Senators Hatch and Schumer have both demonstrated an absurd need to politicize the renunciation of U.S. citizenship by Eduardo Saverin, a co-founder of Facebook. In case you missed it, Saverin renounced his U.S. citizenship to take up citizenship in Singapore. He did so sometime last year. Both Hatch and Schumer seem to have the need to go after Saverin’s motives and have essentially accused him of renouncing his citizenship for tax purposes. Schumer and other Democrats want to pass a new law – an absurd over-reaction to a single situation that doesn’t seem to be tax motivated and for which current law already provided a perfectly adequate outcome. Hatch decided this was a perfect time to suggest that this one instance somehow proves the need for major tax overhaul and accused Schumer of being the one to politicize Saverin’s actions. As though we needed another reason to know that the U.S. tax code needs an overhaul.
But the facts behind Saverin’s actions give little credence to either Schumer or Hatch. Under current law, when someone renounces their citizenship, they owe an “exit tax” calculated on built-in gains on their property at the time of their renunciation. Thus, in Saverin’s case, that was a tax of hundreds of millions of dollars calculated and due upon his renunciation last year. While it is true that his interest in Facebook was worth less than it was on the day of Facebook’s IPO, he did not escape taxation and, in fact, accelerated a huge tax – some $xxx million dollars – that would not have been due until he sold his Facebook stock had he remained a U.S. citizen. While it is true that if you compare the tax he paid and what would have been due had he sold at the IPO price, he would have owed an additional $67 million, since no one can predict what will happen to the future value of his Facebook stock, there is no assurance that he would have owed more or less when he finally elected to sell had he remained a U.S. citizen.
Further, Saverin’s renunciation seems perfectly plausible as he has lived in Singapore since 2009 and current International law makes it difficult to a participant in the International banking system as a U.S. citizen living outside the U.S. That said, even if this move was strictly tax motivated, the tax code provides for this massive exit tax that Saverin was assessed and paid. There is nothing about the current tax code or Saverin’s phenomenal accumulation of wealth from his $30,000 investment in Facebook that suggests a problem with the code itself. In fact, it seems to have worked about perfectly. One way or another, Saverin faced and paid a capital gains tax so it’s hard to figure out Hatch’s beef unless it is pure political theater or unless he now believes that the capital gains tax should be zero.
Schumer’s position, however, is even more absurd. Let’s posit that Saverin renounced his citizenship for tax reasons alone. As it is, he was assessed this massive, and accelerated, capital gains exit tax. Further, he has made a very significant choice to renounce his citizenship to the United States. By doing so, he is subject to the same visitation and work requirements of all other non-U.S. citizens or resident aliens. By doing so, he has clearly and knowingly given up the freedoms and protections that come with U.S. citizenship. If Saverin ends up in a Singapore jail, the State Department will not be there to help him. He made a deliberate choice that has benefits and consequences and that is exactly how this should work.
So rather than grandstanding about new laws or overhauls of the tax code – no matter that both may be warranted from time to time – perhaps Senators Schumer and Hatch should have both remained silent (a Fifth Amendment right that Mr. Saverin has now given up) or praised the fact that, for a change, the system worked exactly as it should have.