Money is a coward; it goes where it feels safest. Like water, it flows through paths of least resistance. While we don't condone Facebook co-founder Eduardo Saverin's recent decision to renounce his U.S. citizenship and live in Singapore, it cannot be ignored that the move, according to a Bloomberg analysis, will save him at least $67 million in taxes after Facebook's initial public offering Friday.
The reaction by some in Congress, most notably Sen. Charles Schumer, D-N.Y., is to propose a new 30 percent capital gains tax on the future investment gains of Saverin and people just like him, unless they can prove to the IRS they renounced their citizenship for reasons other than taxes.
Yeah, that'll teach 'em.
By Schumer's own figures, 1,780 people renounced their citizenship in 2011. In 2008, that number was only 235. The difference, we suspect, is that four years ago politicians in power hadn't yet begun pushing for increased taxes on the rich in order to solve the nation's debt problem.
What these people are trying to tell Washington is that the federal tax code needs to be overhauled. Saverin owns an estimated 4 percent of Facebook and, Bloomberg says, is worth about $2.89 billion. That does not make him the biggest player on the international market, but the United States certainly needs his money in investments and their attendant job creation.
Instead, Schumer's bill also would bar such former citizens from re-entry into the United States.
The proposal is ridiculous. The last thing the nation needs is to empower the IRS to determine what a person is thinking when he or she decides to renounce citizenship. For his part, Saverin has said he did not leave for tax reasons. What the nation truly needs is a tax code more friendly to business, investment and wealth creation, and less punitive of capital gains.
Sen. Charles Grassley, R-Iowa, understands this. He called Saverin's decision a "very strong signal for tax reform."
"Because if we had tax reform, this wouldn't be happening."23 comments on this story
There are, of course, many more important reasons for valuing U.S. citizenship beyond tax advantages. The Constitution provides guarantees for religious and expressive freedoms not found in every country, and it protects many other enumerated human rights while recognizing that the government's power originates with the people. Saverin, who came to the United States from Brazil and became a naturalized citizen in 1998, may not fully appreciate how this country allowed him to amass a fortune by helping Mark Zuckerberg pursue his dream while living in a Harvard University dormitory.
That is a shame, and his decision is his loss.
This nation, however, has much more to gain from encouraging and attracting investment than by punishing those who recoil at its confusing tax structure.