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How The Ultra-Millionaire Tax Bill Will Hasten Capital Flight!
The proposed Ultra-Millionaire Tax Bill has the unintended but fully expected result of accelerating capital flight from the United States. Senator Elizabeth Warren has thrown down the gauntlet after weeks of threatening rhetoric. The bill to tax the Ultra-Millionaire has been released. Here are some of the highlights of Ultra-Millionaire Tax Act of 2021:
1) A 2% yearly tax on all worldwide assets between $50 million and $1 billion, and
2) a 3% tax on assets beyond $1 billion.
A Wealth Tax is being soft pedaled in some circles. It has been suggested that it be a “one-time” or “one-off” event rather than a recurrent event. This is most likely to smooth over Senator Warren’s proposal’s philosophical rough edges.
Unfortunately for proponents of all kinds of wealth taxes, the people who would be affected by these plans do not believe them. This is because they are aware of the history of several one-time or temporary taxes that have become permanent. They have seen time and time again that when the underlying crisis could not be resolved immediately… or when new issues arose… there was an unavoidable necessity for the ongoing revenues that these “temporary” taxes consistently generated.
What Are The Consequences of The Ultra-Millionaire Tax Bill?
If any of the following statements apply to you and you expatriated on or after June 17, 2008, the new IRC 877A expatriation requirements apply to you.
– Your average annual net income tax for the five years before the date of expatriation or termination of residency exceeds a certain level adjusted for inflation ($151,000 in 2012, $155,000 in 2013, $157,000 in 2014, and $160,000 in 2015).
– On the date of your expatriation or termination of residency, your net worth is $2 million or more.
– You do not attest on Form 8854 that you have met all of your federal tax obligations in the United States for the five years before your expatriation or termination of residency.
You are a “covered expatriate” if any of these regulations apply to you.
On the earliest of four possible dates, a citizen will be viewed as surrendering his or her U.S. citizenship:
1) the date on which an individual renounces his or her U.S. nationality before a United States diplomatic or consular officer, provided that the renunciation is later validated by the issuing of a certificate of loss of nationality by the United States Department of State.
2) the date the individual submits a signed statement of voluntary relinquishment of U.S. nationality to the United States Department of State confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)-(4), provided the voluntary relinquishment is later approved by the issuance to a foreign national of a foreign national of
3) the date on which the US Department of State issues a certificate of loss of nationality to the individual; or
4) the date on which a naturalized citizen’s certificate of citizenship is revoked by a US court.
Long-term residents, as defined by IRC 7701(b)(6), lose their status as lawful permanent residents if they:
1) the individual’s status of having been lawfully granted the privilege of residing permanently in the United States as an immigrant in accordance with immigration laws has been revoked or has been administratively or judicially determined to have been abandoned, or
2) the individual:
– begins to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and that foreign country, or
– does not waive the treaty advantages that apply to residents of the foreign country, and
– reports such treatment to the IRS on Forms 8833 and 8854.
Under IRC 877A, all property of a covered expatriate is deemed sold for its fair market value on the day before the expatriation date. Regardless of any other rules of the Code, any gain deriving from the deemed sale is taken into account for the tax year of the deemed sale. Except for the wash sale regulations of IRC 1091, any loss from the deemed sale is taken into account for the tax year of the deemed sale to the extent otherwise provided in the Code.
The amount that would otherwise be includible in gross income due to the considered sale rule is reduced by $600,000 (but not to zero), with the amount updated for inflation for calendar years after 2008 (the “exclusion amount”). The exclusion amount for calendar year 2014 is $680,000. Refer to the Instructions for Form 8854 for other years.
Without respect to the exclusion amount, the amount of any gain or loss realised later (i.e., as a result of the property’s disposition) will be adjusted for gain and loss taken into account under the IRC 877A mark-to-market regime. A taxpayer can choose to defer payment of tax on property that has been deemed sold.
Refer to Notice 2009-85 for further information about the IRC 877A mark-to-market regime.
Individuals can now meet the new notice and information reporting obligations by using Form 8854, Initial and Annual Expatriation Information Statement, and associated Instructions. Individuals should certify (in accordance with the new law) that they have met their federal tax obligations for the five previous taxable years, and what constitutes notification to the Department of State or the Department of Homeland Security, according to the revised Form 8854 and its instructions.
If you expatriated before June 17, 2008, the rules in place at the time still apply to you. For more information, see Chapter 4 of Publication 519, U.S. Tax Guide for Aliens.
Will Affluent Americans Truly Leave?
Senator Warren, ever the optimist, recently asserted that a Wealth Tax would not or could not cause rich Americans to quit the US tax system. She appeared on CNBC’s “Squawk Box” on January 28, 2021, and had the following conversation with journalist Sara Eisen:
EISEN: Now, as we’ve seen with various wealth taxes, [a wealth tax] might drive wealthy people out of our nation….
WARREN: Sorry for the inconvenience. There is no evidence that the two-cent wealth tax will lead anyone to leave the nation…. According to the facts, the wealthiest people in the country pay less in taxes than the rest of us. You’re telling me that if they don’t step up and pay a bit more, they’ll lose their American citizenship, or that they had to do it, and I’m just calling her bluff on that. Sorry, but it isn’t going to happen.
This statement echoes the sentiments of the academics who devised Warren and Sanders’ wealth tax ideas. Gabriel Zucman and Emmanuel Saez said in a Washington Post opinion post in October 2019 that: “The situation in the United States is different.” You can’t avoid paying taxes by moving because all U.S. citizens are subject to the Internal Revenue Service regardless of where they live. The only way to avoid the IRS is to renounce citizenship, which, under Warren and Sanders’ policies, would result in a huge exit tax of 40% on net wealth.
Senator Warren and these experts contend that affluent Americans can’t or won’t quit the US tax system in theory. Regrettably, the reality is that they can and do leave…. en masse!
The US government released its latest quarterly “Publication of Individuals Who Have Chosen to Expatriate” less than a week after Senator Warren’s CNBC interview. There were just over 670 names on the most recent list. This continues to be a record-breaking pace. However, this is simply the tip of the iceberg when it comes to reality. To really comprehend the magnitude of the departures, one must first comprehend what this list actually symbolizes.
1) The List does not contain a list of every US citizen who has renounced US citizenship during the time period; 2) The List DOES contain a list of US citizens who have renounced US citizenship and long-term US resident aliens who have relinquished their Green Cards during the time period AND who have either a minimum net worth of US$2 million or a five-year average of US tax paid greater than US$171 thousand; 3) Once the $200,000 threshold is reached, the $200,000
As a reply to Senator Warren, I would refer to the RECORD NUMBERS of rich Americans who are renouncing their citizenship in the United States. I’d like to point out that the most recent listed departures occurred in mid- to late-2019. The passage of time is crucial. It was precisely at this time that Warren and Sanders were gaining media attention for their proposed Wealth Tax.
The Impact of Covid-19 On Citizenship Renunciation
The epidemic has been spreading since late 2019. This has heightened the pressure on HNW Americans to overcome their biggest roadblock: life inertia. COVID has compelled long-term residents of New York and Silicon Valley to abandon their carefully manicured lifestyles. They realized that once they were out of their cocoons, they could live and thrive in places other than their usual haunts. This allowed people to pause and reflect on the tax future that their municipal and state authorities have planned for them. As a result, many people have already opted to relocate to the lower-tax states of Florida and Texas. “A body in motion tends to stay in motion,” according to the Newtonian principle. Using this logic, it’s reasonable to assume that these Golden Geese are preparing to legally and fully detach ALL of their future US tax liability.
More Information: An Additional Clause
If a wealthy American expatriate AFTER the bill becomes law, the bill offers penalties. They will pay the current mark-to-market capital gains tax PLUS a staggering 40% tax on their remaining wealth in this case. As a result of such a suggestion, wealthy Americans will be even more eager to obtain the “Fire Insurance” of a Backup Plan. This strategy will allow them to escape BEFORE the harsh confiscatory penalty is imposed.
The unveiling of the Ultra-Millionaire Tax bill has brought reality to wealthy American families. They are now aware that they live in “Tax the Rich” wildfire zones. Their answer is to use traditional “Fire Prevention” methods. Domestic tax planning, such as gifting and estate freezing, are examples. They’re also opting for a customized “Fire Insurance” coverage in the form of a different tax domicile and citizenship. A “Fire Escape Plan” is then added to the mix. This gives the family the legal right to leave the United States if they believe additional tax duties are unjust, excessive, or conflict with pre-existing philanthropic commitments.
Prevention, Insurance, and Plan are the three steps that should be repeated.