift tax return,
because no outside investor would want to be a minority owner
in a family business.
If the family heirloom is a house, a variation on the GRAT
may work well. You give your residence to your heirs,
retaining the right to live in it for a specific period
(Forbes, June 24, 1991). Again, the carve-out reduces the
value of the gift.
Another innovation is the dynasty trust. Each grandparent
puts $1 million worth of property in a trust in South Dakota
for the benefit of grandchildren and great-grandchildren. Why
South Dakota? Because it permits trusts to last in
perpetuity; most states allow them to last no more than 21
years after the death of anyone now living. Why only $1
million? Because if you transfer more than that you will get
hit with a punitive ``generation skipping tax.''
Note that a dynasty trust doesn't relieve you of the usual
gift tax. It might, however, let you keep an asset in the
family for a long, long time. The asset is hit with a
transfer tax only once, when you set up the trust, rather
than again and again as each generation passed on.
``There's no one device to solve all the problems. It's a
combination of solutions,'' says Richard Covey, a partner at
Carter, Ledyard & Milburn in New York. ``I find most wealthy
people outside of New York don't know about these tricks.''
What about life insurance? The inside buildup of assets
gets passed on to your heirs tax-free, but the premiums you
pay must be reported as gifts. Life insurance is somewhat
overtouted as an estate tool but it does have its advantages,
especially if you die before your time.
You also can buy a tax-deferred annuity from a foreign life
insurance company, typically German or Swiss. If the annuity
is fixed rate and denominated in deutsche marks or Swiss
francs, it may protect your nest egg from a deteriorating
dollar (Forbes, June 20). You may also opt for a variable
policy that is invested in stocks or mutual funds.
But you won't save taxes unless your estate administrator
is willing to commit a felony by omitting it. So the main
legal benefit of these overseas insurance policies appears to
be that they may--repeat, may--be beyond the reach of
creditors.
For a while the very wealthy were able to defer tax on
portfolio profits by investing in overseas funds that had a
majority of shares held by foreigners. But the 1986 tax put a
stop to this game.
[[Page S5309]] After the 1986 crackdown, the main thing
that offshore funds can do for you is give your fund manager
more flexibility in trading. Domestic funds must be
diversified, must avoid getting too much of their profits
from short term trading, and have limits on leverage. Foreign
funds escape these rules, says Joel Adler, a partner in
Sutherland, Asbill & Brennan in New York.
The bottom line is that there isn't much that wealthy
Americans can do to protect their assets from a covetous
state. Which explains, if it doesn't excuse, the drastic step
taken by more and more people of giving up their U.S.
citizenship. R.L. and P.M.
taxation of expatriates

Mr. MOYNIHAN. Mr. President, I wish to speak to the matter raised by
the distinguished Senator from Massachusetts. We should not countenance
the evasion of taxes by those who renounce their citizenship. The
Senate should act to address this problem expeditiously.
A genuine abuse exists. Although the current Tax Code contains
provisions, dating back to 1966, designed to address tax-motivated
relinquishment of citizenship, these provisions have proven difficult
to enforce and are easily evaded. One international tax expert
described avoiding them as ``child's play.'' Individuals with
substantial wealth can, by renouncing U.S. citizenship, avoid paying
taxes on gains that accrued during the period that they acquired their
wealth and were afforded the myriad advantages of U.S. citizenship.
Moreover, even after renunciation, these individuals can maintain
substantial connections with the United States, such as keeping a
residence and residing in the United States for up to 120 days a year
without incurring U.S. tax obligations. Indeed, reports indicate that
certain wealthy individuals have renounced their U.S. citizenship and
avoided their tax obligations while still maintaining their families
and homes in the United States, being careful merely to avoid being
present in this country for more than 120 days each year.
Meanwhile, the rest of Americans who remain citizens pay taxes on
their gains when assets are sold or when an estate tax becomes due at
death.
It was this Senator who made the first proposal in the Senate to deal
with the expatriation tax abuse. On February 6, the President announced
a proposal to address the problem in his fiscal year 1996 budget
submission. Three weeks ago, on March 15, during Finance Committee
consideration of the bill to restore the health insurance deduction for
the self-employed, I offered a modified version of the administration's
expatriation tax provision as an amendment to the bill. My amendment
would have substituted the expatriation proposal for the repeal of
minority broadcast tax preferences as a funding source for the bill.
The amendment failed when every Republican member of the Committee
voted against it. Subsequently, Senator Bradley offered the
expatriation provision as a freestanding amendment, with the $3.6
billion in revenue that it raised to be dedicated to deficit reduction.
Senator Bradley's amendment passed by voice vote. That is how the
expatriation tax provision was added to the bill that came before the
Senate.
After the Finance Committee reported the bill, but before full Senate
action and conference with the House, the Finance Committee held a
hearing to further review the issues raised by the expatriation
provision. Tax legislation routinely gets polished in its technical
aspects as it moves through floor action and conference. At the Finance
hearing, we heard criticisms of some technical aspects in the operation
of the
provision, as well as testimony raising the issue of whether the
provision comported with article 12 of the International Covenant on
Civil and Political Rights, which the United States ratified in 1992.
Section 2 of article 12 states: ``Everyone shall be free to leave any
country, including his own.'' Robert F. Turner, a professor of
international law at the U.S. Naval War College, argued that the
expatriation provision was problematic under the covenant. The State
Department's legal experts disagreed, as did two other outside experts
whose letters were before the committee. I refer to Prof. Paul B.
Stephan III, a specialist in both international law and tax law at the
University of Virginia School of Law; and Mr. Stephen E. Shay, who
served as International Tax Counsel at Treasury under the Reagan
administration.

Mr. President, I ask unanimous consent that the written testimony of
Professor Turner, the written testimony of the Department of State, and
the letters of Professor Stephan and Mr. Shay be printed in the Record
at the conclusion of my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 1.)
Mr. MOYNIHAN. Mr. President, although there was considerable support
for the legality of the provision, I thought it best to proceed with
caution in these circumstances. These are matters of human rights under
international law, on which we have rightly lectured others, and
involve our solemn obligations under treaties. I sought the views of
other experts. Letters concluding that the expatriation provision did
not raise any problems under international law were received from Prof.
Detlev Vagts of Harvard Law School and
Prof. Andreas F. Lowenfeld of New York University School of Law. The
State Department issued a lengthier analysis upholding the legality of
the provision, and the American Law Division of the Congressional
Research Service reached a like conclusion. However, there were
dissenting views, most notably Prof. Hurst Hannum of the Fletcher
School of Law and Diplomacy at Tufts University, who first wrote to me
on March 24.

Mr. President, I ask unanimous consent that the letters of Professors
Vaghts, Lowenfeld, and Hannum, and the memoranda from the American Law
Division of CRS and the Department of State, be printed in the Record
at the conclusion of my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 2.)
Mr. MOYNIHAN. Mr. President, this is where things stood when the
House-Senate conference met on March 28. The weight of authority
appeared to be on the side of legality under international law, but
there was some question, and the bill had to move at great speed. As my
colleagues well know, the legislation restoring the self-employeds'
health insurance deduction, for calendar year 1994, needed to be passed
and signed into law well in advance of this year's April 17 tax filing
deadline, so that the self-employed would have time to prepare and file
their 1994 tax returns. The decision regarding the expatriation
provision had to be made without further opportunity of deliberation. I
opted not to risk making the wrong decision with respect to
international law and human rights.
The decision to drop the expatriation tax provision from the final
conference version of the bill has been the subject of much debate over
the last week. I certainly don't presume to speak
for the other conferees. But for myself I repeat as I have said on two
occasions on this floor over the past week: We should proceed with care
when we are dealing with human rights issues, particularly when the
group involved is a despised group--that is, millionaires who renounce
their citizenship for money.

As the Senator who first proposed the expatriation tax provision, I
will see this matter through to a conclusion. We are getting more
clarity on the human rights issue, and it appears that a consensus is
developing to the effect that the provision does not conflict with our
obligations under international law. In particular, it is worth noting
that Professor Hannum, who first wrote me on March 24 expressing his
concern that the expatriation provision was a problem under
international law, has, after receiving additional and more specific
information about the expatriation tax, now written a second letter of
March 31 stating that he is ``convinced that neither its intention nor
its effect would violate present U.S. obligations under international
law.'' This is the growing consensus, although it is not unanimous.
Mr. President, I would further ask unanimous consent that Professor
Hannum's March 31 letter be printed in the Record at the conclusion of
my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 3.)
Mr. MOYNIHAN. Mr. President, as for criticism of the technical
difficulties of the original proposal, I believe
[[Page S5310]] they can be satisfied. Indeed, I would venture that if
some of those criticizing the provision's technical aspects had put
even half as much effort into devising solutions as in highlighting
shortcomings, we would already be
much further along toward a satisfactory statute.

One final point, of utmost importance. As we take the time to write
this law carefully, billionaires are not slipping through some loophole
and escaping tax by renouncing their citizenship. The President
announced the original proposal on February 6, and made it effective
for taxpayers who initiate a renunciation of citizenship on or after
that date. This was an entirely appropriate way to put an end to an
abusive practice under current law. Both the proposal that I initiated,
and the one that was ultimately adopted by the Finance Committee, also
used February 6, 1995, as the effective date of the new provision
preventing tax evasion through expatriation. The House conferees had
proposed slipping the effective date to March 15, 1995--the date of
Senate Finance Committee action on the provision. The two chairman of
the tax-writing committees ultimately--and wisely--resisted that
overture, and have issued a joint statement giving notice that February
6 ``may'' be the effective date of any legislation affecting the tax
treatment of those who relinquish citizenship. Given the potential for
abuse under current law, I believe that February 6 must be the
effective date for a new rule. In any event, given the President's
announcement in the budget, the Finance Committee action, and the joint
statement of the two chairman of the tax-writing committees,
individuals who are contemplating renunciation of their U.S.
citizenship are on fair notice of the February 6, 1995, effective date.
To repeat, as the Senator who first offered the proposal to end the
expatriation tax abuse, I will do everything I can to see that this
matter gets resolved. We will do it this session. Fundamental justice
to all taxpaying Americans requires no less.
In an effort to advance that goal, I will shortly introduce
legislation embodying a revised expatriation tax proposal. I do so in
the interest of ensuring that the issues that have been raised are
addressed satisfactorily, and in a timely manner. This revised proposal
represents a serious effort to address the criticisms that have been
raised, and I believe it will be a major step forward.
Mr. President, we will end this abuse, and promptly, but in a careful
and orderly way, as we should do in matters of this importance.
Exhibit 1.--International Law and the ``Exit Tax'': Does Section 203 of
the Tax Compliance Act of 1995 Violate the ``Right to Emigrate''
Recognized in the U.N. Covenant on Civil and Political Rights and Other
U.S. and International Legal Instruments?

(By Robert F. Turner)

Mr. Chairman, it is an honor and a pleasure to appear
before the subcommittee this morning to explore the human
rights ramifications of the so-called ``exit tax'' contained
in Title II of H.R. 981, the ``Tax Compliance Act of
1995.''\1\
\1\Footnotes at end of article.
---------------------------------------------------------------------------
Before turning to the merits of the issue, I would like to
make three caveats in connection with my appearance here
today.
First of all, I am testifying in my personal capacity as a
scholar interested in the subject of International Law; and,
although I currently occupy the Charles H. Stockton Chair of
International Law at the Naval War College while on leave of
absence from the University of Virginia's Center for National
Security Law, my appearance is unconnected with either of
those relationships. Any similarities between the views I
express and those of the War College, the Navy, the
University of Virginia, or any other institution or
organization, is purely coincidental.
Secondly, I want to stress the start that I have absolutely
no expertise on the substantive issue of tax law. I will
therefore have to pass on any questions you might wish to
raise predicated upon such a knowledge.
Finally, since my invitation to testify was not extended
until late Friday afternoon (four days ago)--and because of
prior commitments and travel requirements, I had less than
one day to work seriously on my testimony--my prepared
statement is not as detailed as I might otherwise have
preferred. The basic human rights issue is, of course, not
new to me--ironically, I believe I first looked at the
``right of emigration'' professionally more than two decades
ago when the Jackson-Vanik Amendment came before the Senate
while I was on the staff of Senator Robert P. Griffin of
Michigan--and I don't believe the pressures of time have
prevented me from accurately setting forth the basic legal
rules by which this statutory provision should be judged. I
have not had a great deal of time for serious analysis,
however; and while I venture some very tentative conclusions,
I suspect that each of you will be able to apply the legal
rules to the proposed new statute at least as well as I have
been able to do in the limited time available. Candidly, I
have gone back and forth on the issue--I don't find it to be
a clear cut case.
Thus, I do not appear before you this morning for the
purpose of either supporting or opposing the so-called ``exit
tax'' provision of the tax bill. I do believe that upholding
the rule of law is important, and I do believe that this
provision may raise a sufficiently serious question under
International Law that it warrants additional consideration
before making a final decision on Section 201. To that end, I
commend you for scheduling this hearing.
Even if in the end you conclude that the provision does
not, in reality, violate the Nation's solemn human rights
treaty commitments, if there is even a colorable claim to the
contrary that might be raised to undermine future US efforts
to enforce human rights laws, it might be wise to avoid even
the appearance of violating these laws. In the end it may
come down to balancing the importance of the tax code
provision against the potential harm
that might result if we are perceived as having violated
these important rules of international human rights law.
As an aside, I also have a professional interest in issues
of US Constitutional Law--indeed, I have testified before at
least half-a-dozen congressional committees on issues of
Constitutional Law in the past few years--and I have the
impression that this provision may also raise issues in that
area.\2\ However, considerations of time, and my
understanding of the scope of my invitation this morning, led
me to refrain from examining those issues in sufficient depth
to make a meaningful contribution today on that issue.

the growth of a legal right to emigrate

Today the right of citizens to renounce their citizenship
and leave their own country is almost universally recognized
as a fundamental civil right, but its widespread recognition
as creating international obligations is of relatively recent
origin. The origin of the right can arguably be traced back
nearly 2500 years, to the famous Dialogues of Plato, in which
Socrates says to Crito: [H]aving brought you into the world,
and nurtured and educated you, and given you and every other
citizen a share in every good which we had to give, we
further proclaim to any Athenian by the liberty which we
allow him, that if he does not like us when he has become of
age and has been the ways of the city, and made our
acquaintance, he may go where he pleases and take his goods
with him. None of . . . [our] laws will forbid him or
interfere with him. Any one who does not like us and the
city, and who wants to emigrate to a colony or to any other
city, may go where he likes, retaining his property.\3\
The 42nd paragraph of the original 1215 version of the
Magna Carta issued by King John at Runnymede guaranteed the
right of ``any one to go out from our kingdom, and to return,
safely and securely, by land and by water, saving their
fidelity to us''; but this ``right to travel'' was omitted
from the forty-six subsequent versions--including the one
issued by Henry III in 1225 usually associated with the term
``Magna Carta''--on the grounds that such a right seemed
``weighty and doubtful.''\4\ Nor, for that matter, is it
clear that the right to ``travel'' included a right to
emigrate--a right far more easily sustained now that people
have changed from ``subjects'' of the King to ``citizens'' of
the State.
In 1791, the French Declaration of the Rights of Man
affirmed the right ``to come and to go'' from the State as a
``natural'' right.\5\ By 1868 the U.S. Congress was on record
by statute that: [T]he right of expatriation is a natural and
inherent right of all people, indispensable to the enjoyment
of the rights of life, liberty, and the pursuit of happiness.
. . . Therefore, . . . any declaration, instruction, opinion,
order, or decision of any officers of this government which
denies, restricts, impairs, or questions the right of
expatriation, is declared inconsistent with the fundamental
principles of this government.\6\
More recently, Section 349(a) of the Immigration and
Nationality Act recognizes a right of every citizen to
relinquish US citizenship.\7\ Just a decade ago, the US Court
of Appeals for the Ninth Circuit observed that ``expatriation
has long been recognized as a right of United States
citizens,'' and noted that ``the Supreme Court [has] placed
the right of voluntary expatriation solidly on a
constitutional footing.''\8\
The proposed ``exit tax,'' of course, does not expressly
challenge this well-established right to emigrate--it merely
provides that a few very wealthy citizens will be forced to
pay a 35% tax on appreciated assets should they wish to
exercise this constitutional
[[Page S5311]] right. The issue you have invited me to
address is whether such a tax would bring the United States
into noncompliance with any binding rules of International
Law. I
am not sufficiently versed on issues of tax law to answer
that question with any real confidence, but perhaps I can
be of assistance by at least summarizing the existing
international law binding upon the United States
concerning the human right to emigrate.

international law and constraints on the right to emigrate

Mr. Chairman, perhaps it would be most helpful if I began
by briefly setting forth the status of the right to emigrate
under International Law. I will first consider the relevant
conventional (treaty) law binding upon the United States,
followed by a look at some ``nonbinding'' international
documents which may shed light on these issues, and finally I
will discuss the very important area of customary
international law (which, under the Statute of the
International Court of Justice, is considered as equal in
authority to conventional law\9\).

conventional international law

The effort to codify international human rights law is of
quite recent origin, essentially coming in the wake of World
War II and the establishment of the United Nations. Article
55 of the UN Charter establishes as a goal the promotion of
``universal respect for, and observance of, human rights and
fundamental freedoms for all without distinction as to race,
sex, language, or religion.'' In Article 56, ``All Members
pledge[d] themselves to take joint and separate action in co-
operation with the Organization for the achievement of the
purposes set forth in Article 55.''
An important first step was the unanimous adoption (with
eight abstentions, including the Soviet Union and several
other Communist States) on 10 November 1948 of the
``Universal Declaration of Human Rights'' as a UN General
Assembly Resolution. Such resolutions do not have legal
effect,\10\ and the Declaration was clearly viewed as
aspirational at the time--indeed, the United States delegate
expressly stated that the resolution ``is not and does not
purport to be a statement of law or of legal
obligation.''\11\ However, there is a very strong consensus
today that the Declaration is legally binding by virtue of
reflecting customary international law. It will be discussed
below under customary law.

the international covenant on civil and political rights

In an effort to follow up the Declaration with a series of
binding treaties, in 1966 the United Nations General Assembly
unanimously approved the International Covenant on Civil and
Political Rights, which entered into force on 23 March 1976.
The following year, it was signed by the Carter
Administration and on 23 February 1978, it was submitted to
the Senate for its advice and consent.
In 1991, President Bush asked the Senate to consider the
treaty, and hearings were held late that year in the Foreign
Relations Committee, which recommended approval of the treaty
by a unanimous vote (19-0). On 2 April 1992, the Senate
consented to the ratification of the treaty with a variety of
proposed reservations, understandings, and declarations\12\;
and the instrument of ratification was deposited with the
United Nations on 8 June of that year with the recommended
additions--none of which apply directly to the
issue at hand.\13\ The United States thus joined more than
100 other States in assuming a solemn international legal
obligation to abide by the terms of the Covenant.
It is perhaps worth noting that the unanimous report of the
Foreign Relations Committee on this treaty categorized the
``rights enumerated in the Covenant'' as being ``the
cornerstone of a democratic society.''\14\
The Covenant was designed to be a legally-binding
international treaty setting forth ``inalienable rights''
which were ``derive[d] from the inherent dignity of the human
person.''\15\ Article 12 of the Covenant provides:

Article 12

1. Everyone lawfully within the territory of a State shall,
within that territory, have the right to liberty of movement
and freedom to choose his residence.
2. Everyone shall be free to leave any country, including
his own.
3. The above mentioned rights shall not be subject to any
restrictions except those which are provided by law, are
necessary to protect national security, public order (ordre
public), public health or morals or the rights and freedoms
of others, and are consistent with the other rights
recognized in the present Covenant.
4. No one shall be arbitrarily deprived of the right to
enter his own country. [Italic emphasis added.]\16\
The American Society of International Law commissioned an
excellent study of The Movement of Persons Across Borders,
edited by two of the nation's foremost scholars in this area
(Professors Louis B. Sohn and Thomas Buergenthal), which
provides important background on the interpretation of the
Article 12 of the Covenant. Among other things, the authors
note that one of the reasons Article 12 was written was that,
``[n]otwithstanding Article 13(2) of the . . . [Declaration],
some countries prevent their nationals from leaving,
prescribe unreasonable conditions such as exacting taxes or
confiscating property . . . [emphasis added]''\17\
While Article 12 embodies a ``fundamental right,'' it is
not an ``absolute right'' in the sense that a State may not
legitimately place some reasonable restrictions by law on the
right of emigration. In addition to preventing individuals
accused of serious crimes from leaving,\18\ for example, it
is clear that a State may require a citizen to pay any normal
tax obligations or other public debts.\19\ However, people
who wish to emigrate may not lawfully be required to
surrender their ``personal property,'' and ``Property or the
proceeds thereof which cannot be taken out of the country
shall remain vested in the departing owner, who shall be free
to dispose of such property or proceeds within the
country.''\20\
It seems to me that a key issue with respect to the
proposed US ``exit tax'' is whether or not it represents a
normal tax obligation applicable to all citizens irrespective
of their wish to emigrate. To the extent that it constitutes
a special requirement on individuals because of their desire
to emigrate, then the Government would presumably have the
burden under the Covenant of establishing that the law is
``necessary to protect national security, public order (ordre
public), public health or morals or the rights and freedoms
of others. . . .''\21\
It may be relevant that efforts were made during the
drafting of Article 12 to broaden this list of permissible
exceptions to include such concepts as promoting a State's
``general welfare'' and ``economic and social well-being,''
and these were rejected as being
``too far-reaching.''\22\ Restrictions on freedom of
movement were only to be permitted in ``exceptional''
circumstances.\23\ Professor Louis Henkin, of Columbia Law
School, has noted that: The Covenant . . . is not to be
read like a technical commercial instrument, but ``as an
instrument of constitutional dimension which elevates the
protection of the individual to a fundamental principle of
international public policy.'' Rights are to be read
broadly, and limitations on rights should be read
narrowly, to accord with that design.\24\
This view is widely shared by other experts in the
field.\25\ Discussing Article 12 in a lengthy 1987 article in
the Hofsta Law Review, a group of four attorneys from the New
York firm of White & Case concluded: Although it is accepted
that there may be restrictions imposed on the right to
emigrate, these restrictions are of an exceptional character
and must be strictly and narrowly construed. The right to
emigrate is primary; the restrictions on that right are
subordinate and may not be so construed as to destroy the
right itself.\26\
For the record, the United States is now also to the
International Convention on the Elimination of All Forms of
Racial Discrimination, which prohibits barring freedom of
movement (and many other enumerated rights) on the basis of
``race, colour, or national or ethnic origin''\27\--however,
this treaty does not appear to be relevant to the issue at
hand. There are several other international conventions which
guarantee the right to emigrate, including regional
agreements underlying the European, African, and Inter-
American human rights systems. However, the United States is
not a Party to these, so in the interest of time I have not
addressed their specifics. (While they do serve as evidence
of customary legal obligations, in this area the statutory
language of the Jackson-Vanik Amendment [discussed infra]
assures that the United States is bound by customary law in
this area.)

other international instruments of relevance

As already noted, the Universal Declaration of Human Rights
was intended to be aspirational and not legally binding upon
the 48 States that voted to approve it. Because it reflects
customary law, it will be discussed under that heading--but
it also stands as an important non-treaty human rights
document.
Another very important international document clearly not
intended to create binding legal rights was the Final Act of
the Conference on Security and Cooperation in Europe
(Helsinki Accords), which expressly incorporated the
Declaration.\28\ Time has precluded me from addressing these
types of instruments further, but they are probably not
critical to a resolution of the issue.

customary international law

Perhaps the most important written source of customary
international law\29\ is the Universal Declaration of Human
Rights, approved as a UN General Assembly Resolution on 10
November 1948 and already noted above. The Declaration
provides:

Article 13

1. Everyone has the right to freedom of movement and
residence within the borders of each State.
2. Everyone has the right to leave any country, including
his own, and to return to his country.\30\
During the debate on the Jackson-Vanik Amendment in 1974
(discussed infra), this document was occasionally portrayed
as an international treaty designed to create legal
rights.\31\ In reality, its only ``legal'' value is as
evidence of binding customary law. This may be important
background for the discussion which follows, because the
Soviet Union voted against Article 13 during the drafting
process and did not vote in favor of the Declaration itself
in the General Assembly. With a few exceptions, which are not
relevant to the issue at hand,\32\ rules of International Law
are established by the consent of States. This can be done
explicitly by ratifying a treaty or other international
agreement, or
[[Page S5312]] it may be done implicitly by taking part in
the development of a consistent and general practice accepted
as law. But--again, with some exceptions\33\--a State is not
considered bound by customary legal rules against which it
clearly protested during formation. Thus, it is at least
arguable\34\ that the Soviet Union was not bound by the
Declaration as customary law in 1974.

The 1974 Jackson-Vanik Amendment

Mr. Chairman, it may be worth noting this Committee, and
the United States Congress, have played a prominent role in
the affirmation of customary international law governing the
right of citizens to emigrate without having to pay
burdensome special taxes. I believe that Chairman Packwood,
Majority Leader Dole, and Senator Roth are the only current
members of the Finance Committee who served in the Senate
during the Ninety-Third Congress, so it may be useful to
review the history of the ``Jackson-Vanik'' Amendment--also
known as the ``Freedom of Emigration'' Amendment\35\--briefly
at this time. I remember it reasonably clearly, for, as I
mentioned, I was serving at the time on the staff of Senator
Bob Griffin and I followed the Amendment closely.
As reported out of this committee, Section 402 of the Trade
Act of 1974 (H.R. 10710) included the House-passed ``Vanik
Amendment''\36\ which prohibited the President from granting
``nondiscriminatory tariff treatment'' to any ``non-market
economy country'' which ``imposes more than a nominal tax,
levy, fine, fee or other charge on any citizen as a
consequence of the desire of such citizen to emigrate to the
country of his choice.''\37\ In its accompanying report, this
Committee referred to the ``right to emigrate'' as a ``basic
human right. . . .''\38\
When the trade bill reached the Senate floor in mid-
December 1974, this provision was strengthened by the
enactment of the famous ``Jackson Amendment'' (with the final
language affirming the right of emigration thus widely
referred to as the ``Jackson-Vanik Amendment''). Although
strongly opposed by the Ford Administration as an impediment
to detente with the Soviet Union, and Jackson Amendment was
introduced in the Senate with 78 co-sponsors.\39\
Significantly, it received a unanimous vote after a lengthy
(if entirely one-sided) floor debate.\40\ The three current
members of this Committee who served in the Senate at the
time were co-sponsors of the Jackson Amendment\41\ and voted
for its passage.\42\
In testimony before this committee, the legendary Hans J.
Morgenthau, at the time Leonard Davis Distinguished Professor
of Political Science at the City University of New York,
characterized the right of emigration as ``one of the tests
of civilized government.''\43\ Senator Dole termed it a
``fundamental freedom,'' and described the Soviet requirement
that citizens seeking to emigrate first pay a ``diploma tax''
to reimburse the State for its investment in their education
as being in conflict with ``America's traditional concern for
the rights of individuals.''\44\ Addressing the Senate
following passage of his amendment, Senator Jackson noted
that the ``fundamental human right to emigrate'' was
guaranteed ``in the Universal Declaration of Human Rights
which was adopted unanimously 26 years ago this week.''\45\
As enacted into law (19 U.S.C.A. Sec. 2432), the provision
provides in part: Sec. 2432. Freedom of emigration in East-
West trade. . . . (a) To assure the continued dedication of
the United States to fundamental human rights, and
notwithstanding any other provision of law, on or after . . .
January 3, 1995, products from any nonmarket economy country
shall not be eligible to receive nondiscriminatory treatment
(most-favored-nation treatment), such country shall not
participate in any program of the Government of the United
States which extends credits or credit guarantees or
investment guarantees, directly, or indirectly, and the
President of the United States shall not conclude any
commercial agreement with any such country, during the period
beginning with the date on which the President determines
that such country--
(1) denies its citizens the right or opportunity to
emigrate;
(2) imposes more than a nominal tax on emigration or on the
visas or other documents required for emigration, for any
purpose or cause whatsoever, or
(3) imposes more than a nominal tax, levy, fine, fee, or
other charge on any citizen as a consequence of the desire of
such citizen to emigrate to the country of his choice,

and ending on the date on which the President determines that
such country is no longer in violation of paragraph (1), (2),
or (3).\46\
Even if you conclude that the proposed exit tax is not in
conflict with the terms of the Covenant on Civil and
Political Rights, it strikes me that--given in particular
this Committee's and the Senate's unanimous support for the
Jackson-Vanik Amendment--careful consideration ought to be
given to whether this proposal complies with that standard as
well.

reconciling the proposed us ``exit tax'' with jackson-vanik

Subjectively, of course, all of us can presumably agree
that there is a substantial difference in the motivation
behind the proposed US ``exit tax'' and the impediments
placed in the path of Soviet Jews (and others) in the early
1970s designed clearly to discourage emigration (especially
by dissident Jews to Israel). The United States
understandably does not wish to lose the substantial sums in
tax revenues which the Treasury Department projects could be
lost if especially wealthy US citizens elect to renounce
their citizenship and emigrate to foreign points.
While one might normally view this as a ``political''
problem for Congress to factor in to the drafting of the tax
laws--how to extract maximum tax revenues from the wealthy
without exceeding the point that the ``geese that lay the
golden eggs'' will fly off to find a more hospitable
environment in which to do business\47\--there are obvious
political attractions to the exit tax approach. Presumably
few constituents will be directly affected by this
legislation (and ``soaking the rich'' is not all that
unpopular with many Americans of more ordinary means in these
troubled times), and in order to be subject to the special
``tax'' an individual will have to renounce his or her
American citizenship--in the process surrendering their right
to vote in any case. One can see how this might have appeared
to be a virtually cost-free (from a political standpoint) way
to raise a couple of billion additional dollars over the next
five or six years.\48\
From the standpoint of International Law, however, it may
be more difficult to make the distinction between the old
Soviet practice of charging a special ``diploma tax'' to
compel citizens who wish to emigrate to compensate the State
for its investment in their education, and the proposed US
``exit tax'' designed to compel citizens who wish to emigrate
to compensate the State for income taxes they would likely
eventually owe if they remained citizens. (It would not be
illegal under these rules of International Law for the United
States to tax unrealized capital gains annually, or for the
Soviets to charge a fee for providing an education--the legal
issue arises when people who seek to emigrate are treated
less favorably than others because of their decision to
exercise their legal right to emigrate.)
To be sure, we can probably agree that the old Soviet
regime was made up of ``bad guys,'' and our own government is
much ``nicer.'' Even as many of us search around for
professional assistance in reducing our own tax liabilities,
it is probably true that most Americans have a visceral
antipathy for ``tax dodgers.'' Nor do many of us identify
very closely with individuals who would voluntarily renounce
their American citizenship as a means of reducing tax
liability. While it may be in part that our relatively more
limited liability makes their decision difficult to
comprehend, I like to think that most of us view our status
as American citizens as among our most cherished rights. Many
of us still recall Sir Walter Scott's moving words, as we
read them in high school in Hale's ``A Man Without a
Country'':

Breathes there the man, with soul so dead,
Who never to himself hath said,
This is my own, my native land!
Whose heart hath ne'er within him burn'd
As home his footsteps he hath turn'd
from wandering on a foreign strand!
If such there breathe, go, mark him well;
For him no Minstrel raptures swell;
High though his titles, proud his name,
Boundless his wealth as a wish can claim;
Despite those titles, power, and pelf,
the wretch, concentered all in self,
Living, shall forfeit fair renown,
And, doubly dying, shall go down
to the vile dust, from whence he sprung,
Unwept, unhonor'd, and unsung.\49\

I suspect that the outcry from your constituents over the
proposed exit tax--even if it is perceived as nothing more
than an effort to ``stick it to rich expatriates''--is not
likely to be very considerable.

congress may by statute violate international law

Perhaps I should make one additional point. The United
States belongs to the dualist school and views municipal and
international law as being separate, if often
interrelated,\50\ legal systems. United States courts will
thus first attempt to reconcile the language of apparently
inconsistent statutes and treaties, but if that proves
unreasonable, they will apply the ``later in time'' doctrine
(lex posterior derogat priori) and give legal effect to the
instrument of most recent date.\51\ The theory underlying
this policy is that treaties and statutes have a co-equal
standing as ``supreme law of the land,''\52\ and the
lawmaking authority--be it the two chambers of the
Legislative Branch acting with the approval (or over the
veto) of the Executive,\53\ or the Executive acting with the
consent of
two-thirds of those Senators present and voting\54\--is
presumed to know the existing law when it acts and to
intend the logical consequences of its actions. Thus, if
the Congress enacts the provision in question and it is
subsequently challenged as contrary to the nation's solemn
treaty commitments, American courts will not strike down
the statute because of the treaty. Similarly, while some
scholars quarrel with the rationale,\55\ the oft-cited
1900 Supreme Court case of The Paquete Habana held that
customary international law (``the customs and usages of
civilized nations'') is part of US law ``where there is no
treaty and no controlling executive or legislative act or
judicial decision. . . .''\56\ Furthermore, while the
recently ratified Covenant clearly creates a solemn legal
obligation upon the United States under International Law,
it is not self-executing\57\ and thus will not be
implemented by US courts in the absence of independent
legislative authority.\58\
[[Page S5313]] However, this is not to say that Congress
has the legal power to relieve the United States from its
solemn treaty obligations under International Law. On the
contrary, no such right exists (unless the relevant treaty
provides for termination by act of a national legislature),
and if the Congress elects to approve a statute that is
contrary to the Covenant it will make the United States a
lawbreaker.
To be sure, Congress in the past has on occasion enacted
legislation which placed the Nation in such a status.\59\
Such a decision has consequences, however. Not only might
other treaty Parties have available meaningful remedies under
International Law,\60\ but violations of International Law by
the United States contributes to a lack of respect for the
rule of law in general and greatly undermines the ability of
the United States to pressure other States to comply with
such rules. Thus, in particular when the issue involves
solemn undertakings in the area of international human
rights, one would hope that legislators would be careful to
avoid even the appearance of breaching provisions of a
treaty.

Conclusion

Mr. Chairman, as I indicated when I began, I did not come
here this morning with the intention of taking a definitive
position on this legislation on the merit. Because the
invitation to take part in the hearing came with such short
notice, I have not been able to analyze the issue to the
extent I might have wished. The comments which follow are
offered with more than a little hesitation and uncertainty.
I have primarily tried to set forth the basic international
legal rules in my testimony, and I suspect that honorable men
and women might reach different conclusions when applying
those rules to this bill. I came into the hearing with some
reservations, but it may be that after I have heard other
perspectives I will be less concerned about the compatibility
of the ``exit tax'' with Article 12 of the Universal Covenant
on Civil and Political Rights.
Even if that occurs, however, it still leaves us with the
perhaps more difficult problem of reconciling this tax with
the spirit and language of the 1974 Jackson-Vanik Amendment.
I'm not going to pre-judge that issue for you, either, other
than to say that I personally find it somewhat more
troubling. If this were merely a statute providing that
citizens must ``pay their lawful taxes'' before they may
renounce their citizenship and move to a foreign State they
find more attractive, I think it could pass legal muster with
little difficult.\61\ But I'm not sure that's the situation.
You understand the tax system for better than I do, and I
will defer to your expertise in the final analysis.
As I stressed at the beginning, I am not even arguably an
authority on the tax code; but it is my initial impression
that the proposed ``exit tax'' is designed to impose an
immediate and substantial financial burden upon citizens--on
the specific and expressed grounds that they have elected to
renounce their citizenship and emigrate--and that this is a
burden that would not be imposed upon otherwise identically
situated citizens who elected to remain American citizens
(and did not elect to sell or dispose of their property or
take other action that would realize capital gains
liability).
If that is true, in all candor, I think I would want my
money ``upon front'' if I were asked to argue before an
international tribunal that the proposed US exit tax complies
with the spirit of the Jackson-Vanik Amendment--which no less
an authority that the United States Congress argued reflected
the minimal requirements of International Law two decades
ago. (I think I would base my Jackson-Vanik case upon the
technicality that the United States is not covered because it
does not have a ``non-market economy''--but the underlying
rule of customary international law is not so qualified and
could not be evaded by that consideration. Trying to argue
that international human rights standards have declined since
1974 would clearly not pass the ``straight face'' test.)
I have not had time to research the issue, but my
recollection is that in the recent past, Congress--or at
least many members of Congress--have pressured the Executive
to apply the Jackson-Vanik principle to trade with the
People's Republic of China. Certainly many members continue
to feel passionately about human rights issues, and to urge
the President to identify and put pressure on other States
who fail to comply with fundamental treaty norms in this
important area. Unless someone can do a better job that I
have in distinguishing an exit tax targeted at ``rich
Americans'' from one aimed at ``educated Jews,'' however, you
may find as a practical matter that you will need to make a
choice between enacting this provision and attempting in the
years ahead to uphold the Jackson-Vanik Amendment and similar
human rights norms. If this provision is enacted into law, I
believe the odds are good that future US protests calling
upon China, Iraq (which last month imposed an exit tax of its
own to curtain the flow of capital), Iran, and other flagrant
human rights violators to comply with the provisions of the
Covenant on Civil and Political Rights will receive in reply
a reference to American ``violations'' of Article 12.
Mr. Chairman, that concludes my prepared statement. I will
be happy to attempt to answer any questions you or your
colleagues might have.
footnotes

\1\Inter alia, this provision would amend the Internal
Revenue Code by adding this language: If any United States
citizen relinquishes his citizenship during a taxable year,
all property held by such citizen at the time immediately
before such relinquishment shall be treated as sold at such
time for its fair market value and any gain or loss shall be
taken into account for such taxable year.
That the ``exit'' is designed to affect a relatively small
portion of the population is clear from the fact that the
first $600,000 of gross income is excluded from this
provision. According to the State Department 697 US citizens
expatriated in 1993 and 858 the following year. ``It is not
yet known how many of these former citizens, if any, will be
subjected to tax under section 877.'' Joint Committee on
Taxation, Description of Revenue Provisions Contained in the
President's Fiscal Year 1996 Budget Proposal 17 n.6 (Feb. 17,
1995). The fact that the Treasury Department anticipates more
than $2 billion in additional revenues from this provision by
FY 2000 suggests either that many expatriates will be covered
or that the few covered will be hit with rather substantial
additional tax bills under this provision. See infra, note
48.
\2\See, e.g., Eisner v. Macomber, 252 U.S. 189, 214-15
(1920).
\3\The Dialogues of Plato 217 (7 Britanica Great Books of the
Western World, 1952). See also, Jeffrey Barist et al., Who
May Leave, 15 Hofstral L. Rev. 381, 384 (1987).
\4\By coincidence, I discussed this issue in my prepared
testimony before the Senate Judiciary Committee Subcommittee
on the Constitution on 5 October 1994 (page 2-3 of original
text), which has not yet, to my knowledge, been published.
\5\Id. at 4, and Barist et al., Who May Leave, 15 Hofstral L.
Rev. at 384.
\6\Expatriation Act of 1868, 15 Stat. 223 (1868).
\7\8 U.S.C. Sec. 1481, quoted in 87 Am. J. Int'l L. 601
(1993).
\8\Richards v. Secretary of State, 752 F.2d 1413 at 1422
(1985).
\9\Statute of the International Court of Justice, Art. 38.
While customary law may over time replace a rule established
by treaty, and the general goal is to ascertain the most
recent expression of the consent of the parties (thus a more
recent customary practice accepted as law (opinio juris) may
prevail over a prior treaty), it is probably accurate to
observe that, where a relevant treaty exists between the
parties to a dispute, the terms of the treaty will provide at
least the starting point for resolution of the dispute.
However, the principle that ``the specific prevails over the
general'' (lex specialis derogat generali) may well lead to a
narrow customary practice prevailing over a more general
treaty obligation.
\10\However, a UNGA resolution expressing legal principles
approved by an overwhelming vote of Member States may serve
as powerful evidence of the existence of a legally-binding
international custom.
\11\19 Dep't State Bull. 751 (1948).
\12\Report of the Senate Committee on Foreign Relations on
the International Covenant on Civil and Political Rights,
reprinted in 31 Int'l Leg. Mats. 645 (1992).
\13\A possible exception is the first Declaration specifying
that the Covenant is Non-Self-Executing. Id. at 651.
\14\Report of the Senate Committee on Foreign Relations on
the International Covenant on Civil and Political Rights,
supra at 649 (p. 3 of OT).
\15\Preamble, 6 Int'l Leg. Mats. 368 (1967).
\16\Art. 12, id. at 372.
\17\The Movement of Persons Across Borders 76 (Louis B. Sohn
& Thomas Buergenthal, eds.
\18\Id. at 79.
\19\Id. at 82.
\20\Id. at 81, quoting Article 6 of the 1989 Strasbourg
Declaration on the Right to Leave and Return (prepared by a
group of international experts under the auspices of the
International Institute of Human Rights).
\21\International Covenant on Civil and Political Rights,
Art. 12.
\22\Barist et al., Who May Leave, 15 Hofstra L. Rev. at 389.
\23\Id. at 389, 394.
\24\The International Bill of Rights: The Covenant on Civil
and Political Rights 24 (Louis Henkin, ed. 1981), quoted in
Barist et al., Who May Leave, 15 Hofstra L. Rev. at 395.
\25\Barist et al., Who May Leave, 15 Hofstra L. Rev. at 396.
\26\Id. at 406.
\27\660 U.N.T. S. 194.
\28\14 Intl'L Leg. Mats. 1292 (1975).
\29\To constitute binding international customary law, a rule
must reflect ``a general practice'' that has been ``accepted
as law'' (opinio juris). See Statute of the International
Court of Justice, Art. 38 (1)(b).
\30\UNGA Res. 217 A (III), 3 UNGAOR 71, UN Doc. A/810 (10
Nov. 1948).
\31\Note to follow.
\32\Some rules of International Law are of such fundamental
importance that they are considered ``peremptory norms'' (jus
cogens) and bind all States irrespective of consent. A
thorough discussion of this issue is precluded by the short
time available to prepare this testimony. Some human rights
principles have this status--it is doubtful that this is one
of them. The issue is of only academic interest given the
strong statement of the right to emigrate as constituting
binding International Law contained in the Jackson-Vanik
Amendment to the 1974 Trade Act (discussed below). Thus, the
United States could hardly protest that it is not bound by
this rule and claim to have protested against its creation.
\33\Jus congens rules (discussed supra) bind all States, and
newly-formed States are bound by all rules of customary law
in existence when they are created.
\34\In reality, a strong case can be made that the Soviet
Union was bound by this provision of the Declaration in 1974.
Among other things, abstention in the General Assembly does
not constitute an adequate ``protest'' to protect against
being bound (although it does not constitute ``consent''
either). The following year the issue was arguably resolved
when Moscow signed the Helsinki Accords (which, as discussed
supra, incorporated the text of the Declaration.) While the
Helsinki Accords were not designed to be legally binding in
themselves, Moscow's acceptance of the principles of the
Declaration would undercut any Soviet claim that it objected
to these principles as customary law.
\35\See, e.g., Senate Report No. 93-1298 (Committee on
Finance), reprinted in 4 U.S. Code Congressional & Admin.
News 7338 (93d Cong., 2d Sess., 1974) (hereinafter cited as
Finance Committee Report).
\36\This amendment, introduced by Representative Charles
Vanik, was approved on the House floor on 11 December 1974 by
a vote of 319-80. See 120 Cong. Rec. 39782 (1974).
\37\Finance Committee Report at 7213.
\38\Id. at 7338.
[[Page S5314]] \39\120 Cong. Rec. 39782 (1974).
\40\Id. 39806. The final vote was 88-0, with 12 Senators
absent. All but two or three of the absent Senators were co-
sponsors of the amendment.
\41\Id. at 39782.
\42\Id. at 39806
\43\120 Cong. Rec. 39787.
\44\Id. at 39802.
\45\Id. at 39806.
\46\Trade Act of 1974, 19 U.S.C.A. Sec. 2432 (emphasis
added).
\47\While I claim no special expertise on matters of finance
or tax policy, I was impressed with Forbes magazine editor
James W. Michaels' observation that ``It's not that
legislators sympathize with rich tax dodgers. It's that they
realize it's time to worry less about soaking the rich and
more about changing the tax code to make the country more
hospitable to the capital that produces jobs and economic
growth.'' James W. Michaels, ``You can't take it (all) with
you,'' Forbes, 13 March 1995, p. 10.
\48\The Treasury Department estimates that this provision
will produce $2.2 billion in additional tax revenues between
FY 1995 and FY 2000. Department of the Treasury, General
Explanations of the Administration's Revenue Proposals 17
(Feb. 1995).
\49\Sir Walter Scott, The Lay of the Last Minstrel, canto VI,
st. 1.
\50\As will be discussed, treaties are a part of the
``supreme law of the land'' and customary international law
``is part of our law'' too. The monist school views
international law to be superior to municipal law in a single
legal system.
\51\See, e.g., Whitney v. Robertson, 124 U.S. 190 (1888).
\52\US Const. Art. VII
\53\Id. Art. I, Sec. 7.
\54\Id. Art. II, Sec. 2.
\55\See, e.g., Louis Henkin, The Constitution and United
States Sovereignty, 100 HARV. L. REV. 853 (1987).
\56\Note to follow.
\57\For a discussion by Chief Justice Marshall of the
distinction between self-executing and non-self-executing
treaties, see Foster and Elam v. Neilson, 27 U.S. (2 Pet.)
253 (1829).
\58\Note to follow.
\59\This sometimes occurs inadvertently when legislation is
considered by members who are simply unaware of a conflicting
treaty provision (as may be the case in this Committee's
approval of the statute being considered in this hearing),
but it also occurs occasionally even after the conflict with
a treaty has been identified. An example of this that comes
readily to mind was S-961, the ``Magnuson Fisheries and
Conservation Act,'' passed around 1976. See the minority
views of my former employer, Senator Robert P. Griffin,
included in the Foreign Relations Committee's report on this
bill for a discussion of this problem.
\60\These may range from judicial settlement to reciprocal
breach or simply the ``horizontal enforcement'' of
retorsionary behavior to pressure our Country to observe its
solemn international legal obligations (pacta sunt servanda).
\61\The Department of State, for example, has warned that
``Persons considering renunciation [of US citizenship] should
also be aware that the fact that they have renounced U.S.
nationality may have no effect whatsoever on their U.S. tax
or military service obligations.'' 87 AM. J. INT'L L. 602
(1993).
Prepared Statement of Jamison S. Borek

Thank you Mr. Chairman and Members of the Committee. I am
here today to address the question whether section 5 of H.R.
831 as reported by the Senate Committee on Finance raises
legal questions concerning international human rights.
The proposal in section 5 would effectively require payment
of taxes by U.S. citizens on gains, if they have such gains,
if they elect to renounce U.S. citizenship, by treating this
as equivalent to a realization of gains (or losses) by sale.
The proposal would only apply to gains in excess of $600,000;
it would not apply to U.S. real property owned directly, nor
to certain pension plans.
It has been suggested by some that this proposal would
violate the right to leave the territory of a state
(including one's country of nationality) or the right to
change one's citizenship as recognized in international human
rights law. In our view, however, this tax proposal does not
conflict with these or any other international human rights.
Section 5 is not an ``exit tax''. It does not apply to the
act of emigration and is wholly unrelated to travel. Rather,
it applies at the time an individual renounces U.S.
citizenship. Based on past experience, the proposal is most
likely to affect U.S. citizens who have already departed from
the United States. It is well established, nonetheless, that
a state could impose economic controls in connection with
departure as long as such controls do not result in a de
facto denial of an individual's right to emigrate.
Similarly, a claim of violation of the right to renounce
citizenship could only be made where that right is
effectively denied. There is no international law right to
avoid taxes by changing citizenship. Section 5 would impose
taxes comparable to those which U.S. citizens would have to
pay were they in the United States. It is a bona fide means
of collecting taxes on gains which have already accrued. It
is not a pretext to keep people from leaving, and it is not
so burdensome as effectively to preclude change of
nationality or emigration. It applies only to gains, and only
when these gains are in excess of $600,000.
In short, it is the view of the Department of State that
this proposal does not raise any significant question of
interference with international human rights.
I hope that this information is helpful to the Committee.
University of Virginia,

Charlottesville, VA; March 20, 1995.
Leslie B. Samuels,
Assistant Secretary of the Treasury for Tax Policy, U.S.
Department of the Treasury.
Dear Mr. Samuels: I have been asked to offer an opinion as
to whether the Administration's proposal to treat the
renunciation of U.S. citizenship as a realization event with
respect to wealthy taxpayers presents any problems under
international law, particularly in light of the position the
United States has taken in the past with respect to the
freedom to emigrate. As I find myself in the unusual position
of being a specialist in international law, U.S.-Soviet
relations, and federal taxation, I am happy to do so.
The Jackson-Vanik Amendment to the Trade Act of 1974 and
the 1975 Helsinki Accords both express a strong U.S. stand in
favor of the freedom of people of emigrate free of more than
``a nominal tax,'' 19 U.S.C. Sec. 2432(a)(2), and there is
substantial authority for the proposition that the
international law of human rights incorporates the obligation
to refrain from erecting such impediments to emigration. But
it is critical to recognize the distinction between the right
to travel, on the one hand, and the right to change one's
citizenship status, on the other. Emigration necessarily
involves the former, but not necessarily the latter. The
human rights concerns that dominated our encounters with the
Soviet Union and other totalitarian regimes during the 1970s
and 1980s were based on violations of the right to travel.
Those governments treated their borders as the perimeter of a
prison and their citizens as prisoners. The so-called
education tax that the Soviet Union threatened to impose on
emigrants, which inspired the above cited language in the
Jackson-Vanik Amendment, was triggered by a request to travel
abroad, not by an attempt to renounce Soviet citizenship.
Whether the communist regimes also made it difficult to
surrender citizenship was a matter of indifference to us.
Indeed, many authorities believed that the Soviet Union and
other governments violated international law by making it too
easy to lose one's citizenship, as they did when they imposed
involuntary loss of citizenship as a form of punishment for
political dissent (e.g., the case of Aleksandr Solzhenitsyn).
The Administration's proposal, as I understand it, has
absolutely no effect on the right of a citizen to travel
abroad. It is triggered only by a change of citizenship
status, not by the crossing of the country's borders. The
reason for this distinction is clear when one considers how
U.S. tax rules operate. Whether a citizen resides within or
without the United States, the obligation to pay tax on
appreciation of assets remains the same. Any gain realized
and recognized during life will result in an income tax. Any
unrealized appreciation that remains at death will not be
subject to an income tax, but instead will subject the
decedent to the estate tax. To be sure, the federal estate
tax is not an exact substitute for an income tax at death on
unrealized appreciation, both because only wealthy persons
(those with assets in excess of $600,000, assuming no taxable
gifts during life) are subject to the estate tax, and
because the taxable estate includes both realized and
unrealized appreciation. But I am not alone in having
pointed out that the estate and gift tax, in practice,
serve as a reasonable approximation for the income tax
that could be levied on unrealized appreciation at death.
All of the above turns on citizenship, not on residence. A
U.S. citizen who resides abroad will have to include in his
tax base any gain realized from the disposition of an asset,
see Cook v. Tait, 265 U.S. 47 (1924), will pay a federal gift
tax on any taxable gift during his life, no matter where the
asset is located, and will include all of his worldwide
assets in his taxable estate at death. By contrast, a citizen
who severs the bond of citizenship and does not continue to
reside in the United States will pay neither income, gift,
nor estate tax (except as U.S.-sourced income and, for the
estate and gift tax, transfers of certain property sourced to
the United States). The change of citizenship status, not of
residence, is what matters for U.S. tax law. Current law
recognizes the significance of change sin citizenship by
subjecting nonresident aliens who lose U.S. citizenship for
tax avoidance reasons to a special alternative income tax,
see Internal Revenue Code Section 877. Section 2107 imposes a
similar result with respect to the estate tax, and 2501(a)(3)
with respect to the gift tax. What the Administration
proposal would do, as I understand it, is replace the
unworkable tax avoidance standard of Sections 877, 2107 and
2501(a)(3) with a per se rule that applies to any person with
sufficient assets to make future estate taxation a
probability. An analogous provision is Section 367 of the
Code, which denies nonrecognition treatment in certain
corporate reorganizations if the recipient of appreciated
property is a foreign corporation. I never have heard the
argument that the latter provision imposes an impermissible
burden on the right of a domestic corporation to export its
capital.
In summary, the international law of human rights is
concerned with restrictions on the right to leave one's
country, not those on the right to renounce one's
citizenship. To the extent human rights law deals with
citizenship status, it addresses involuntary denials of
citizenship, not burdens triggered by the renunciation of
citizenship. Furthermore, the proposed measure is not a tax
on the export of capital as such, but rather a logical part
of a comprehensive scheme to ensure that all appreciation of
capital owned by a U.S. citizen eventually will be subject to
a U.S. tax, whether income, gift, or estate. For these
reasons, it is inconceivable to me that the Administration's
proposal could be seen as violating international human
rights law.
To be sure, there are few positions with respect to
customary international law that
[[Page S5315]] cannot obtain the support of at least some
jurists. Last Saturday, while passing through Pittsburgh's
airport, I ran into my former student, Bob Turner, who
informed me of his intention to testify before the Senate
Finance Committee to the effect that the proposal did raise
problems under international law. As I told him at the time,
I found his arguments unconvincing. However, I am responsible
only for Bob's education in Soviet law, not in international
or tax law.
I hope this letter is useful. Please feel free to make
whatever use of it you wish.
Sincerely,
Paul B. Stephan III.
One International Place,

Boston, MA, March 20, 1995.
Hon. Bob Packwood,
Chairman, Committee on Finance,
U.S. Senate,
Washington, DC.

Hon. Daniel P. Moynihan,
U.S. Senate,
Washington, DC.
Dear Chairman Packwood and Senator Moynihan: I would like
to comment on the provisions of Section 5 of H.R. 831 as
reported by the Committee on Finance (the ``Committee
Bill'').
I am a partner in the law firm Ropes & Gray in Boston,
where I practice international tax law on behalf of U.S. and
non-U.S. corporate and individual clients. Prior to joining
Ropes & Gray, I served as International Tax Counsel to the
U.S. Treasury Department. Altogether, I served in the
Treasury Department for five years during the Reagan
Administration.
Although I am Vice Chairman of the American Bar Association
Section of Taxation's Committee on Foreign Activities of U.S.
Taxpayers and an active member of several other bar and
professional associations, my comments are not made as a
representative of Ropes & Gray or any of its clients, the
American Bar Association Tax Section or any of the other bar
or professional associations of which I am a member. My
comments are directed exclusively to tax policy aspects of
the proposal in the Committee Bill to amend the Internal
Revenue Code of 1986, as amended, by adding proposed Section
877A.\1\ Subject to certain technical comments referred to
below, I strongly support enactment of proposed Section 877A.
\1\Footnotes at end of letter.
---------------------------------------------------------------------------

Description of Current Law

The United States exercises personal jurisdiction to tax
individuals by taxing the worldwide income of U.S. citizens
(whether or not resident or domiciled in the United States)
and residents.\2\ A U.S. taxpayer may elect to credit foreign
income taxes against his U.S. tax, subject to a limitation
that applies with respect to categories of foreign source
income to restrict the credit to the amount of U.S. tax paid
with respect to income in that category.
The United States asserts a source-based tax on nonresident
aliens.\3\ Nonresident aliens are taxed on the gross amount
of U.S.-source interest, dividends, rents, and other fixed or
determinable income at a flat rate of 30 percent (or a lower
treaty rate). This tax generally is collected by withholding.
A nonresident alien is taxed at regular graduated rates on
income that is effectively connected with a U.S. trade or
business, less deductions that are properly allocable to the
effectively connected income. A nonresident alien individual
is allowed a foreign tax credit under Section 906 only for
foreign taxes paid with respect to income effectively
connected with a U.S. trade or business.
Under current law, the only income tax provision governing
a change from citizenship to non-citizenship status is
Section 877, first enacted in 1966. Under Section 877, a U.S.
citizen who relinquishes his U.S. citizenship with a
principal purpose to avoid Federal income tax is taxed either
as a nonresident alien or under an alternative taxing method,
whichever yields the greater tax, for 10 years after
expatriation. For purposes of determining the tax under the
alternative method, gains on the sale of property located in
the United States and stocks and securities issued by U.S.
persons are treated as U.S.-source income, taxable at rates
applicable to U.S. citizens.\4\
Whether tax avoidance is a principal purpose for the
expatriation is determined by all of the relevant facts and
circumstances. If the I.R.S. establishes that it is
reasonable to believe that the loss of U.S. citizenship would
result in a substantial reduction in the taxpayer's income
taxes for the year (taking account of U.S. and foreign
taxes), the burden of proving that the loss of citizenship
did not have tax avoidance as one of its principal purposes
is on the taxpayer. This presumption is rebuttable.\5\
A foreign tax credit is not allowed for foreign taxes on
income that is deemed to be U.S.-source income under the
alternative method. The effect of the source rules generally
is to transform foreign income that would not be effectively
connected income into U.S. gross income. Because Section
877(c) does not cause the income to be effectively connected
income, the Section 906 foreign tax credit will not apply.
Any foreign taxes imposed on the income re-sourced under
Section 877(c) therefore would give rise to double taxation.
The so-called savings clause found in most modern income
tax treaties generally provides that the United States may
tax its citizens and residents as though the treaty had not
come into effect.\6\ Although the I.R.S. has published a
revenue ruling taking the position that the savings clause
preserved U.S. taxation of former citizens taxable under
Section 877,\7\ the Tax Court held in Crow v. Commissioner,
85 T.C. 376 (1985), that the savings clause of the 1942
United States-Canada Income Tax Convention did not apply to a
former citizen who, it was assumed for purposes of deciding
petitioner's motion for summary judgment, expatriated to
Canada for a principal purpose of avoiding United States tax.
The Court found that, properly interpreted, the Convention
prohibited the United States from taxing the taxpayer's
capital gain from the sale of stock under Section 877. Based
on the Crow decision, it is doubtful whether the United
States may tax a treaty resident under Section 877 on income
that a treaty reserves for taxation by the country of
residence unless the treaty specifically preserves the U.S.
right to tax a Section 877 expatriate.
Current U.S. treaty policy is to cover Section 877
expatriates under the savings clause to permit the United
States to tax income or gains of a Section 877 expatriate who
is resident in the treaty partner country notwithstanding
other articles of the treaty.\8\ Even where the savings
clause covers taxation of an expatriate under Section 877,
the coverage may be less than complete.\9\
It does not appear that treaties remedy the failure of the
domestic law foreign tax credit mechanism to avoid double
taxation under Section 877. For example, the 1980 Convention
between the United States and Canada allows the United States
to impose tax on gains from the sale of stock in a U.S.
company realized by a Section 877 expatriate who is resident
in Canada.\10\ Canada also would be allowed to tax the
gains.\11\ For purposes of
applying the foreign tax credit provisions of the
Convention, the gains from the sale of stock would be
treated as Canadian-source income,\12\ however, the United
States does not commit to allow a credit for the Canadian
tax.\13\

Deficiencies of Current Law

The reason for enactment of Section 877 in 1966 was that
the elimination of graduated rates with respect to non-
effectively connected income of a nonresident alien could
encourage some individuals to surrender their U.S.
citizenship and move abroad. The 89th Congress did not have
any experience as to whether the other changes in taxation of
nonresident aliens made by the Foreign Investors Tax Act of
1966 would induce expatriations and chose to employ a tax
avoidance purpose condition to the application of Section
877.
The facts of the Furstenberg case, in which the Tax Court
found that the taxpayer's expatriation did not have tax
avoidance as a principal purpose, illustrate why a tax
avoidance purpose standard is ill-advised. To satisfy a
commitment made before her marriage to her new husband, Mrs.
Furstenberg renounced her U.S. citizenship immediately after
her honeymoon on December 23, 1975. As a result of the Tax
Court's decision that Section 877 did not apply, it appears
that Mrs. Furstenberg paid no U.S. tax on as much as $9.8
million of capital gains from selling securities owned at the
time of her expatriation in the two years following her
expatriation.
There is ample precedent for a U.S. claim to tax
appreciated assets at a time when the asset will no longer be
subject to U.S. personal taxing jurisdiction. Under sections
367 and 1491, the United States overrides otherwise
applicable nonrecognition rules in order to tax transfers of
appreciated assets to foreign entities. It is accepted that
this principle should apply in circumstances where there is
no actual transfer of an asset, for example, upon the
termination of an election by a foreign corporation to be
treated as a domestic corporation under section 1504(d) or
when a foreign trust ceases to be a grantor trust with a U.S.
grantor. Amendments in 1984 to sections 367 and 1492 deleted
exceptions to taxation of such outbound transfers where the
taxpayer could establish that the transfer did not have as
one of its principal purposes the avoidance of Federal income
taxes. The principal purpose test similarly should be deleted
from Section 877.\14\
A second difficulty with current Section 877 relates to the
assertion of U.S. taxing jurisdiction after the taxpayer has
renounced U.S. citizenship. At that point, the taxpayer may
be resident in another taxing jurisdiction that may
rightfully feel that it has the primary right to tax gains of
a resident from the sale of tangible property (other than
real estate in another country) and intangible property. It
is not surprising that there may be disagreement as to which
country should be considered to have the primary right to
tax. A tax imposed at the time of expatriation, however,
would accurately delineate gains properly subject to U.S.
taxing jurisdiction. This would improve the position of the
United States if it asks treaty partners to increase a
taxpayer's basis in property taxed by the United States on
expatriation for purposes of taxation by the treaty partner.
If taxation at the time of expatiation is adopted, I would
urge the Treasury to take such a position in treaty
negotiations.
A third problem with current Section 877 is that it is
easily avoided. I quote from a 1993 article published in Tax
Notes International:
``Even for those nonresident former U.S. citizens with
substantial U.S. assets and income, there are techniques that
can greatly reduce the impact of the anti-abuse rules by
[[Page S5316]] converting U.S. income and assets into foreign
income and assets or by deferring income and taxable
transfers until after the 10-year period under the anti-abuse
rules has expired.
For example, consider the plight of a tax-motivated former
U.S. citizen living abroad and owning a portfolio of U.S.
stocks and bonds. Without taking any measures, such a person
would be subject to U.S. income tax on interest, dividends
and capital gain from the portfolio and would be subject to a
U.S. estate and gift tax on taxable transfer of assets in the
portfolio. Such an individual could, however, transfer the
portfolio to a foreign corporation that is not engaged in a
U.S. trade or business with drastically more favorable
results.
For income tax purposes, the foreign corporation would
itself be taxed in the same manner as an NRA who had never
been a U.S. citizen (i.e., gross U.S.-source dividends would
be subject to a flat 30-percent-or-lower withholding tax,
certain types of U.S.-source interest would be subject to a
similar flat withholding tax while other types of U.S.-source
interest would be exempt under the portfolio interest or
other exemptions and capital gains would be exempt from tax
unless real estate related).
While a sale of stock in the foreign corporation by the
former U.S. citizen would be treated as taxable U.S.-source
income under the anti-abuse rule, as sale of the U.S. stocks
and securities in the portfolio by the foreign corporation
would not. Moreover, dividends by the foreign corporation to
its shareholders would be foreign-source, and therefore free
from U.S. tax, even if the foreign corporation's earnings out
of which it pays the dividends are U.S.-source interest,
dividends, and capital gains.'' (Footnotes omitted.)\15\
In light of the increasing sophistication of taxpayers, it
is not surprising that the easy pickings of tax-motivated
expatriation are too tempting for some to resist. Based on
informal discussions with the State Department, and Staff of
the Joint Committee on Taxation has reported that 697
citizens expatriated in 1993 and 858 in 1994.\16\ There is
evidence that some of these expatriations will result in
substantial revenue loss as a result of the infirmities of
current Section 877. It is time to amend the law to address
current realities.

description of proposed section 877a

Under the Committee Bill, a U.S. citizen who relinquishes
U.S. citizenship generally would be treated as having sold
all of his or her property at fair market value immediately
prior to relinquishing citizenship and gain or loss from the
deemed sale would be subject to U.S. income tax. In addition,
the deferral of tax or income recognition (e.g., due to the
installment method) would terminate on the date of the deemed
sale and the deferred tax would be due and payable on that
date.
Generally property interests that would be included in the
individual's gross estate under the Federal estate tax if
such individual were to die on the day of the deemed sale,
plus certain trust interests that are not otherwise included
in the gross estate, would be taxed on the expatriation date.
The first $600,000 of net gain recognized on the deemed sale
would be exempt from tax. If a taxpayer were determined to
hold an interest in a trust for purposes of Section 877A, the
trust would be treated as though it sold the taxpayer's share
of assets of the trust and the proceeds were distributed to
the taxpayer and recontributed to the trust.
U.S. real property interests, which remain subject to U.S.
taxing jurisdiction in the hands of nonresident aliens,
generally would be excepted from the proposal.\17\ Certain
interests in qualified retirement plans and, subject to a
limit of $500,000, interests in foreign pension plans (as
provided in regulations) also would be excepted from the
deemed sale rule.
A U.S. citizen would be treated as having relinquished his
citizenship on the earlier of (i) the date he renounces
citizenship before a diplomatic or consular officer, (ii) the
date he provides to the State department a signed statement
of voluntary relinquishment of citizenship confirming an act
of expatriation under the Immigration and Nationality Act,
(iii) the date that the U.S. Department of State issues a
certificate of loss of nationality, or (iv) the date a court
cancels a naturalized citizen's certificate of
naturalization. The tax would be due on the 90th day after
the expatriation date. The Internal Revenue Service would be
authorized to allow a taxpayer to defer payment of the tax
for up to 10 years under section 6161 as through the tax were
an estate tax imposed by chapter 11.
The Committee Bill's Section 877A would be effective for
U.S. citizens who relinquish their U.S. citizenship on or
after February 6, 1995. No tax would be due before 90 days
after enactment.

analysis of proposed section 877a

The Committee Bill meets the three objections to current
law Section 877 described above. It deletes the tax avoidance
purpose test. It imposes tax on gain determined as of the
date a taxpayer relinquishes citizenship and thereby properly
measures the gain subject to U.S. personal taxing
jurisdiction. As a consequence of these changes it will be
more administrable and not subject to easy avoidance.
The Committee Bill also reflects several significant
improvements over the text released in the original version
of H.R. 981. The definition of when a taxpayer relinquishes
citizenship has been modified to relate to the earliest of
several substantive acts that manifest an intent to
voluntarily relinquish citizenship. This should adequately
protect taxpayers who have relied on current law. The I.R.S.
authority to extend the time to make payment of the tax is
expanded to permit deferral of up to 10 years under rules
that are commonly used in the estate tax context. These
changes are welcome.
I suggest another modification to the Committee Bill. I
recommend that an alien that becomes a naturalized citizen
take a ``fresh start'' fair market basis in his or her assets
for purposes of Section 877A. The measuring date for this
purpose should be the earliest of (i) the date the alien
becomes a naturalized citizen, (ii) the date the alien
becomes a resident alien, and (iii) the date the asset is
``effectively connected'' with a U.S. trade or business of
the alien. This measure is important to support the position
that the U.S. claim to tax is truly related to its personal
or source taxing jurisdiction.
I reserve comment on certain technical aspects of the
proposal and would be pleased to work with the Committee
staff on the details of final legislation. In particular, I
do not comment, without further study, on the approach taken
by the Committee Bill to interests in trusts or to the
interaction of Section 877A with estate and gift tax rules.
Finally, I respectfully disagree with certain initial
criticisms of H.R. 981 in comments prepared by other
individual members of the American Bar Association.
The weight of scholarship rejects the view that realization
is or should be constitutionally required to tax gains.
Since, in my experience, Congress, and this Committee,
exercises an appropriate skepticism regarding professorial
musings, perhaps the more relevant precedent is that Congress
has enacted at least two provisions that tax gains before
they are realized. Section 1256 was added to the Code in 1981
and provides that certain regulated futures and foreign
currency contracts are marked-to-market on the last day of a
taxpayer's taxable year and gain or loss recognized.\18\
Section 475, enacted in 1993, requires securities dealers to
mark-to-market securities held in inventory on the last day
of the taxable year and recognize gain or loss. Moreover,
fairness to taxpayers as well as the Government's revenue
interests may require that such mark-to-market treatment be
expanded to a broader range of circumstances. It would be
extremely unwise for this Committee to adopt the holding of
Eisner v. Macomber\19\ in a way that could be viewed as
imposing a constitutionally-based realization requirement.
I also would not in any way equate the imposition by the
United States, in 1995, of a tax on its fair share of the
appreciation in assets owned by U.S. persons during their
period of U.S. citizenship to an exit tax imposed on Jewish
and politically motivated emigrants from the Union of Soviet
Socialist Republics during the State-sponsored repression of
the Brezhnev era. A tax that excludes the first $600,000 of
gain can hardly be viewed as a barrier to emigration.

Conclusion

The Committee's proposed Section 877A is an improvement
over current law, is sound international tax policy and
deserves the strong support of your Committee.
Please do not hesitate to contact me if I may be of
assistance to the Committee.
Sincerely,
Stephen E. Shay.
footnotes

\1\Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended and as proposed
to be amended by the Committee Bill.
\2\Taxation on the basis of citizenship is different from the
practice of most countries, which is to tax individuals on
the basis of residence. The Supreme Court, however, has
upheld the constitutionality of taxing a nonresident citizen.
Cook v. Tait, 265 U.S. 47 (1924).
\3\A nonresident alien individual is an individual who is
neither a U.S. citizen nor a resident alien. Generally, an
alien individual is a resident alien for U.S. tax purposes
under Section 7701(b) if he or she (1) is a lawful permanent
resident of the United States (i.e. holds a green card), or
(2) satisfies the ``substantial presence'' test as a result
of being physically present in the United States for a
prescribed amount of time.
\4\These same taxing rules also are applied under Section
7701(b)(10) in the case of a resident alien individual who is
resident in the United States for three consecutive years,
then ceases to be a resident, and subsequently becomes a
resident within three years after the close of the initial
residency period. This anti-abuse rule protects the U.S. tax
base from erosion by a resident alien who transfer residence
from the United States for a limited period of time in order
to sell a highly appreciated asset and then resumes his or
her U.S. residence.
\5\See, e.g., Furstenbert v. Commissioner, 83 T.C. 755
(1985).
\6\See U.S. Department of the Treasury, Proposed Model
Convention Between the United States and ________ for the
Avoidance of Double Taxation and the Prevention of Fiscal
Evasion, Art. 1(3) (1981), reprinted in 1 Tax Treaties (CCH)
para.208 (1994) (hereinafter ``U.S. Model Treaty''). An
important exception to the saving clause is the obligation of
a contracting state to give double tax relief for taxes
imposed by the source country.
The savings clause implements the U.S. policy that tax
treaties generally are not intended to affect U.S. taxation
of U.S. citizens or residents. American Law Institute,
Federal Income Tax Project: International Aspects of United
States Income Taxation (Proposals of the American Law
Institute on United States Income Tax Treaties); 229, N. 606
(1992).
\7\Rev. Rul. 79-152, 1979-1 C.B. 237 (holding that a
liquidating distribution would be taxable to a Section 877
expatriate that acquired residence in a treaty country even
though the treaty did not preserve U.S. right to tax under
Section 877).
[[Page S5317]] \8\See U.S. Department of the Treasury,
Proposed Model Convention Between the United States and
________ for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion, Art. 1(3) (1981), reprinted in
1 Tax Treaties (CCH) para.208 (1994).
\9\The 1993 U.S. treaty with the Netherlands, for example,
does not cover Section 877 expatriates who are Dutch
nationals. Convention Between the United States of America
and The Kingdom of the Netherlands for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion With
Respect to Taxes on Income, Art. 24(1).
\10\Convention Between the United States of America and
Canada With Respect to Taxes on Income and on Capital
(``U.S.-Canada Treaty''), Art XXIX(2).
\11\U.S. Canada Treaty, Art. XIII(4).
\12\U.S.-Canada Treaty, Art. XXIV(3)(b).
\13\See U.S.-Canada Treaty, Art. XXIV(1).
\14\There are a series of exceptions to taxation at the time
of transfer under sections 367 and 1491 that are based in
substantial part on the fact that the transferring
shareholder remains subject to residence-based taxation on
property that receives a carryover basis in the exchange for
the transferred property. That circumstance is not present in
the context of Section 877.
\15\Zimble, ``Expatriate Games: The U.S. Taxation of Former
Citizens,'' Tax Notes Int'l (Nov. 2, 1993), LEXIS 93 TNI 211-
15.
\16\Staff of the Joint Committee on Taxation, ``Description
of Revenue Provisions Contained in the President's Fiscal
Year 1996 Budget Proposal,'' Footnote 6 (JCS-5-95, Feb. 15,
1995).
\17\The exception would apply to all U.S. real property
interests, as defined in section 897(c)(1), except stock of a
U.S. real property holding corporation that does not satisfy
the requirements of section 897(c)(2) on the date of the
deemed sale.
\18\The Ninth Circuit has passed favorably on the
constitutionality of Section 1256, Murphy v. United States,
992 F. 2d 929 (9th Cir. 1993).
\19\252 U.S. 189 (1920).
Exhibit 2

Harvard Law School,

Cambridge, MA, March 24, 1995.
Hon. Leslie B. Samuels,
Assistant Secretary (Tax Policy), Department of the Treasury,
Washington, DC.
Dear Secretary Samuels: Your office has requested my views
as to international law implications of the proposed tax on
expatriates that would be imposed by section 5 of H.R. 831.
You will understand that this is my personal opinion and in
no way purports to represent the views of the institution to
which I belong. It is also compact in form due to the
constraints of time imposed by your legislative schedule and
my own impending travel.
The right of expatriation has always been highly valued by
the United States, which has defended it against the claims
of other nations that refused to let their citizens go. The
right to make this choice is the counterpart of the right not
to lose one's citizenship except by one's own voluntary
choice, a right underlined by opinions of the Supreme Court.
However, in my view, the proposed tax does not amount to such
a burden upon the right of expatriation as to constitute a
violation of either international law or American
constitutional law. It merely equalizes over the long run
certain tax burdens as between those who remain subject to
U.S. tax when they realize upon certain gains and those who
abandon their citizen while the property remains unsold.
Furthermore, the proposed tax does not except, in the most
indirect way, burden the right to emigrate. It is the right
to emigrate rather than the right to expatriate oneself which
is the subject of various conventions and of customary
international law. As stated in the preceding paragraph, it
basically equalizes certain tax burdens. It is not comparable
to the measures imposed by such countries as the former
Soviet Union and German Democratic Republic which were
obviously and intentionally burdens on the right to emigrate.
In arriving at these conclusions I have reviewed various
materials such as your statement before the Subcommittee on
Taxation and Internal Revenue Oversight, two opinions of the
Office of the Legal Adviser, U.S. State Department, the views
of Professors Paul Stephan III and Robert Turner and others.
Very truly yours,
Detlev F. Vagts,
Bemis Professor of Law.
____

New York University,

School of Law,

New York, NY, March 27, 1995.
Hon. Leslie B. Samuels,
Assistant Secretary (Tax Policy), Department of the Treasury,
Washington, DC.
Dear Mr. Secretary: You have asked for my views on section
5 of H.R. 831 presently pending before the U.S. Senate, which
as I understand it would impose a capital gains tax on United
States citizens who renounce their U.S. citizenship, based on
a hypothetical sale of all their property (subject to a
deduction) immediately prior to renunciation. In particular,
you have asked my view on whether such a tax would be
inconsistent with applicable treaties or principles of
international law.

statement of qualifications

I have been a professor of law at New York University since
1967, specializing in international law and international
economic transactions. Prior to joining the faculty of New
York University, I served for more than five years in the
United States Department of State, as Special Assistant to
the Legal Adviser for Economic Affairs, and Deputy Legal
Adviser (1961-66). I was an Associate Reporter for the
American Law Institute's Restatement (Third) of the Foreign
Relations Law of the United States (1979-87), and I served as
consultant to the ALI Project on Income Tax Treaties (1988-
92).

conclusion

Without taking any position on the desirability of the
proposed legislation, I am confident that neither adoption
nor enforcement of the provision in question would violate
any obligation of the United States or any applicable
principles or international law.
Analysis

There is no doubt that international law today recognizes
the right to emigrate, and the right to change one's
nationality. Article 13(2) of the universal Declaration of
Human Rights (1948) states.
Everyone has the right to leave any country, including his
own. . .
Article 15(2) states: No one shall be arbitrarily deprived
of his nationality nor denied the right to change his
nationality.
Without here debating the binding character of the
Universal Declaration (see ``Restatement (Third) of Foreign
Relations Law,'' introduction to Part VII, Sec. 701, and
notes thereto), it is clear to me that the Congress should
not be asked to adopt legislation that runs contrary to
principles to which the United States has given and continues
to give its support. I do not believe, however, that H.R. 831
is contrary either to the right to emigrate (i.e., change of
one's residence) or to expatriate (i.e., change of one's
nationality). No prohibition against performing either or
both of these acts is contained in the proposed legislation,
nor is the tax so burdensome as to be fairly regarded as
penal or confiscatory.
Persons who wished to abandon their American Citizenship
for reasons of political or religious belief would not be
prevented from doing so by H.R. 831. Persons who were
considering renunciation of their U.S. citizenship for
purposes of reducing their tax liability--whether on income
or upon succession at death--might be dissuaded by H.R. 831
from doing so, but I do not believe the effect of the
proposed tax could be classified as an arbitrary denial of
the right to change one's nationality within the meaning of
the Universal Declaration.
I understand that the question has been raised whether H.R.
831 is inconsistent with Sec. 402 of the Trade Act of 1974,
the so-called Jackson-Vanik Amendment. I am very familiar
with the amendment, having written about it in my book
``Trade Controls for Political Ends'' at pp. 166-190 (2d.ed
1983). I am clear that the amendment was addressed to a quite
different purpose, i.e., inducement to Soviet authorities to
abandon their restrictions on Jews and some other groups who
desired to leave the Soviet Union to escape discrimination
and persecution. It is true that one of the restrictions
against which the Jackson-Vanik Amendment was directed was
taxation; however (i) the Soviet tax was a relatively high
tax based not on wealth or income but on the level of
education; and (ii) the tax was imposed on emigration, not on
change of citizenship or nationality. I have read the
prepared statement of Professor Robert F. Turner of March 21,
1995; I find his suggestion that H.R. 831 is somehow
inconsistent with the ideals expressed in the Jackson-Vanik
Amendment quite unpersuasive, as a matter of history, of
purpose, and of law.
On sum, imposition of unreasonable conditions on emigration
or change of nationality could be contrary to international
law. H.R. 831 imposes no restrictions on emigration; it does
impose some conditions on renunciation of United States
citizenship, but these conditions are not unreasonable, and
therefore not unlawful.
Respectfully submitted,

Andreas F. Lowenfeld,

Herbert and Rose Rubin Professor
of International Law.
____

Tufts University

The Fletcher School of Law and Diplomacy,

Medford, MA, March 24, 1995.
Hon. Daniel Patrick Moynihan,
U.S. Senate.
Re: Tax Compliance Act of 1995, H.R. 981
Dear Senator Moynihan: I am writing to express my serious
concern over the proposed ``exit tax'' included in Sec. 201
of H.R. 981. This concern is based not on an evaluation of
its tax consequences, an area in which I am not an expert,
but rather on the possible inconsistency of the tax with
fundamental international human rights norms and U.S.
international legal obligations.
As you know, the U.S. is now a party to the Covenant on
Civil and Political Rights, article 12 of which guarantees
the right of everyone ``to leave any country, including his
own.'' By coincidence, the United States will present its
first report on compliance with the Covenant to the Human
Rights Committee in New York next week.
Although I understand that the ``exit tax'' is based on
renunciation of citizenship rather than on leaving the
country, it is difficult to see how one can ``punish'' the
former without seriously compromising the latter. Indeed, the
imposition of confiscatory taxes has been a policy pursued by
many countries to discourage emigration, whether on purported
national security grounds, specious economic arguments, or to
prevent ``brain drain;'' I address these and other issues in
my 1987 book, ``The Right to Leave and Return in
International Law and Practice'' (Martinus Nijhoff).
In 1986, a meeting of eminent American and European legal
experts adopted the ``Strasbourg Declaration on the Right to
Leave and Return,'' a copy of which I attach for your
information. I would particularly
[[Page S5318]] draw your attention to article 5, which
states, inter alia, that ``[a]ny person leaving a country
shall be entitled to take out of that country . . . his or
her personal property . . . [and] all other property or the
proceeds thereof, subject only to the satisfaction of legal
monetary obligations, such as maintenance obligations to
family members, and to general controls imposed by law to
safeguard the national economy, provided that such controls
do not have the effect of denying the exercise of the
right.'' The tax in question would not appear to meet these
standards.
Without having examined the provisions of Sec. 201 in
greater detail, I cannot state definitively that it would
violate international law. However, the human rights
implications of such a provision appear to be extremely
serious, and adoption of the law would seem, at best, to be
hypocritical, given the legitimate and consistent U.S.
insistence on free emigration from other countries over the
years.
I hope that the Senate will examine these issues with great
deliberation before it decides to balance the budget on the
back of individual rights.
Yours sincerely,

Hurst Hannum,

Associate Professor
of International Law.
____

APPENDIX F

Strasbourg Declaration on the Right to Leave and Return

Adopted on 26 November 1986

preamble

The Meeting of Experts on the Right to Leave and Return,
Recognising that respect for human rights and fundamental
freedoms is essential for peace, justice and well-being and
is necessary to ensure the development of friendly relations
and co-operation among all states;
Recalling that the Universal Declaration of Human Rights,
the International Covenant on Civil and Political Rights, and
the International Convention on the Elimination of All Forms
of Racial Discrimination, as well as regional conventions,
recognize the fundamental principle, based on general
international law, that everyone has the right to leave any
country, including one's own, and to return to one's own
country;
Emphasizing that the right of everyone to leave any country
and to enter one's own country is indispensable for the full
enjoyment of all civil, political, economic, social and
cultural rights;
Concerned that the denial of this right is the cause of
widespread human suffering, a source of international
tensions, and an object of international concern;
Adopts the following Declaration:

Article 1

Everyone has the right to leave any country, including
one's own, temporarily or permanently, and to enter one's own
country, without distinction as to race, colour, sex,
language, religion, political or other opinion, national or
social origin, property, birth, marriage, age (except for
unemancipated minors independently of their parents), or
other status.

Article 2

Every state shall adopt such legislative or other measures
as may be necessary to ensure the full and effective
enjoyment of the rights set forth in this Declaration.
All laws, administrative regulations or other provisions
affecting the enjoyment of these rights shall be published
and made easily accessible.

the right to leave

Article 3

(a) No person shall be subjected to any sanction, penalty,
reprisal or harassment for seeking to exercise or for
exercising the right to leave a country, such as acts which
adversely affect, inter alia, employment, housing, residence
status or social, economic or educational benefits.
(b) No person shall be required to renounce his or her
nationality in order to leave a country, nor shall a person
be deprived of nationality for seeking to exercise or for
exercising the right to leave a country.
(c) No person shall be denied the right to leave a country
on the grounds that that person wishes to renounce or has
renounced his or her nationality.

Article 4

(a) No restriction may be imposed on the right to leave
except those which are
(1) provided by law;
(2) necessary to protect national security, public order
(ordre public), public health or morals or the rights and
freedoms of others; and
(3) consistent with internationally recognized human rights
and other international legal obligations.
Any such restriction shall be narrowly construed.
(b) Any restriction on the right to leave shall be clear,
specific and not subject to arbitrary application.
(c) A restriction shall be considered ``necessary'' only if
it responds to a pressing public and social need, pursues a
legitimate aim and is proportionate to that aim.
(d) A restriction based on ``national security'' may be
invoked only in situations where the exercise of the right
poses a clear, imminent and serious danger to the State. When
this restriction is invoked on the ground that an individual
acquired military secrets, the restriction shall be
applicable only for a limited time, appropriate to the
specific circumstances, which should not be more than five
years after the individual acquired such secrets.
(e) A restriction based on ``public order (ordre public)''
shall be directly related to the specific interest which is
sought to be protected. ``Public order (ordre public)'' means
the universally accepted fundamental principles, consistent
with respect for human rights, on which a democratic society
is based.
(f) A restriction based on ``the rights and freedoms of
others'' shall not imply that relatives (except for parents
with respect to unemancipated minors), employers or other
persons may prevent, by withholding their consent, the
departure of any person seeking to leave a country.
(g) No fees, taxes or other exactions shall be imposed for
seeking to exercise or exercising the right to leave a
country, with the exception of nominal fees related to travel
documents.
(h) Permissibility of restrictions on the right to leave is
subject to international scrutiny. The burden of justifying
any such restriction lies with the state.

Article 5

(a) Any person leaving a country shall be entitled to take
out of that country
(1) his or her personal property, including household
effects and property connected with the exercise of that
person's profession or skill;
(2) all other property or the proceeds thereof, subject
only to the satisfaction of legal monetary obligations, such
as maintenance obligations to family members, and the general
controls imposed by law to safeguard the national economy,
provided that such controls do not have the effect of denying
the exercise of the right.
(b) Property or the proceeds thereof which cannot be taken
out of the country shall remain vested in the departing
owner, who shall be free to dispose of such property or
proceeds within the country.

right to enter or return

Article 6

(a) No one shall be deprived of the right to enter his or
her own country.
(b) No person shall be deprived of nationality or
citizenship in order to exile or to prevent that person from
exercising the right to enter his or her country.
(c) No entry visa may be required to enter one's own
country.

Article 7

Permanent legal residents who temporarily leave their
country of residence shall not be arbitrarily denied the
right to return to that country.

Article 8

On humanitarian grounds, a state should give sympathetic
consideration to permitting the return of a former resident,
in particular a stateless person, who has maintained strong
bona fide links with that state.

procedural safeguards

Article 9

Everyone has the right to obtain such travel or other
documents as may be necessary to leave any country or to
enter one's own country. Such documents shall be issued free
of charge or subject only to nominal fees.

Article 10

(a) Any national procedures or requirements affecting the
exercise of the rights set forth in this Declaration shall be
established by law or administrative regulations adopted
pursuant to law.
(b) Everyone shall have the right to communicate as
necessary with any person, including foreign consular or
diplomatic officials, for the realization of the rights set
forth in this Declaration.
(c) No state shall refuse to issue the documents referred
to in Article 9 or shall otherwise impede the exercise of the
right to leave, on the ground of the applicant's inability to
present authorization to enter another country.
(d) Procedures for the issuance of the documents referred
to in Article 9 shall be expeditious and shall not be
unreasonably lengthy or burdensome.
(e) Everyone filing an application for any document
referred to in Article 9 shall be entitled to obtain promptly
a duly certified receipt for the application filed. Decisions
regarding issuance of such documents shall be taken within a
reasonable period of time specified by law. The applicant
shall be promptly informed in writing of any decision
denying, withdrawing, cancelling or postponing issuance of
any such document; the specific reasons therefor; the facts
upon which the decision is based; and the administrative or
other remedies available to appeal the decision.
(f) The right to appeal to a higher administrative or
judicial authority shall be provided in all instances in
which the right to leave or enter is denied. The appellant
shall have a full opportunity to present the grounds for the
appeal, to be represented by counsel of his or her choice,
and to challenge the validity of any fact upon which a denial
or restriction has been founded. The results of any appeal,
specifying the reasons for the decision, shall be
communicated promptly in writing to the appellant.
[[Page S5319]] final clauses

Article 11

Any person claiming a violation of his or her rights set
forth in this Declaration shall have effective recourse to a
judicial or other independent tribunal to seek enforcement of
those rights.

Article 12

No state may impede communication by any person with an
international organization or other bodies or persons outside
the state with regard to the rights set forth in this
Declaration, and no sanction, penalty, reprisal or
harrassment may be imposed on anyone exercising this right of
communication.

Article 13

The enjoyment of the rights set forth in this Declaration
shall not be limited because of activities protected under
internationally recognized human rights or other
international legal obligations.

Article 14

Nothing in this Declaration shall be interpreted as
implying from any state, group or person any right to engage
in any activity or perform any act aimed at destroying any of
the rights set forth herein or at limiting them to a greater
extent than is provided for in this Declaration.

Article 15

The present Declaration shall not be interpreted to limit
the enjoyment of any human right protected by international
law.
Exhibit 3

Congressional Research Service

The Library of Congress

Washington, DC, March 23, 1995.
American Law Division, Memorandum
Subject: Whether Legislation That Would Tax Property Upon
Expatriation Constitutes a Violation of International Law
Author: Jeanne J. Grimmet and Larry M. Eig, Legislative
Attorneys
This memorandum addresses whether legislation that would
tax the property of American citizens who renounce their
citizenship at the time of renunciation violates an
international obligation of the United States under a treaty
or other international agreement or customary international
law. Because of the brevity of our deadline, this memorandum
does not provide a detailed analysis of this question, but
rather briefly examines some of the more salient
international legal issues that might be implicated by such
legislation.
Based on this preliminary analysis, there does not appear
to be a clear international legal impediment to the enactment
of the proposed legislation. First, the legislation applies
upon the act of renunciation of citizenship and would thus
only indirectly affect emigration. While a right to emigrate
is recognized in national legal systems and in both binding
and non-binding international legal instruments, there does
not appear to be an obvious consensus on the content of this
right and, moreover, international legal instruments
recognize the right of emigration may be restricted for
certain purposes. Additionally, the proposed tax would not
appear to violate a norm of customary international law. It
would seem to be relatively common in international practice
for an individual to incur tax consequences as a result of
his or her emigration or expatriation.
Proposed legislation. Section 5 of H.R. 831, 104th Cong.,
1st Sess. (1995), as reported by the Senate Finance
Committee, would amend federal income tax law to require that
property held by a United States citizen who relinquishes his
or her citizenship be treated as sold for its fair market
value at the time of relinquishment and any gain or loss be
taken into account for the taxable year (new 26 U.S.C.
Sec. 877A). Certain exceptions and conditions would apply to
the general rule. Items currently excluded from gross income
under 26 U.S.C. Sec. Sec. 102 et seq. would continue to be
excluded, as would real property and interests in retirement
plans. The amount of realized gain would be reduced (but not
below zero) by $600,000.
A tentative tax would be due 90 days after the taxpayer
relinquishes citizenship, but for good cause payment of tax
may be extended by the Secretary of the Treasury for up to 10
years. An individual will be deemed to have relinquished his
or her citizenship (1) on the date the individual renounces
his or her United States nationality before a diplomatic or
consular officer, furnishes the State Department a signed
statement of voluntary relinquishment, or is issued a
certificate of loss of nationality by the State Department or
(2) for naturalized citizens, on the date a court cancels the
citizen's certificate of naturalization.
Currently, nonresident aliens are subject to income tax on
certain property for ten years after losing United States
citizenship, unless the loss of citizenship did not have as
one of its purposes the avoidance of federal or income or
estate and gift taxes (26 U.S.C. Sec. 877). This law would
cease to apply to any individual who relinquishes his or her
citizenship on and after February 6, 1995 (new 26 U.S.C.
Sec. 877(f)).
International agreements. With respect to the right of
emigration, we can identify only one clearly binding
international agreement to which the United States is a party
that addresses the right to emigrate as possibly implicated
here--namely, the International Covenant on Civil and
Political Rights.
Article 12 of the Covenant, which entered into force for
the United States on September 8, 1992, provides, in
pertinent part, as follows:
2. Everyone shall be free to leave any country, including
his own.
3. The above-mentioned rights shall not be subject to any
restrictions except those which are provided by law, are
necessary to protect national security, public order (``order
public''), public health or morals or the rights and freedoms
of others, and are consistent with the other rights
recognized in the present Covenant.
In submitting the Covenant to the Senate, the Executive
Branch specifically stated that Article 12 ``guarantees . . .
the right of emigration to all those lawfully within the
territory of a State party.''\1\
Footnotes at end of article.
---------------------------------------------------------------------------
The Convention does not make the right to emigrate an
absolute one. The right may be restricted for, among other
things, reasons of ``public order,'' a phrase roughly
analogous to the concept of public policy and likely
including such notions as ``economic order.''\2\ Some
commentary apparently indicates that States may certainly
require that citizens pay normal tax obligations and public
debts upon emigration,\3\ but suggests that economic controls
should not result in a de facto denial of the right to
leave.\4\
The proposed legislation does not directly restrict the
right of an individual to leave the United States and indeed
covers individuals who may have already chosen to reside
elsewhere. The tax would not be triggered by the mere act of
leaving or residing abroad. It would be based on activities
that occurred while the taxpayer was a citizen and appears to
generally reflect amounts that for the most part would
otherwise be payable upon death. The proposed tax obligation
contains elements found in existing tax laws--for example,
exclusions for items currently excludable from income tax
under 26 U.S.C. Sec. Sec. 101 et seq. (certain interest on
state and local bonds, gifts and inheritances, etc.) and an
exclusion of the first $600,000 of gain. Currently 26 U.S.C.
Sec. 6018 requires an executor to file an estate tax return
in all cases where the gross estate at the death of a citizen
or resident exceeds $600,000. While current deferrals would
apparently be eliminated, the possibility of deferred payment
is not entirely foreclosed. Further, the tax burden would
seem to be immediately lessened by the fact that certain real
property and pension plans would be excluded.
Though curbs on expatriation may indirectly affect one's
ability to emigrate, one may question, however, whether a
restriction on expatriation would in fact restrict this
right. The proposed tax does not, for example, amend current
constitutional and statutory protection of a U.S. citizen's
right to leave the country whether or not the tax is paid; in
other words, the act of emigration would not appear to be
conditioned on such payment. Moreover, it seems difficult to
argue that a condition on U.S. expatriation would so affect
foreign countries' willingness to accept U.S. citizens as
residents that the right to leave the U.S. would be
substantially impaired. More likely, there may be a number of
foreign laws and regulations that could burden an individual
who seeks to live elsewhere--e.g., restrictions on
immigration, acquiring citizenship, eligibility for benefits.
Customary international law. Customary international law is
defined as resulting ``from a general and consistant practice
of states followed by them from a sense of legal
obligation.\5\ Further, a principle of customary
international law would not bind a State that dissents from
the norm while it is being developed nor if and when the
practice evolves into a rule.\6\ As stated in the Foreign
Relations Restatement, whether a principle has achieved the
status of an international legal norm would generally be
determined by ``evidence appropriate to the particular source
from which that rule is alleged to derive,''\7\ and thus the
most reliable evidence for customary law would be ``proof of
state practice, ordinarily by reference to official documents
and other indications of governmental action'' and similar
proof regarding a nation's dissent from the principle.\8\
The Universal Declaration of Human Rights (a United Nations
General Assembly Resolution) and the Final Act of the
Conference of Security and Cooperation in Europe (Helsinki
Final Act) state or incorporate the notion of freedom of
emigration\9\ and to this extent they may be said to
articulate a generally recognized international human right.
It appears to remain uncertain, however, whether the
Universal Declaration is binding.\10\ Further, the Helsinki
Final Act is not intended to legally bind parties. Even
assuming that the right to emigrate may be considered to be a
norm of customary international law, it is unclear whether
the proposed tax would violate that right, given the apparent
lack of international consensus on the issue of taxes keyed
to expatriation and state practice to the contrary.
As for the right of expatriation in general, the Universal
Declaration of Human Rights provides that ``no one shall be
denied the right to change his nationality'' (Art. 15(2)).
Nevertheless, while the United States over 10 years ago
recognized a right of expatriation in statute,\11\ other
countries appear to have expressed different views on the
matter.\12\
More specifically, identifying customary international law
that may restrict a State's ability to limit emigration and
expatriation necessarily requires examination of State
taxation practices that affect those acts. A recent Joint
Committee on Taxation staff document indicates that policies
that attach
[[Page S5320]] tax consequences to emigration are common.\13\
Many countries, including the United States, continue to
impose income and capital gains tax liability on former
residents (including citizens) after they emigrate. Commonly,
this income and gains are also fully taxable in the new
country of residence, and a recent emigre may face
significantly higher taxation than would have been incurred
had he or she not emigrated. Additionally Australia and
Canada already tax an emigre's property upon emigration.
Denmark and Germany also deem some types of property to have
been sold upon emigration for tax purposes. In addition,
United States bilateral income tax treaties generally contain
a provision reserving a right on the part of the United
States to tax for a period of ten years the property of a
former citizen who is resident in the territory of the treaty
partner.\14\ Entry into the treaty obligation would appear to
indicate at least some foreign acquiescence in this practice.
In sum, the ``expatriation tax'' under consideration would
not appear to inhibit international movement in ways that
current international tax practice already does not.
Jackson-Vanik Amendment. The Jackson-Vanik Amendment, which
makes nonmarket economy (NME) countries that do not meet
statutory freedom-of-emigration standards ineligible for
United States trade and financial benefits,\15\ would not
appear to provide sufficient evidence of the kind of state
practice that is needed to create a customary rule of
international law regarding the type of tax that is being
proposed here. Three types of conduct are addressed by the
Amendment: (1) denying citizens the right or opportunity to
emigrate; (2) imposing more than a nominal tax on emigration
or on the visas or other documents required for emigration,
for any purpose or cause whatsoever; and (3) imposing more
than a nominal tax, levy, fine, fee, or other charge on any
citizen as a consequence of the desire of such citizen to
emigrate to the country of his choice.\16\ While the statute
specifically incorporates language regarding the right to
emigrate and defines unacceptable restrictions on that right,
placing Jackson-Vanik-type requirements on trading partners
would appear to be unique to the United States. Further, the
targeted taxes are specifically related to emigration, rather
than to expatriation and, moreover, clearly apply in an
overly restrictive manner. They include fees for passport
applications and exit visas that are ordinarily prohibitive
when measured against average income.\17\ These are far
removed from the kind of tax proposed in H.R. 831, which,
among other things, applies to individuals who have incurred
a tax burden because of actions that would generally
implicate tax laws absent renunciation of citizenship,
affects taxpayers with untaxed capital gains in excess of
$600,000, and, if the Internal Revenue Service agrees, might
be payable on a deferred basis.

footnotes

\1\Senate Exec. E, 95th Cong., 2d Sess. xii (1977).
\2\See Kiss, ``Permissible Limitations on Rights,'' in L.
Henkin, ed., The International Bill of Rights 290, 299-302
(1981); M. Nowak, U.N. Covenant on Civil and Political
Rights: CCPR Commentary 212-214 (1993)[hereinafter cited as
Nowak].
\3\The Movement of Persons Across Borders 82 (Sohn &
Buergenthal eds. 1992), as cited in Prepared Statement of
Robert F. Turner Before the Subcommittee on Taxation and IRS
Oversight, Senate Comm. on Finance, March 21, 1995, at 8. We
have been unable to consult this treatise directly.
\4\See, e.g., H. Hannum, ``The Right to Leave and Return in
International Law and Practice 39-40 (1987); cf. Nowak, supra
note 2, at 213-14.
\5\American Law Institute, Restatement (Third) of the Foreign
Relations Law of the United States Sec. 102(2)
(1987)[hereinafter cited as Foreign Relations Restatement];
see also Statute of the International Court of Justice, Art.
33(1).
\6\Id. at Comments b and d.
\7\Id. Sec. 103(1).
\8\Id. at Comment a.
\9\The International Declaration of Human Rights provides at
Article 13(2) that ``everyone has the right to leave any
country, including his own.'' The Final Act of the Conference
on Security and Co-operation in Europe, August 1, 1975
(Helsinki Final Act), provides that ``the participating
States will act in conformity with the purposes of the
Charter of the United Nations and with the Universal
Declaration of Human Rights. They will also fulfil their
obligations as set forth in the international declarations
and agreement in this field, including inter alia, the
International Covenants on Human Rights, by which they may be
bound.'' Helsinki Final Act, Declaration on Principles
Guiding Relations Between States, para.VII.
\10\Foreign Relations Restatement, supra note 5, at Sec. 701,
Reporters' Note 6.
\11\Expatriation Act of July 27, 1868, 15 Stat. 223, 8 U.S.C.
Sec. 1481 note.
\12\W. Bishop, International Law 526 (3d ed. 1971); Foreign
Relations Restatement, supra note 5, at Sec. 211, Reporters'
Note 4.
\13\Joint Committee on Taxation Staff Document (JCX-14-95) on
Background and Issues Relating to Taxation of U.S. Citizens
Who Relinquish Citizenship, Prepared for Senate Finance
Committee Hearing March 21, 1995, at 8-11 [hereinafter cited
as Joint Committee Document], as reprinted in Daily Tax
Reporter, No. 55, L-11, L-15--L-16 (March 22, 1995).
\14\Joint Committee Document, supra note 13, at 16, as
reprinted in Daily Tax Reporter, March 22, 1995, at L-18.
\15\19 U.S.C. Sec. 2432.
\16\19 U.S.C. Sec. 2432(a).
\17\Joint Committee Document, supra note 13, at 18, as
reprinted in Daily Tax Reporter, March 22, 1995, at L-19.
Section 201 of Tax Compliance Act of 1995: Consistency With
International Human Rights Law

The Department of State believes that Section 201 of the
proposed Tax Compliance Act of 1995 is consistent with
international human rights law. As described below, closing a
loophole that allows extremely wealthy people to evade U.S.
taxes through renunciation of their American citizenship does
not violate any internationally recognized right to leave
one's country. It is inaccurate on legal and policy grounds
to suggest that the Administration's proposal is analogous to
efforts by totalitarian regimes to erect financial and other
barriers to prevent their citizens from leaving. The former
Soviet Union, for example, sought to impose such barriers
only on people who wanted to leave, and not on those who
stayed. In contrast. Section 201 seeks to equalize the tax
burden born by all U.S. citizens by ensuring that all pay
taxes on gains above $600,000 that accrue during the period
of their citizenship. Unlike the Soviet effort to
discriminate against people who sought to leave, the purpose
of Section 201 is to treat those who renounce their U.S.
citizenship on the same basis as those who remain U.S.
citizens.
Section 201 would require payments of taxes by U.S.
citizens and long-term residents on gains above $600,000 that
accrue immediately prior to renunciation of their U.S.
citizenship or long-term residency status. These tax
requirements are similar to those that they would face if
they remained U.S. citizens or long-term residents at the
time they realized their gains or at death. While U.S. tax
policy generally allows taxpayers to defer gains until they
are realized or included in an estate, we understand from the
Department of the Treasury that Section 201 treats
renunciation as a taxable event because such act effectively
removes the underlying assets from U.S. taxing jurisdiction.
International law recognizes the right of all persons to
leave any country, including their own, subject to certain
limited restrictions. Article 12(2) of the International
Covenant on Civil and Political Rights provides that:
``Everyone shall be free to leave any country, including his
own.'' Article 12(3) states that the right ``shall not be
subject to any restrictions except those which are provided
by law, are necessary to protect national security, public
order (order public), public health or morals or the rights
and freedoms of others, and are consistent with the other
rights recognized in the present Covenant.''
Section 201 does not affect a person's right to leave the
United States. Any tax obligations incurred under Section 201
would be triggered by the act of renunciation of U.S.
citizenship, and not by the act of leaving the United States.
In addition, since during peacetime U.S. citizens must be
outside the United States to renounce their citizenship (see
8 U.S.C. Secs. 1481(a)(5), 1483(a)) the persons affected by
Section 201 would have already left the United States.
Renunciation does not preclude them from returning to the
United States as aliens and subsequently leaving U.S.
territory. Accordingly, Section 201 does not affect a
person's right or ability to leave the United States.
Inherent in the right to leave a country is the ability to
leave permanently, i.e., to emigrate to another country
willing to accept the person. The proposed tax is as
unconnected to emigration as it is to the right to leave the
United States on a temporary basis. It is not the act of
emigration that triggers tax liability under Section 201, but
the act of renunciation of citizenship. These two acts are
not synonymous and should not be confused with one another.
Because the United States allows its citizens to maintain
dual nationality, U.S. citizens may emigrate to another
country and retain their U.S. citizenship. Hence, the act of
emigration itself does not generate tax liability under
Section 201. Indeed, we understand from the Department of the
Treasury that some of the people potentially affected by
Section 201 already maintain several residences abroad and
hold foreign citizenship. Moreover, in stark contrast to most
emigrants, particularly those fleeing totaliatarian regimes,
some continue to spend up to 120 days each year in the United
States after they have renounced their U.S. citizenship.
While emigration from the United States should not be
confused with renunciation of U.S. citizenship, it should
nonetheless be noted that it is well established that a State
can impose economic controls in connection with departure so
long as such controls do not result in a de facto denial of
emigration. As Professor Hurst Hannum notes in commenting on
the restrictions on the right to leave set forth in Article
12 of the Covenant:
``Economic controls (currency restrictions, taxes, and
deposits to guarantee repatriation) should not result in the
de facto denial of an individual's right to leave . . . If
such taxes are to be permissible, they must be applied in a
non-discriminatory manner and must not serve merely as a
pretext for denying the right to leave to all or a segment of
the population (for example, by requiring that a very high
`education tax' be paid in hard currency in a country in
which possession of hard currency is illegal).''\1\
A wealthy individual who is free to travel and live
anywhere in the world, irrespective of nationality, is in no
way comparable to that of a persecuted individual seeking
freedom who is not even allowed to leave his or her country
for a day. In U.S. law, the Jackson-Vanik amendment to the
Trade Act of 1974 (19 U.S.C. Sec. 2432) is aimed at this
latter case and applies to physical departure, not change of
nationality. Examples of States' practices that have been
considered to interfere with the ability of communist
[[Page S5321]] country citizens to emigrate include imposing
prohibitively high taxes specifically applied to the act of
emigration with no relation to an individual's ability to
pay, or disguised as ``education taxes'' to recoup the
State's expenses in educating those seeking to depart
permanently. Such practices also include punitive actions,
intimidation or reprisals against those seeking to emigrate
(e.g., firing the person from his or her job merely for
applying for an exit visa). It is these offensive practices
that the Jackson-Vanick amendment is designed to eliminate
and thereby ensure that the citizens of all countries can
exercise their right to leave. (See Tab A for further
analysis of the Jackson-Vanik amendment.)
The only international human rights issue that is relevant
to analysis of Section 201 is whether an internationally
recognized right to change citizenship exists and, if so,
whether Section 201 is consistent with it. The Universal
Declaration of Human Rights, which is in many respects
considered reflective of customary international law,
provides in Article 15(2) that: ``No one shall be arbitrarily
deprived of his nationality nor denied the right to change
his nationality'' (emphasis added).\2\ Although many
provisions of the Universal Declaration have been
incorporated into international law, for example in the
International Covenant on Civil and Political Rights, Article
15(2) is not. Accordingly, the question arises whether this
provision could be considered to be customary international
law.
States' views on this question and practices do vary. Many
countries have laws governing the renunciation of
citizenship, but renunciation is not guaranteed because they
have also established preconditions and restrictions, or
otherwise subject the request to scrutiny.\3\ Professor Ian
Brownlie has commented on Article 15(2) in the context of
expatriation that: ``In the light of existing practice,
however, the individual does not have this right, although
the provision in the Universal Declaration may influence the
interpretation of internal laws and treaty rules.''\4\ Others
agree with this position. (See Restatement of the Foreign
Relations Law of the United States, Sec. 211, Reporters' Note
4). Nonetheless, the United States believes that individuals
do have a right to change their nationality. The U.S.
Congress took the view in 1868 that the ``right of
expatriation is a natural and inherent right of all people''
in order to rebut claims from European powers that ``such
American citizens, with their descendants, are subjects of
foreign states, owing allegiance to the governments thereof.
. ..'' (Rev. Stat. Sec. 1999).
It is evident, however, that States do not recognize an
unqualified right to change nationality. It is generally
accepted, for example, that a State can require that a person
seeking to change nationality fulfill obligations owed to the
State, such as pay taxes due or perform required military
service.\5\ This is especially true where--as here--the
requirement is by its nature proportional to the means to
pay, and thus does not present a financial barrier.
The consistency between Section 201 and international human
rights law is further demonstrated by the practice of
countries that are strong supporters of international human
rights and that have adopted similar tax policies. According
to the Report prepared by the Staff of the Joint Committee on
Taxation, Germany imposes an ``extended tax liability'' on
German citizens who emigrate to a tax-haven country or do not
assume residence in any country and who maintain substantial
economic ties to Germany. Australia imposes a tax when an
Australian resident leaves the country; such person is
treated as having sold all of his or her non-Australian
assets at fair market value at the time of departure. To
provide another example, Canada considers a taxpayer to have
disposed of all capital gain property at its fair market
value upon the occurrence of certain events, including
relinquishment of residency.
Accordingly, Section 201 would not raise concerns with
respect to change of citizenship for two reasons. First, U.S.
citizens would remain free to choose to change their
citizenship. This proposal does not in any way preclude such
choice, even indirectly. Any tax owed, by its nature, applies
only to gains and thus should not exceed an individual's
ability to pay. Second, international law would not proscribe
reasonable consequences of relinquishment, such as liability
for U.S. taxes that accrue during the period of citizenship.
We understand from the Department of the Treasury that the
imposition of taxes under Section 201 would be equitable,
reasonable and consistent with overall U.S. tax policy. We
are aware of no evidence that would suggest otherwise. The
tax, as we understand it, applies only to gains that accrued
during the period of citizenship in excess of $600,000; the
tax rate is consistent with other tax rates; and affected
persons have the financial means to pay the tax. Indeed, were
these persons to choose to retain their U.S. citizenship,
they would have to pay similar taxes upon realization of
their gains or upon death. Obviously, there is no
international right to avoid paying taxes by changing one's
citizenship.
In conclusion, it is the view of the Department of State
that Section 201 does not violate international human rights
law. Accordingly, the debate on the merits of Section 201
should focus solely on domestic tax policies and priorities.

FOOTNOTES

\1\H. Hannum, ``The Right to Leave and Return in
International Law and Practice'' 39-40 (1987).
\2\Article XIX of the American Declaration on the Rights and
Duties of Man provides that: ``Every person has the right to
the nationality to which he is entitled by law and to change
it, if he so wishes, for the nationality of any other country
that is willing to grant it to him.'' The Declaration is not
a treaty and has not itself acquired legally binding force.
\3\See Coumas v. Superior Court in and for San Joaquin County
(People, Intervenor), 192 P. 2d 449, 451 (Sup. Ct. Calif.
1948). When confronted with Greek refusal to consent to an
expatriation, the Supreme Court of California stated: ``. . .
The so-called American doctrine of `voluntary expatriation'
as a matter of absolute right cannot postulate loss of
original nationality on naturalization in this country as a
principle of international law, for that would be tantamount
to interference with the exclusive jurisdiction of a nation
within its own domain.''
\4\I. Brownlie, ``Principles of International Law'' (4th ed.)
557 (1990). Professor Lillich comments that ``the right
protected in [Article 15] has received very little subsequent
support from states and thus can be regarded as one of the
weaker rights . . . '' ``Civil Rights,'' in T. Meron, ``Human
Rights in International Law'' at 153-154 (1988).
\5\A State should not, for example, withhold discharge from
nationality if, inter alia, acquisition of the new
nationality has been sought by the person concerned in good
faith and the discharge would not result in failure to
perform specific obligations owed to the State. P. Weis,
``Nationality and Statelessness in International Law'' (2nd
ed.) 133 (1979). In Coumas, supra note 3, the Supreme Court
of California observed that Greece qualified the right of
expatriation on fulfillment of military duties and
procurement of consent of the Government.
tab a

Section 201 of the proposed Tax Compliance Act of 1995 does
not conflict with the Jackson-Vanik amendment to the Trade
Act of 1974 (19 U.S.C. Sec. 2432). That amendment restricts
granting most-favored-nation treatment and certain trade
related credits and guarantees to a limited number of
nonmarket economies that unduly restrict the emigration of
their nationals. Specifically, it applies to any nonmarket
economy which:
``(1) Denies its citizens the right or opportunity to
emigrate;
``(2) Imposes more than a nominal tax on emigration or on
the visas or other documents required for emigration, for any
purposes or cause whatsoever; or
``(3) Imposes more than a nominal tax, levy, fine, fee or
other charge on any citizen as a consequence of the desire of
such citizen to emigrate to the country of his choice * *
*.''
This provision, according to the Senate Finance Committee,
was ``intended to encourage free emigration of all peoples
from all communist countries (and not be restricted to any
particular ethnic, racial, or religious group from any one
country). (1974 U.S.C.C.A.N. 7338.) These countries were
expected to ``provide reasonable assurances that freedom of
emigration will be a realizable goal'' if they were to enter
into bilateral trade agreements with the United States. (Id.)
The amendment does not apply to emigration from the United
States or to the renunciation of U.S. citizenship. It has
been suggested, however, that Section 201 would somehow
conflict with the ``spirit'' or the ``principles'' of the
Jackson-Vanik amendment. The Department of State does not
agree with such proposition.
Generally, in implementing this statute, the President
makes determinations concerning a nonmarket economy's
compliance with freedom of emigration principles contained in
the amendment. Such determinations take into account the
country's statutes and regulations, and how they are
implemented day to day, as well as their net effect on the
ability of that country's citizens to emigrate freely. The
President may, by Executive Order, waive the prohibitions of
the Jackson-Vanik amendment if he reports to Congress that a
waiver will ``substantially promote'' the amendment's freedom
of emigration objectives, and that he has received assurances
from the country concerned that its emigration practices
``will henceforth lead substantively to the achievement'' of
those objectives. (19 U.S.C. sec. 2431(c).)
Several types of State practices have been considered by
the United States to interfere with the ability of communist
country citizens to emigrate, such as:
Prohibitively high taxes specifically applied to the act of
emigration with no relation on an individual's ability to pay
or disguised as ``education taxes'' seeking to recoup the
state's expenses in educating those who are seeking to
permanently depart;
Punitive actions, intimidation or reprisals by the State
against those seeking to emigrate (e.g., firing a person from
his or her job merely for applying for an exit visa);
Unreasonable impediments, such as requiring adult
applicants for emigration visas to obtain permission from
their parents or adult relatives;
Unreasonable prohibitions of emigration based on claims
that the individual possesses knowledge about state secrets
or national security; and
Unreasonable delays in processing applications for
emigration permits or visas, interference with travel or
communications necessary to complete applications,
withholding of necessary documentation, or processing
applications in a discriminatory manner such as to target
identifiable individuals or groups for persecution (e.g.,
political dissidents, members of religious or racial groups,
etc.).
Examples of these practices in the context of the former
Soviet Union are described in an exchange of letters between
Secretary of
[[Page S5322]] State Kissinger and Senator Jackson of October
18, 1974, discussing freedom of emigration from the Soviet
Union and Senator Jackson's proposed amendment to the Trade
Act, now known as the Jackson-Vanik amendment. (Reprinted in
1974 U.S.C.C.A.N. 7335-38.)
As explained in the accompanying memorandum, Section 201
does not deny anyone the right or ability to emigrate, and
does not impose a tax on any decision to emigrate. Neither
does the proposed tax raise questions of disparate standards
applicable to the United States as against the nonmarket
economies subject to Jackson-Vanik restrictions.
The emigration practices of those countries which have been
the target of Jackson-Vanik restrictions have typically
involved individuals or groups that have been persecuted by
the State (e.g., dissidents), precluded family reunification,
applied across the board to all citizens by a totalitarian
State in order to preclude massive exodus, or have otherwise
been so restrictive as to effectively prevent the exercise of
the international right to leave any country including one's
own (as recognized in Article 12(2) of the International
Covenant on Civil and Political Rights and further described
in the accompanying memorandum). Furthermore, the primary
objectives of those seeking to emigrate from those countries
have been to avoid further persecution or to be reunified
with their relatives, and to leave permanently. It was the
act of leaving for any period of time that the State sought
to block. None of these conditions are comparable to the
exercise of taxing authority by the United States under
Section 201 or to the status of individuals who would be
subject to that tax.
As stated in the accompanying memorandum, Section 201 would
not interfere with the right of an individual to physically
depart from the United States, whether temporarily or
permanently.
Tufts University, The Fletcher School of Law and Diplomacy,
March 31, 1995.
Hon. Daniel Patrick Moynihan,
U.S. Senate.
Attention: Patricia McClanahan,
Re Tax Compliance Act of 1995, H.R. 981.
Dear Senator Moynihan: I wrote you on 24 March expressing
my concern over the possible human rights implications of the
so-called ``exit tax'' called for in the above-referenced
bill. As I noted then, what appeared to be the imposition of
a tax solely on the ground that a person was renouncing his
or her citizenship could interfere with the right of every
person ``to leave any country, including his own,'' which is
guaranteed under article 12 of the Covenant on Civil and
Political Rights.
I am gratified that the human rights issues related to this
bill have become a subject of serious debate, and I
appreciate your contribution to that debate. Having now
received additional and more specific information about the
tax, however, I have become convinced that neither its
intention nor its effect would violate present U.S.
obligations under international law.
Although imposition of a special tax on those who wished to
renounce U.S. citizenship might be questionable, it is my
understanding that the tax in question is based on accrued
income and, in effect, treats renunciation of citizenship as
the financial equivalent of death for the purpose of
attaching tax liability. There are undoubtedly negative
consequences to the individual concerned in having to pay
taxes on gains while he or she is alive rather than after
death, but there is no internationally protected right to
escape taxation by changing citizenship. However, in order to
clarify that the purpose and effect of the proposed tax are
non-discriminatory, the language might be rewritten to offer
the individual the option of complying with the new tax or
electing to have realized gains taxed only as part of the
individual's estate--subject to an appropriate escrow account
being established for money which would be otherwise be
expected to be beyond U.S. jurisdiction at the time of death.
In sum, imposition of a non-discriminatory tax on accrued
income at the time citizenship is renounced, in a manner
consistent with the way in which that same income would be
treated at the time of death, does not appear to me to
violate either the internationally protected right to
emigrate or the (somewhat less well protected) right to a
nationality.
Thank you for the opportunity to clarify my views on this
important matter.
Yours sincerely,
Hurst Hannum,
Associate Professor of International Law.

The PRESIDING OFFICER (Mrs. Kassebaum). The question is on agreeing
to the amendment of the Senator from Massachusetts. On this question,
the yeas and nays have been ordered, and the clerk will call the roll.
The bill clerk called the roll.
The PRESIDING OFFICER. Are there any other Senators in the Chamber
who desire to vote?
The result was announced--yeas 96, nays 4, as follows:

[Rollcall Vote No. 128 Leg.]

YEAS--96

Abraham
Akaka
Ashcroft
Baucus
Bennett
Biden
Bingaman
Bond
Boxer
Bradley
Breaux
Brown
Bryan
Bumpers
Burns
Byrd
Campbell
Chafee
Coats
Cochran
Cohen
Conrad
Coverdell
D'Amato
Daschle
DeWine
Dodd
Dole
Domenici
Dorgan
Exon
Faircloth
Feingold
Feinstein
Ford
Frist
Glenn
Gorton
Graham
Grams
Grassley
Gregg
Harkin
Hatch
Hatfield
Heflin
Helms
Hollings
Hutchison
Inhofe
Inouye
Jeffords
Johnston
Kassebaum
Kempthorne
Kennedy
Kerrey
Kerry
Kohl
Lautenberg
Leahy
Levin
Lieberman
Lott
Lugar
McCain
McConnell
Mikulski
Moseley-Braun
Moynihan
Murkowski
Murray
Nickles
Nunn
Packwood
Pell
Pressler
Pryor
Reid
Robb
Rockefeller
Roth
Santorum
Sarbanes
Shelby
Simon
Simpson
Smith
Snowe
Specter
Stevens
Thomas
Thompson
Thurmond
Warner
Wellstone

NAYS--4

Craig
Gramm
Kyl
Mack
So, the amendment (No. 448) was agreed to.
Mr. KENNEDY. Madam President, I move to reconsider the vote by which
the amendment was agreed to.
Mr. LOTT. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. LOTT. Madam President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The bill clerk proceeded to call the roll.
Mr. WELLSTONE. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.

amendment no. 567 to amendment no. 420

(Purpose: To make $10,000,000 of nutrition services and administration
funds for WIC to promote immunizations)

Mr. BUMPERS. Madam President, I send an amendment to the desk.
The PRESIDING OFFICER. Without objection, the pending amendments will
be set aside. The clerk will report.
The assistant legislative clerk read as follows:

The Senator from Arkansas [Mr. Bumpers] proposes an
amendment numbered 567 to amendment No 420.

Mr. BUMPERS. Madam President, I ask unanimous consent that the
reading of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
``special supplemental food program for women, infants, and children
(wic)

``The paragraph under this heading in Public Law 103-330
(108 Stat. 2441) is amended by inserting before the period at
the end, the following:
``: Provided further, That notwithstanding any other
provision of law, up to $10,000,000 of nutrition services and
administration funds may be available for grants to WIC State
agencies for promoting immunization through such efforts as
immunization screening and voucher incentive programs.''

Mr. BUMPERS. Madam President, this is an amendment that was part of
the law last year and should be part of the bill this year. It allows
up to $10 million in WIC administrative expenses to be used for
incentives for immunizing children prior to the age of 2 years.
This has been cleared by Senator Cochran, who is chairman of the
Appropriations Committee on Agriculture where this resides, and with
the distinguished chairman of the full Appropriations Committee.
Mr. HATFIELD addressed the Chair.
The PRESIDING OFFICER. The Senator from Oregon.
Mr. HATFIELD. Madam President, the Senator is correct. The matter has
been cleared by our side of the aisle, by the subcommittee chair, and
the Senator from Arkansas is the ranking member of that subcommittee.
The PRESIDING OFFICER. The question is on agreeing to the amendment.
The amendment (No. 567) was agreed to.
Mr. BUMPERS. Mr. President, I move to reconsider the vote by which
the amendment was agreed to.
Mr. FORD. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. WELLSTONE. Madam President, I ask unanimous consent that I be
able to speak for 10 minutes as in morning business.
[[Page S5323]] Mr. LOTT. Madam President, the Senator is not offering
an amendment, he is just going to speak in morning business?
Mr. WELLSTONE. Madam President, the Senator from Mississippi is
correct.
The PRESIDING OFFICER. Without objection, it is so ordered.

____________________