Stop Those Billionaires At The Border!

ON THE POLITICAL SCENE

April 08, 1995|By Carl M. Cannon | Carl M. Cannon,Washington Bureau of The Sun

WASHINGTON -- Forgive the poor voters if, after the flurry of the Republican Congress' first 100 days, they haven't memorized the fine print in the "Contract with America" -- or mastered every talking point of the Democrats' counterattack.

Is it "ex-patriot billionaires" or "patriotic ex-billionaires" the Republicans are trying to help? And is this good or bad?

The issue concerns one of the most arcane disputes in the U.S. tax code -- whether wealthy Americans should be able to drastically reduce the amount of estate taxes and capital gains they pay by renouncing their U.S. citizenship. It does not affect one American in half a million, but this week it suddenly seemed that everybody in Washington wanted to talk about it.

"I call it the 'poster child of Republican tax policy,' " Vice President Al Gore sneered in a speech Monday attacking the Republican contract. "While Democrats are fighting for $1.3 billion in funding for kids and education, Republicans are fighting to allow 24 billionaires to escape $1.4 billion in taxes by renouncing their citizenship."

President Clinton, speaking in Dallas yesterday, added that the issue made him wish he already had the line-item veto.

Those who watched C-SPAN Wednesday night saw the already raw relations between Republican and Democratic House members in the 104th Congress become even more unruly as they argued bitterly over the billionaires and their taxes.

So what's this fuss really all about?

It began in November with a magazine article in Forbes. The article explained that a handful of very wealthy Americans renounce their homeland each year in favor of other nations with much lower tax rates. The primary taxes in question, besides income taxes, are the capital gains tax, which is paid on the profits of investments, and estate taxes, also known as inheritance taxes.

The article detailed how those taxes are among the highest in the world, and how each year a handful of wealthy people who have dual citizenship or who spend much time abroad quietly -- and permanently -- give up their American citizenship.

Most of them are not actually "billionaires," but they are certainly very rich.

White House officials have said that said President Clinton read the article and became angry -- and not just because he saw fleeing U.S. dollars. Much of the article was directly critical of Mr. Clinton and his policies.

"In 1981, Ronald Reagan lowered taxes," it states. "The following year, not a single American gave up his citizenship. In 1993, the expatriate community grew by 306 names."

The magazine blames Mr. Clinton's various 1993 tax increases on the wealthy and a growing soak-the-rich attitude among bureaucrats and Democrats.

It points out that the inheritance tax on an estate of more than $3 million is 55 percent in the United States.

In Ireland, where Campbell Soup heir John Dorrance III relocated recently, it is 2 percent.

Long-term capital gains taxes are 28 percent in the United States. They are zero in the Bahamas, where Sir John Templeton repatriated to in 1962. That move saved him an estimated $100 million in capital gains taxes when he sold his mutual fund management company 30 years later.

Apparently, the president didn't spend much time weighing the age-old question of what effect high taxes have on the movement of capital, let alone dwell on anything he might be doing wrong. Instead, he set out to change the tax laws so that expatriates would gain as little as possible for renouncing their citizenship.

Under the provision, offered in Mr. Clinton's recent budget and passed by the Senate, "a U.S. citizen who relinquishes citizenship generally would be treated as having sold all his property at fair market value immediately prior to the expatriation."

That is so the expatriate couldn't escape capital gains.

In addition, the Treasury Department would levy an "expatriation tax" of 55 percent on wealthy Americans who give up their citizenship -- just as if they had died. Finally, the Clinton administration -- and the Senate -- proposed making this provision retroactive to Feb. 6, 1995, the day Mr. Clinton proposed it.

If it sounds punitive, that's the idea.

"I urge the Senate to approve this amendment," Sen. Edward M. Kennedy, a Massachusetts Democrat, told his colleagues. "And to send a clear, simple message once and for all to any wealthy tax-dodgers who are scheming to renounce America: 'Good riddance, but you can't take it with you!' "

In the House, the debate was even more raucous.

Rep. Tom DeLay, a Texas Republican, said the expatriate tax brought to mind the notorious "exit tax" that the Soviet Union charged Jews who wanted to emigrate to Israel -- and accused the Democratic minority leader, Rep. Richard A. Gephardt, of hypocrisy.

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