[Congressional Record (Bound Edition), Volume 145 (1999), Part 18]
[Extensions of Remarks]
[Page 26005]
[From the U.S. Government Publishing Office, www.gpo.gov]




                         EXPATRIATE LEGISLATION

                                 ______
                                 

                         HON. CHARLES B. RANGEL

                              of new york

                    in the house of representatives

                       Tuesday, October 19, 1999

  Mr. RANGEL. Mr. Speaker, today Congressman Bob Matsui and I are 
introducing legislation to prevent tax avoidance through the device of 
renouncing one's allegiance to this country. I am pleased that my 
colleagues Messrs. Gephardt, Bonior, Stark, Coyne, Levin, McDermott, 
Kleczka, Lewis of Georgia, Neal, McNulty, Doggett, Tierney, Frank of 
Massachusetts, Brown of Ohio, Luther, and Vento are joining us as 
cosponsors of this legislation.
  I understand that our motives for introducing this legislation will 
be attacked. Therefore, I want to leave no question about why we demand 
an effective response to the tax avoidance potential of expatriation.
  Citizenship in this country confers extraordinary benefits. Our 
citizens are able to enjoy the full range of political and economic 
freedoms that our government ensures. With the benefits of citizenship 
comes the responsibility to contribute to the common good.
  This country is fortunate in that it can depend on the voluntary 
compliance of its citizens to collect its taxes. In that respect, we 
are unique in the world. The willingness of our citizens to continue 
voluntarily to comply with our tax laws is threatened when very wealthy 
individuals can avoid their responsibility as citizens by turning their 
backs on this country and walking away with enormous wealth.
  I reject any suggestion that our bill is a form of class warfare or 
motivated by class envy. It is true that our bill will affect only very 
wealthy individuals. Only very wealthy individuals have the resources 
necessary to live securely outside the borders of this country as 
expatriates. Closing a loophole that only the extraordinarily wealthy 
can utilize is not class warfare. It is a matter of fundamental 
fairness to the rest of our citizens.
  Opponents of effective reform in this area have gone so far as to 
suggest that those reforms would be inconsistent with our nation's 
historic commitment to human rights. I strongly disagree. The 
individuals affected by the bill are not renouncing their American 
citizenship because of any fundamental disagreement with our political 
or economic system. These individuals simply refuse to contribute to 
the common good in a country where the political and economic system 
has benefited them enormously. Some opponents have gone so far as to 
compare the plight of these wealthy expatriates to the plight of the 
persecuted Jews attempting to flee Russia. That argument is worthy of 
contempt. Our bill imposes no barrier to departure. Indeed, most 
expatriates have physically departed from this country before they 
renounce their citizenship.
  For reasons that continue to puzzle me, there was bitter partisan 
dispute in 1995 over this issue. The partisan nature of that debate 
obscured the fact that there was a genuine bipartisan consensus that 
tax avoidance by renouncing one's American citizenship should not be 
tolerated.
  The dispute during 1995 involved an argument over the appropriate 
mechanism to be used to address tax-motivated expatriation. The Clinton 
Administration, the Senate on a bipartisan basis, and the House 
Democrats all supported legislation that would have imposed an 
immediate tax on the unrealized appreciation in the value of the 
expatriate's assets. The House Republicans supported a provision that 
imposed a tax on the U.S. source income of the expatriate for the 10-
year period following expatriation. Armed with revenue estimates from 
the Joint Committee on Taxation that showed their version as raising 
more money, the House Republicans prevailed and, in 1996, enacted their 
version of the expatriation legislation.
  A recent article in Forbes Magazine summarized the effect of the 1996 
legislation as follows: ``It ain't workin'.'' Although the law appears 
to be draconian on its face, there are plenty of loopholes. In the 
first quarter of 1999 alone, a grandson of J. Paul Getty; a son of the 
shipping magnate Jacob Stolt-Nielsen; and Joseph J. Bogdanovich, the 
son of the Star-Kist mogul, took advantage of those loopholes. The 
article suggests that many other expatriates deliberately have lost 
citizenship without formally renouncing it, believing that was a simple 
way to avoid the 1996 Act.
  The 1996 legislation made several modifications to ineffective prior 
law expatriation provisions. It eliminated the requirement to show a 
tax-avoidance motive in most cases and eliminated one simple method of 
avoiding the rules, involving transfers of U.S. assets to foreign 
corporations. There were many other ways of avoiding those rules such 
as delaying gains, monetizing assets without recognition of gains, and 
investing indirectly through derivatives. Those techniques were left 
untouched.
  The 1996 legislation made no serious attempt to prevent the avoidance 
of the estate and gift taxes, even though expatriation has been 
described as the ultimate technique in avoiding estate and gift taxes. 
Bill Gates, one of the wealthiest individuals in the world, has 
approximately $90 billion in assets. If he were to die or transfer 
those assets to his children by gift, the potential liability would be 
substantial. If Bill Gates were to expatriate, he could immediately 
make unlimited gifts in cash to his children without any gift tax 
liability. If he expatriated ten years before he died, his entire $90 
billion stake in Microsoft could be transferred to his heirs with no 
income tax or estate tax ever being imposed on that accumulation of 
wealth.
  Chairman Archer recently sent a letter to the staff of the Joint 
Committee on Taxation requesting a study and report on the 1996 
expatriation legislation. I welcome that letter as an implicit 
recognition that the Congress should return to the issue of tax 
motivated expatriation. However, I believe the time for study has 
passed. In 1995, the Joint Committee on Taxation issued an 
unprecedented 140-page report on this issue. The Chief of Staff of the 
Joint Committee on Taxation testified at length on this issue in 
several congressional hearings. Further studies now only will be used 
as an excuse for delaying action on this issue. That delay will provide 
a window of opportunity for those considering tax motivated 
expatriation. It is time for the Members of Congress, not their staff, 
to make decisions and take action on this issue.
  Following is a brief summary of my bill.

                            Summary of Bill

       The bill would impose a tax on the unrealized appreciation 
     in the value of an expatriate's assets. The amount of that 
     tax would be determined as if the expatriate has sold his 
     assets for their fair market value on the date that he 
     expatriates. To the extent that those assets are capital 
     assets, the preferential capital gains tax rates would apply.
       The bill exempts the first $600,000 ($1.2 million for a 
     married couple) of appreciation from the tax. It also exempts 
     U.S. real property interests and interests in retirement 
     plans.
       The expatriate would be provided an election to defer the 
     tax with interest until the property is sold.
       The bill would eliminate the ability to avoid estate and 
     gift taxes through expatriation by imposing a tax on the 
     receipt by U.S. citizens of gifts or bequests from 
     expatriates. The new tax would not apply in circumstances 
     where the gift or bequest was otherwise subject to U.S. 
     estate or gift taxes. In addition, the new tax would be 
     reduced by any foreign estate or gift tax paid on the gift or 
     bequest.
       The bill would eliminate the ability to expatriate on an 
     informal basis. It would require a formal renunciation of 
     citizenship before an individual could avoid tax as a U.S. 
     citizen.
       Generally, the bill would apply to individuals formally 
     renouncing their citizenship after the date of action by the 
     Committee on Ways and Means. The provisions designed to 
     prevent avoidance of estate and gift taxes would apply to 
     gifts and bequests received after such date.

     

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