Posted by Rojas @ 8:33 pm on May 15th 2012

Eduardo Saverin is no longer an American

Ayn Rand’s novel “Atlas Shrugged” posits a society in which capitalists collectively agree to withdraw the products of their mind from society until such time as society changes its rules to encourage such productivity. In the early days of the Tea Party there were a number of misapplied references to “going Galt” as a possible response to federal tax policy. Of course, in an increasingly globalized world, there ARE opportunities to actually do this, or at least to comparison shop for citizenship, and now we have at least one example of a person doing so.

Eduardo Saverin, a Brazilian-born American immigrant, co-founded Facebook as a Harvard student. With the facebook IPO pending, he has elected to renounce his citizenship in order to avoid paying the 15% capital gains tax on what will almost certainly be a billion-dollar profit.

Speculation elsewhere has circled around the question of what he owes or is owed and by whom. These questions do not much interest me. What I find myself wondering is whether this isn’t likely to be the first wave of a series of similar decisions. At what margin of profit do citizens start decamping for the national or transnational entity that offers them the best opportunity to keep their money? Will any nation-state effectively decide to offer citizenship without qualification to anyone willing to pay it taxes? At what point will corporations be capable of offering a range of services similar to those of citizenship, and will they then choose to make the offer? Must citizenship be a geographic concept?

A lot of the questions implicit in the concept of the “social contract” will soon become less academic, and the contracts themselves may at some point become tangible items.

12 Comments »

  1. I hear and understand the argument that America benefitted from Saverin’s work, in that he created a great product and probably lots of good jobs. I’m not sure that it’s quite fair (although it’s probably legal) for him to decamp just before paying taxes on his substantial profit.

    I wonder if an argument could be made that–since he did all the work on his product in the US, under US law and protections–he should owe the share anyway? If I did 95% of the work on some sort of invention while working at UCLA, then quit just before patenting it and selling the patent for a billion dollars, I assure you that UCLA would mount an effective argument that they were entitled to a share of that.

    Comment by Talarohk — 5/15/2012 @ 11:09 pm

  2. The difference is that UCLA has a court to take the claim to which has the power to seize your assets.

    As I said, the arguments over what Saverin “owes” America are not particularly the interesting part of the discussion, for me. Any claims that might be made along those lines are unenforceable in practical terms. This is the future and we’re going to have to find ways to live and compete in it.

    Comment by Rojas — 5/15/2012 @ 11:29 pm

  3. The thought of corporations being able to offer effective “citizenship” is a staple of cyberpunk fiction. It certainly seems plausible; a wealthy company (say, Apple) has enough resources and real estate to perform most of the functions of a government. The big ones already have loyalty to stockholders more than government; effectively seceding and going it alone doesn’t seem like that big a step.

    I’m certainly no lawyer, but there may be one interesting point here. I know that when we bought our house, the ownership was listed as “fee simple”, which I had to look up. It seems to mean that we have the legal authority to do as we like with the land–except that the government is the actual and ultimate owner, and thus in theory has the right to demand certain things (easements, and (I presume) eminent domain, etc). I wonder if corporations own their land under similar terms, and whether that might affect their ability to act as sovereign nations, should they want to do so.

    Comment by Talarohk — 5/15/2012 @ 11:46 pm

  4. My first thought is “no this will not be a trend” because this is Eduardo Saverin hardly a representative sample of even the obscenely wealthy. He already held Brazillian citizanship, lived the first 11 years of his life there, and has preferred to live outside the US for much of his post university life. I know thee has long been a segment of wealthy people that live outside of their homeland for tax purposes, but renounching citizenship strikes me as a step only a handful, in very special circumstances, will take.

    Comment by Jack — 5/16/2012 @ 9:52 am

  5. Don’t worry, America. You got Michelle Bachmann! So really pretty even steven I’d say.

    Comment by Brad — 5/16/2012 @ 11:48 am

  6. I sort of disagree Jack. Really, this is ALREADY a trend, on two important levels. The first is that the super-wealthy already take significant effort to minimize their tax burden intra-nationally as well as, if not their citizenship, at least significantly moving their assets around inter-nationally. Right now renouncing citizenship isn’t quite a thing, but that’s because the super-wealthy already move around within the United States—there has been a lot written, for instance, about the exodus of wealthy Americans from say New York State, and the many many hoops they already jump through to confuse their residencies in a way most agreeable to their taxes (for a great example, read this piece). In addition, when you try to dig in the finances of the 1%, you’ll see that they’re very very careful of what technically lives where—hell a lot of people make internationally investments (say, buying a factory abroad) almost solely for the ability to create semi-liquid assets outside the reach of Uncle Sam.

    The other level is the tap-dancing that corporations do, again both intra-nationally and internationally, as to where what is headquartered. One would think Delaware had a population of over the population of the United States if you just based it on the corporations and employees who are technically based there, and a huge portion of what cities and states are doing now are treating corporations like sports franchises, and essentially writing them special tax codes and huge amounts of publicly underwritten special benefits just to get them to locate there. And they are constantly gaming the system abroad as well. A company might build something in America to take advantage of tax breaks for job creation and American manufacturing, disassemble that same thing, ship it overseas, have it reassembled there (again, to take advantage of government regulations intended to provide “growth” and employment etc.), and then ship it directly to overseas customers from that overseas location to avoid paying taxes in America on products sold abroad. This happens all the time.

    What is interesting is that, as we get more down and dirty in terms of “make the 1% pay their fair share” (or, abroad “don’t build austerity on the backs of the poor!”), corporate vilification, etc., there is increasing pressure on politicians and governments to view the very rich and the corporate entities as about the only politically safe constituency to saddle with increasing portions of the public debt burden. The last ten years has already seen a lot of that—cracking down on Swiss back accounts, tightening rules about corporation entities being able to send money made abroad back to the American mothership, and constant talk of “closing corporate/wealthy loopholes” as, again, a seemingly win-win proposition for raising revenue in America. The question is, do the 1% or corporations have outs (both obvious ones and, just as likely, ones we can’t think of yet but you can be sure as shooting they will when the tax codes is rewritten), and will they use them?

    They do, and they will. Whether it’s something as overt as renouncing citizenship or, more likely, finding ways, as Uncle Sam gets hungrier and hungrier, to sneak their plates off the dinner table, I think it’s a pretty safe bet, at the end of the day, the people are more beholden to their livelihoods than any notion of civic virtue or national identification.

    Comment by Brad — 5/16/2012 @ 12:03 pm

  7. I agree with nearly everything you wrote there, and still don’t see how it contradicts my hunch that very wealthy Americans will begin renouncing their citizenship. Individuals, and to a greater extant corporations, will continue to go through gymnastics to lesson their tax burdens, something they have been ever more succesful at doing.

    I still find a bit much the sort of ganshing of the teeth and Galtian rhetoric over how we are being so (potentially) bad to the super wealthy and corporations with our huge tax burden, when at this time they have the lowest marginal rate in modern history, and as a result of their influence over the tax code and permit structure, the effective tax rate is ridiculously low. So yeah we might someday be lucky enough to increase the marginal rate by 3% and close a few loopholes thus bumping up the effective tax rate and revenue a couple of points, but I see no reason why this would result in an exodus of citizenship. Renouncing has consequences and inconveniences, and I suspect the overwhelming majority of uber-rich Americans enjoy the benefits and priveleges provided by their homeland for which the have a natural affinity and comfort level derived from familiarity.

    Comment by Jack — 5/17/2012 @ 9:37 am

  8. Should have been a “not” before the “begin” in my first sentence.

    Comment by Jack — 5/17/2012 @ 9:38 am

  9. And I don’t necessarily agree with you, but a couple of points to mention:

    when at this time they have the lowest marginal rate in modern history, and as a result of their influence over the tax code and permit structure, the effective tax rate is ridiculously low.

    But it is important to remember that that’s not some coincidence, but has been a direct result of political will (or lack of it) that a lot of liberals chafe at in the first place, namely a disinclination to make the tax code as progressive as it could be. Or, to put it another way, Republicans protecting the tax interests of the super-wealthy. Not necessarily making an argument here, but when people arguing for a more progressive tax code use that as a premise, it’s at least worth articulating in full. Yes, the 1% DO enjoy tremendous advantages in America that they wouldn’t elsewhere. But that is not some kind of natural state, necessarily. We live in a country that by and large the 1% are happy with in large part because we have resisted the urge to tax based on outraged senses of fairness or a desire to see corporate or wealthy constituents as an easy revenue udder.

    That said, my other point is I think we can put aside what WE think is fair, which isn’t really germane here, and instead focus on what the super-wealthy think is fair. And I think you’re right, that the pain in the ass of renouncing citizenship will, in most cases, be a higher bar than most people are willing to clear—but then again people said that about Delaware’s tax incentives for incorporation there as well (“how could you move General Mills all the way to Wilmington?”).

    But at the same time, I do think there is a kind of roving overclass of entrepreneurial-minded, Davos-going, hedge-fund/investment oriented people for whom considerations of residency or nationalism are relatively fluid anyway. The real question is at what point do the consequences and inconveniences of renouncing citizenship get trumped by the consequences and inconveniences of NOT. The point is though, there IS a point of critical mass on that question—we just don’t really know where it is.

    I tend to agree with you that it’s not particularly close at present, and I also agree with you that even if it were, that doesn’t mean that renouncing citizenship becomes the vehicle of release—I have a hunch the 1% will be more creative than that. But I can also see a scenario, similar to Switzerland’s conscious decision to make it a destination for banking for the super rich or shady or Delaware’s conscious decision to get major corporations to incorporate there, wherein tax attorneys and a few nothing-to-lose nation-states like Jamaica or something deliberately become a competitive citizenship destination for the super-rich, and I don’t know that I’d be able to say that wouldn’t work to some extent, and even losing a few Saverin’s entirely will make an impact. And at what point will the benefit of an 10% vs. 5% income tax burden increase on these folks hit the point of diminishing returns of the difference between a pool of 5000 people worth 60 trillion vs. a pool of 4000 people worth 40, or however the split works. There IS such a point—a bellcurve as it were, where the outliers like Saverin start getting standard deviations closer to the mean—we just don’t know where it is.

    Comment by Brad — 5/17/2012 @ 1:26 pm

  10. Well if nothing else, you can take intellectual comfort from the fact the Senators Schumer and Casey totally think this is a problem and are gonna resolve it.

    Comment by Jack — 5/17/2012 @ 5:41 pm

  11. Ugh. The Ex-Patriot Act? Jesus Christ.

    Comment by Brad — 5/18/2012 @ 12:21 pm

  12. Good luck finding an embassy that will let him do it, assuming he has another nationality. You can’t just nothing. I think it’s a federal crime to do it for this purpose as well, so announcing his intentions was foolish (although perhaps saved him from criminal charges).

    Comment by Jerrod — 6/15/2012 @ 3:33 am

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