[Congressional Record (Bound Edition), Volume 148 (2002), Part 12]
[Senate]
[Page 16206]
[From the U.S. Government Publishing Office, www.gpo.gov]




            EXPATRIATING AMERICA TO AVOID U.S. INCOME TAXES

  Mr. GRASSLEY. Mr. President, my friend and colleague from Texas, in a 
debate on Senator Wellstone's government contracting amendment, 
criticized a proposal the Finance Committee was scheduled to markup 
today. The Senior Senator from Texas characterized the proposal as an 
effort at ``passing laws that sound like they're right out of Nazi 
Germany.'' Senator Gramm went on to criticize: ``(t)he idea that 
somebody can't leave America and take their property with them, that 
they've got to pay a tax in order to get their property out of 
America.''
  Mr. President, as the ranking Republican member of the Finance 
Committee and a participant in crafting this provision, I felt 
compelled to respond. First of all, I'm proud to serve on the Finance 
Committee. When someone characterizes a bipartisan Finance Committee 
proposal as something ``right out of Nazi Germany,'' I'm going to be 
disturbed.
  Tax-motivated expatriation activities are something that troubles me. 
All you have to do is look at the infamous case of Marc Rich. You will 
recall Mr. Rich's case came to light in the rush of pardon applications 
during the waning hours of the Clinton Administration. Mr. Rich 
reportedly left the U.S. to avoid U.S. taxation and sought a pardon 
with respect to criminal indictments on, among other things, criminal 
tax charges.
  Mr. President, there is a major principle at stake here. A key 
premise in our tax system is that those individuals and corporations 
that derive financial benefits from economic activity that is, as the 
tax law says, ``effectively connected'' with the United States, should 
be taxable on that income no matter where their domicile is. Any 
alternative to this concept would result in U.S. persons bearing a 
larger burden of Federal taxation than a foreign person earning a 
livelihood here. America and her major trading partners recognize this 
principle. It is reflected in the tax laws of our trading partners and 
the international tax treaty network.
  Let's take a look at current law. For individuals that expatriate, an 
income tax is imposed on appreciation in the assets of the expatriate, 
on a 10 year going forward basis, if the expatriate is leaving the U.S. 
with the ``principal purpose'' of avoiding U.S. income tax. For 
purposes of this current law rule, expatriates are deemed to have 
expatriated with a principal purpose of avoidance of U.S. income tax in 
two cases. In the first case, the deemed rule applies if the expatriate 
had, on average, $100,000 of net income, for the five years at the time 
of expatriating. In the second case, the deemed rule applies if net 
worth of the expatriate exceeds $500,000. In the case of corporations, 
the appreciation in assets transferred offshore is taxable at the time 
of transfer.
  So, Mr. President, it is clear that, under our current tax policy, 
individuals and corporations that attempt to either leave or transfer 
assets are taxable when they leave the U.S. Frankly, the Finance 
Committee views the so-called ``inversion'' transactions as a loophole 
that undercuts current law principles. It is on that basis, closing an 
insidious loophole, that the Finance Committee recently reported 
legislation to curtail inversion transactions.
  Similarly, in 1995 and 1996, the Finance Committee, and full Senate, 
sought to plug the loophole on the individual expatriation level. A 
proposal virtually identical to the one criticized by Senator Gramm 
today, was passed, on several occasions during those two years. That 
proposal did not become law because the Senate, with much reluctance, 
receded to the House in conference. The House proposal aimed to tighten 
the 10 year rule.
  The Chairman and Ranking Member have revived the Finance Committee 
expatriation proposal because of concerns about the effectiveness of 
current law. In fact, the Joint Committee on Taxation's estimate of 
this proposal appears to confirm that the long-standing tax policy with 
respect to individual expatriation will be better served by the Finance 
Committee approach.
  Under the Finance Committee proposal, individuals that expatriate 
would, as the Senator from Texas said, be taxable on gain in 
appreciation in U.S. assets when they leave America. This proposal 
would replace the current law regime described above. The Finance 
Committee proposal, is hardly ``right out of Nazi Germany.'' It 
strengthens long-standing tax policy. The Senate has spoken favorably 
on it on many occasions.
  So, Mr. President, let's keep our eye on the ball. Current law, not a 
putative Nazi regime, preserves the fairness of U.S. tax system. The 
Finance Committee proposal makes sure the fairness of the U.S. tax 
system is strengthened by closing loopholes.

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