The Price of Citizenship

Should astronomically wealthy private equity fund managers be required to pay a 35% income tax on their investment earnings, instead on the current 15% capital gains tax? And if so, should we revoke their citizenship if they flee to offshore tax havens in Switzerland or the Cayman Islands?


The Price of Citizenship

When the super-rich use offshore tax havens to avoid paying what they owe in taxes, the consequence ought to be the loss of their U.S. citizenship.

Robert B. Reich | May 24, 2007 | web only
Robert Reich is the nation's 22nd Secretary of Labor and a professor at the University of California at Berkeley.

After suggesting a couple of weeks ago that the stratospheric earnings of equity-fund managers ought to be considered income rather than capital gains and therefore taxed at 35 percent rather than 15 percent, I was deluged with emails telling me the plan wouldn't work. It would just drive fund managers into offshore tax havens. No less than Jon Corzine, the former chief executive of Goldman Sachs and now governor of New Jersey, admitted recently in a television interview that many fund managers would take their money out of the country before they'd pay the 35 percent rate.
Corzine and my other critics may have a point. Congress's Joint Committee on Taxation recently estimated that America's super-rich already sock away more than $100 billion a year in offshore tax havens. So any attempt to get them to pay what they owe is doomed, right?

Maybe. But I've been thinking a lot about the immigration bill now pending before Congress -- especially the conditions undocumented workers will have to meet if they want to become American citizens. One of them is to pay all the taxes they owe.

The new immigration bill may not make it through Congress, but that provision about paying taxes that are owed in order to be a citizen serves as a reminder that paying taxes is one of the major obligations of citizenship. After all, if we didn't pay the taxes we owe, we wouldn't have public schools, police and fire protection, national defense, homeland security, roads and bridges, Medicare and Social Security, and other things we need.

So when the super-rich use offshore tax havens to avoid paying what they owe in taxes, they're reneging on their duties as citizens. It seems only fair to me that the consequence of that kind of tax avoidance ought to be loss of citizenship. If it's more important to someone to avoid paying what they owe in taxes than to continue being an American, then let them keep their money. They can become a citizen of the Cayman Islands or Bermuda or wherever else they store their wealth, and come here on a visitor's visa -- if they can get one.

This column is adapted from Professor Reich's weekly commentary on American Public Radio's Marketplace.