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8 | Letter from America
polarising figure. Small-government activists President Obama’s actions have set a horri- decide to leave? Why not simply start that busi-
complain that some of his actions have eroded ble precedent. Contract law and creditor pro- ness elsewhere?
the rule of law and property rights—the very tections are the building blocks of the In the long run, the attitude of the U.S. gov-
foundations of capitalism itself. These criti- capitalist system. It is faith in the rule of law ernment towards expatriate taxation will erode
cisms are worrisome, to say the least, and not that allows the American government and the country’s competitiveness and will drive
completely unfounded. American companies to enjoy low interest vitally needed investment dollars to foreign
rates. But what happens when that confidence shores.
What happened to the rule of is shaken? Might capital become scarcer, caus-
law? ing interest rates to rise? Money moves where Parting thoughts
Americans of all political stripes justifiably it is treated best, and at present it is being In the title, we asked if the American Republic
take pride in their legal system and in the pri- treated with outright hostility in the United was becoming a people’s republic, a commu-
vacy provisions enshrined in the country’s States. But again, the story gets even worse. nist country. The answer, of course, is no.
constitution—particularly the Fourth President Obama’s proposed $3.5 trillion
Amendment prohibition against unjustified American expatriates can budget, if implemented, would mean an enor-
searches and seizures. But much to the dismay leave, but their assets stay mous expansion of federal power. But does it
of civil libertarians, recent changes in the law Most of the readers of this publication are like- really compare to Roosevelt’s New Deal or
have weakened these constitutional protec- ly already aware that the United States is the Johnson’s Great Society programmes?
tions. In the climate of fear following the only country in the world that taxes its non- Absolutely not.
September 11, 2001 terror attacks Congress resident citizens on their income earned The country’s apparent surge to the left has
passed the USA Patriot Act of 2001. In addi- abroad. For example, an American living full to be viewed in context. The current
tion to loosening the standards for controver- time in Europe, earning a salary from a Administration and Congress are to the left of
sial “sneak and peak” warrants and “roving” European company, is required to report and recent Presidents George W. Bush and Bill
wiretaps, the Patriot Act expanded certain pay taxes on that income in the United States. Clinton. But it should be remembered that the
provisions of the Bank Secrecy Act of 1970. Of course, governments have a right to levy political centre of gravity has shifted massively
The Bank Secrecy Act is perhaps one of the taxes in return for the services they provide, to the right over the past three decades. Mr.
most poorly named pieces of legislation in US such as police and military protection, the legal Obama’s lean to the left is part of the natural
history. Rather than protect the banking pri- system, and the regulation of labour and busi- ebb and flow of the political process.
vacy of law-abiding citizens, the Act actually ness. But when an American lives and works Furthermore, the constitutional system of
requires banks to spy on their customers and abroad, it is difficult to understand why he or checks and balances is still working. At varying
report suspicious activity to the IRS. she owes taxes to a country in which they do times over the past 100 days, the President and
(“Suspicious activity” includes any cash trans- not reside. Alas, there is no “lobby” for the Senate have used their influence to moder-
action of $10,000 or more, among other crite- Americans living abroad to influence tax policy, ate the passions of the House of
ria.) and with the government running record Representatives, with the AIG bonus scandal
The Patriot Act and Bank Secrecy Act have deficits expatriates make easy targets. As unfair being perhaps the highest-profile example. At
made life more difficult for would-be terror- as it is, we expect no change in the tax laws to the same time, both houses of Congress have
ists, money launderers, and tax cheats. But benefit American expatriates in the foreseeable acted as a brake on Mr. Obama’s rather ambi-
they have done so at the expense of subjecting future. tious domestic agenda.
law-abiding Americans to a level of surveil- If anything, recent experience suggests the The individual states are also reasserting
lance and scrutiny that would have appalled situation could get worse. In 2008, President themselves at a level not seen in forty years or
past generations, and both are of questionable Bush signed the Heroes Earnings Assistance more. Numerous states—including our native
constitutionality. and Tax Relief Act, a seemingly harmless bill Texas—have publicly “reaffirmed” their com-
President Obama cannot be blamed for acts designed to offer financial assistance to military mitment to the 10th Amendment of the
that preceded him, of course. But during his families. Unfortunately, it is a potential night- Constitution. This is a polite way of reminding
short presidency he has certainly contributed mare for American expatriates. the federal government that the American sys-
his own controversies, not least of which are The law essentially prevents wealthy tem is one of shared, competing sovereignty
the White House plans for the reorganization Americans from leaving the country as “tax between the state capitals and Washington
of Chrysler and General Motors. Running exiles.” More accurately, it prevents them from D.C.
roughshod over the legal rights of creditors, leaving with their wealth. According to These developments give us hope. The
the President has effectively said that the pri- accounting firm Deloitte Touche, any American American constitution was written with the
ority of liens does not matter. citizen or permanent resident wishing to expa- express intention of frustrating excessive politi-
In the case of Chrysler, the creditor banks— triate with a net worth of $2 million or an aver- cal ambition. Though a lot of bad laws still man-
who have first lien—would have only recovered age annual tax liability of $139,000 must pay an age to get passed, the system is largely doing its
29% of their investment under the reorganisa- exit tax of 30% on the “mark to market” value job of forcing the government away from ideo-
tion, while the United Auto Workers union— of all gains in asset values in excess of $600,000. logical extremes and toward the centre.
whose claim is unsecured—would have In addition to going against the American This does not mean, however, that American
recovered 43% of the money owed them. The tradition of economic freedom, this law is expatriates have nothing to worry about.
UAW would have also taken a 55% ownership counterproductive and damaging to the long- Given the extreme populist sentiments against
interest in the company, and the US term interest of the United States. Given the “the rich” and the revulsion towards the finan-
Government would have taken another 8%. country’s chronic budget and current account cial services industry in general, expatriates
Government and labour jointly owning a major deficits, America needs foreign capital. But in have no real advocate. As a small and compar-
American corporation? Come to think of it, an age where capital is highly mobile, why atively wealthy group, they make an easy target
that does sound a bit like a people’s republic. would any would-be entrepreneur want to for a cash-starved government. For the time
Not surprisingly, the creditors rejected the plan build a business in America knowing that they being, expatriates should be very aware that
and opted instead for bankruptcy court. cannot take their profits with them should they they are in the government’s crosshairs.
May 2009 Investment International www.investmentinternational.com
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