Citizenship Taxation, Globalization and Inequality

Abstract

The U.S alone claims the right to tax its citizens regardless of country of residence. Other states allow their citizens to forego national taxes if they reside abroad for extended periods; this is residence taxation. Many commentators stress the extraordinary gap between the comprehensiveness of U.S. claims and the long history of wholly inadequate enforcement, pronouncing citizenship taxation infeasible. Some have claimed that uniquely intrusive U.S. claims violate customary international law. On the other side are those who see citizenship taxation as a tool for greater intra-nation equality within the high-income countries and perhaps as a development measure for poorer countries as well. This paper will defend U.S. citizenship taxation and propose policy modifications that balance increased inequality concerns with the continuing realities of globalization. The paper first briefly reviews the appropriate goals of international taxation. It then presents a defense of citizenship taxation stressing the contribution of the U.S. environment to the continuing material success of those who subsequently choose to live abroad. Current U.S. policy is then examined in detail, and revisions are suggested both for Americans who wish to retain their citizenship and those who do not. Efforts to collect revenue from both groups have largely failed so far. The reasons for this failure and the measures needed to improve collection are explored at the end of the paper.