Part 5 – Good enough to tax, but not good enough to vaccinate against Covid-19

As Justice Oliver Wendel Holmes famously said:

“Taxes are what we pay for civilized society.”

Many countries view taxation as the mechanism to pay for services. For example taxes paid to Governments in Canada contribute to services provided by the Government of Canada.

“Civilized society” is generally understood to be a society where (in return for taxation) the government provides services to taxpayers. Americans abroad often imagine that taxation is price that they pay for services from the US Government. After all, taxation is the price of civilization.

The US tax system is NOT primarily a “benefits based system”. Yes, the taxes paid by US tax residents do contribute toward various services provided by the US Government. But, the US does not view the provision of services as a “quid pro quo” justifying taxation. In fact, it’s fair to say that the US government provides few services to Americans generally and NO services to Americans abroad. (Some Americans abroad don’t even have the right to vote.)

And yes, the US Government has officially confirmed that it will NOT take steps to provide the Covid-19 vaccine to Americans abroad. After all, they are not real Americans, right? Perhaps their not being “Real Americans” is the reason why Americans abroad are subjected to separate and more punitive tax system than Homeland Americans. But, wait in 1924, the Supreme Court of the United States, Cook v. Tait proclaimed that:

that government by its very nature benefits the citizen and his property wherever found,

Oh well, Justice McKenna could not have anticipated Covid-19. But, what’s this Cook v. Tait case about anyway?

The Cook v. Tait rationale for US citizenship-based taxation

Almost a century ago, the Supreme Court of the United States considered citizenship-based taxation in Cook v. Tait. Cook v. Tait is still cited as justification for citizenship-based taxation even though citizenship, taxation and citizenship-based taxation have evolved in the last 100 years.

In 1924 the Supreme Court of the United States, in Cook v. Tait ruled that the US Government does have the right to impose worldwide taxation on US citizens living outside the United States. Although the rationale for Justice McKenna’s ruling has never been clear, it does include suggestions that the US Government benefits US citizens wherever they live. The truth is that Cook v. Tait is often cited, but never explained. The main part of the decision includes:

The contention was rejected that a citizen’s property without the limits of the United States derives no benefit from the United States. The contention, it was said, came from the confusion of thought in ‘mistaking the scope and extent of the sovereign power of the United States as a nation and its relations to its citizens and their relation to it.’ And that power in its scope and extent, it was decided, is based on the presumption that government by its very nature benefits the citizen and his property wherever found, and that opposition to it holds on to citizenship while it ‘belittles and destroys its advantages and blessings by denying the possession by government of an essential power required to make citizenship completely beneficial.’ In other words, the principle was declared that the government, by its very nature, benefits the citizen and his property wherever found, and therefore has the power to make the benefit complete. Or, to express it another way, the basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, it being in or out of the United States, nor was not and cannot be made dependent upon the domicile of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen. The consequence of the relations is that the native citizen who is taxed may have domicile, and the property from which his income is derived may have situs, in a foreign country and the tax be legal—the government having power to impose the tax.

Interestingly, Cook v. Tait was the subject of a series of 44 blog posts which have collectively been designated as the “Cook v. Tait book“. Some of those 44 posts may also be found (with interesting commentary) at the Isaac Brock Society.

The following comment, which references Cook v. Tait and contains interesting analysis and references to justifications for US citizenship-based taxation, appeared on the Isaac Brock Society on February 2, 2021.

A message from the US embassy in Canada;

“The United States Government does not plan to provide COVID-19 vaccinations to private U.S. citizens overseas.  Please follow host country developments and guidelines for COVID-19 vaccination.” https://ca.usembassy.gov/covid-19-information-canada-3/

But wait, if through US citizenship “…..the government, by its very nature, benefits the citizen and his property wherever found….” – then what part of the US government and its extraterritorial tax regime is benefiting US citizens/taxable persons and their property outside of the US during this global pandemic crisis?

The consular official who conducted my relinquishment warned me that by relinquishing I was giving up all claim to US assistance abroad in case of an emergency.

This is a global emergency.

I don’t see much official evidence of US assistance to US taxable persons/citizens ‘abroad’ during this global pandemic emergency, in fact, I see the absence of US assistance to those outside the US, ex. https://eg.usembassy.gov/covid-19-vaccinations-and-consular-issues/

Though I’m no longer a US taxable person/citizen ‘abroad’, I can’t help thinking repeatedly about the obdurate US assertions that people like myself should have been filing and reporting and potentially paying US taxes from ‘abroad’ lo these many years – merely on the basis of a US birthplace – with no US economic connection (US residency limited to a few years as a minor) – yet the US would not have offered any real assistance to me during this massive global pandemic?

The court in Cook vs. Tait said; …”The contention was rejected that a citizen’s property without the limits of the United States derives no benefit from the United States. The contention, it was said, came from the confusion of thought in ‘mistaking the scope and extent of the sovereign power of the United States as a nation and its relations to its citizens and their relation to it.’ And that power in its scope and extent, it was decided, is based on the presumption that government by its very nature benefits the citizen and his property wherever found, and that opposition to it holds on to citizenship while it ‘belittles and destroys its advantages and blessings by denying the possession by government of an essential power required to make citizenship completely beneficial.’ In other words, the principle was declared that the government, by its very nature, benefits the citizen and his property wherever found, and therefore has the power to make the benefit complete. Or, to express it another way, the basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, it being in or out of the United States, nor was not and cannot be made dependent upon the domicile of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen. The consequence of the relations is that the native citizen who is taxed may have domicile, and the property from which his income is derived may have situs, in a foreign country and the tax be legal—the government having power to impose the tax.”….
COOK v. TAIT, Collector of Internal Revenue.
https://www.law.cornell.edu/supremecourt/text/265/47

My local, provincial and federal Canadian government and all the taxes I pay here are assisting me to live and survive during COVID. In contrast, if I was still a US person, the US would be providing me with zero assistance from afar – no access to vaccine, healthcare, unemployment, etc provided to me in my home ‘abroad’ in Canada…..

When the rubber met the road, the ‘benefits’ bestowed by the US government to those ‘abroad’ are nowhere in sight.

The current global pandemic crisis subverts further the weak US rationale asserted for US extraterritorial CBT and FATCA. One would think that would give the Canadian federal government pause in defending the FATCA IGA against the ADCS lawsuit since the deal cost Canada, still gives us nothing the US/Canada Tax Treaty didn’t already provide for, and implies that US extraterritorial CBT is legitimate when applied to those in Canada.

Wouldn’t you think that during this unprecedented crisis that Canada and the rest of the FATCA signatories might wonder if they should be upholding a foreign power’s extraterritorial claims to non-US personal and financial information, in pursuit of locally generated and sited assets?

My personal view is that the United States should be neither taxing Americans abroad nor vaccinating them. But, as long as they are taxing them, they really should be vaccinating them, in order to, as Justice McKenna wrote:

make citizenship completely beneficial

At least one commenter seems to agree …

John Richardson – Follow me on Twitter @Expatriationlaw

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