[Congressional Record Volume 141, Number 64 (Thursday, April 6, 1995)]
[Senate]
[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.

                          ____________________