The United States ‘Exit Tax’: Legal Framework and Its Implications for Human Rights

Abstract

Amid increasing global mobility of taxpayers and their assets, the issue of taxation upon migration between tax jurisdictions has become particularly relevant. This article is dedicated to an analysis of the “exit tax” regime in the United States, where a tax is levied on citizens as they exit the national tax jurisdiction.
The article provides an overview of the U.S. taxation system, the evolution of legislation regarding the exit tax regime, and its impact on human rights. The U.S. taxes the worldwide income of its citizens and residents – including income, inheritance, and gift taxes – while non-resident foreigners are taxed only on income earned within the U.S. These differences in taxation may prompt some U.S. citizens to renounce their citizenship in order to be taxed as non-resident foreigners. The right to renounce citizenship is internationally recognized, and any restriction on this right must be strictly justified. The findings of this article suggest that the introduction of the exit tax may significantly constrain the right to renounce citizenship, creating practical obstacles for expatriates. Among these are additional administrative barriers and the necessity to liquidate assets to meet tax obligations. The author concludes that these measures cast doubt on the effectiveness of the tax in terms of budgetary gains, as it restricts individual rights and disrupts the balance between state interests and human rights.