By Bill Frezza
One of the most fascinating characteristics of
government borrowing - whether at the local, state, or federal level - is that
debts contracted over time are obligations tied to specific geographical
boundaries but not to the citizens living there when those debts were incurred.
For example, while it's customary to say that each of the 210,000 residents of
Stockton, California, are on the hook for their share of the bankrupt
municipality's estimated $700 million in unpaid bills, the day one of them
picks up and moves, personal responsibility for that debt drops to zero.
Imagine if that type of tax "evasion" were
eliminated. How would it change America?
Government debts are accrued on your behalf by elected
officials for whom you had a chance to vote, all supposedly representing your
interests. In a democracy, all citizens are obliged to pay the government's
bills as determined by the duly empowered taxing authorities - regardless of
whether they voted for a particular officeholder or not. What's to stop legislators
from passing laws that make debt obligations due and payable by any citizen who
decides to leave for another jurisdiction? After all, they don't hesitate to
take your money when you die.
Mayors and governors of most tax-and-spend, heavily
unionized, low-growth cities and states are both desperate for revenue and
tired of watching disgruntled citizens vote with their feet. Think how
politically attractive it would be for them to make "economic
deserters" pay their "fair share" of old debts. I can see the
arguments already: "You can't move away from credit card debt or
commercial debt, so why should government debt be so easy to dodge?"
Politicians could easily win kudos from both public employee unions and the
overtaxed residents left behind, for the mere cost of enraging emigrants who
won't be around to exact retribution at the next election.
And can't you just see the progressive commentariat
lining up behind a movement designed to deter well-heeled blue state residents
from seeking refuge in those despicable red hinterlands? Like Glenn Close
rising from the bathtub to take one more stab in Fatal Attraction, don't be
surprised when death-spiral states resort to exit taxes as a last ditch effort to
forestall their impending bankruptcies.
Exit taxes imposed on emigrants have a long history,
including their use in both Nazi Germany and the Soviet Union. They were
imposed under the theory that, since citizens were educated by the government
and were either provided benefits or allowed to profit from jobs and business
held while living under the government's protection, they were obligated to pay
back some of that money on their way out.
Sounds like something only a Hitler or Stalin would
love? If only. Try surrendering your U.S. citizenship and moving to another
country. Thanks to a series of expatriation tax laws passed by Congress dating
back to the 1960s, with the most recent revision sponsored by Rep. Charles
Rangel (D-N.Y.) (no stranger to tax evasion himself), emigrants leaving the
U.S. must pay capital gains tax, including on unrealized gains, across all
their holdings marked to market as of the day of departure. In addition, expats
are liable for gift taxes on amounts above $12,000 a year given to anyone in
the U.S., for the rest of their lives, even though they are no longer citizens
themselves.
To date, the Supreme Court has had no problem with any
of these laws. So what is to stop, say, California from imposing exit taxes on
the steady stream of citizens heading off for Texas, Arizona, and Nevada? More
than 200,000 people flee the Golden State every year, taking their money with
them while leaving behind their share of the state's $617 billion in state debt,
which comes to about $16,000 per resident. That's $3.2 billion a year in tax
evasion!
If presenting every deserter with a $16,000 bill
proves too unpopular, why not follow Uncle Sam's lead and make a grab for
unrealized capital gains taxes? California taxes capital gains at the same rate
as ordinary income - voters there recently passed a referendum to increase the
top rate to 13 percent - so a tax like that would bite the richest nice and
hard. That'll make those Silicon Valley millionaires think twice before
escaping to a low-tax state before cashing in their shares! And who has any
sympathy for them? After all, they didn't build that.
Perhaps class warfare politicians in the U.S. are
waiting for their French role model to show them the way. French President
Francois Hollande, proud of jacking the top income tax rate up to 75 percent,
seems nonplussed about the fact that his wealthy subjects are decamping for
London and Belgium. Gérard Depardieu, France's richest movie star, recently
made the news not for a repeat of his classic performance of peeing in an
airplane aisle but for becoming a resident of Estaimpuis, Belgium, less than a
mile from the French border. Isn't it time to make an example out of such
economic villains?
Of course, if that fails, states could consider
building walls and posting armed guards at their borders. That's been tried before too.
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