The U.S. system of nationality-based taxation is unconstitutional
Make it stand out
“The only appropriate remedy is an end to nationality-based taxation. The U.S. government should embrace the principle of residence-based taxation, which is the law in virtually every other country in the world.”
— Laura Snyder
By Laura Snyder
The U.S. nationality-based tax system is unconstitutional and violates fundamental human rights.
The system burdens Americans living outside the United States in ways that neither U.S. residents nor non-Americans living outside the United States are burdened. That is the very definition of discrimination.
The U.S. nationality-based system is often defended by citing the 1924 U.S. Supreme Court decision Cook v. Tait. This is considered a seminal case establishing the power of the federal government to tax Americans living outside the United States based on their worldwide income. Nearly all who comment on this topic appear to perceive Cook as the definitive and unquestionable authority on the constitutionality of the current U.S. nationality-based tax system.
However, this reflexive deference to Cook ignores dramatic changes that have occurred during the past century: changes regarding equal protection and citizenship, human rights, and the nature of the U.S. tax system.
Some distinctions are inherently suspect
In the decades since Cook, the U.S. Supreme Court has also ruled that distinctions based on alienage or nationality/country of origin are, like distinctions based on race, inherently suspect and subject to strict scrutiny. This—the highest level of equal protection scrutiny under the Fourteenth Amendment—dictates that such laws are valid only if they are necessary and narrowly tailored to serve a compelling governmental interest. This level of scrutiny is so high that once a court decides it is applicable to the law in question, it is highly likely the law will be found unconstitutional. The burden is on the government to demonstrate a compelling governmental interest.
For example, in City of Cleburne v. Cleburne Living Center, Inc., the Court explained the reason for subjecting to strict scrutiny distinctions based upon nationality, alienage, or race:
These factors [national origin, alienage, or race] are so seldom relevant to the achievement of any legitimate state interest that laws grounded in such considerations are deemed to reflect prejudice and antipathy—a view that those in the burdened class are not as worthy or deserving as others. For these reasons and because such discrimination is unlikely to be soon rectified by legislative means, these laws are subjected to strict scrutiny and will be sustained only if they are suitably tailored to serve a compelling state interest. Cleburne v. Cleburne Living Ctr., Inc., 473 U.S. 432, 440 (1985).
Discrimination by any other name
In sum, for the Cleburne Court, there is hardly ever a legitimate reason for a legislature to draw distinctions among persons based on nationality/country of origin, alienage, or race. When a legislature does draw such distinctions, it is far more likely than not that it does so because of “prejudice and antipathy,” and because of a view that those of one (or more) nationality(ies) are less worthy and less deserving as compared to those of another. The Court makes clear that, under the Fourteenth Amendment, there are no circumstances under which it is acceptable for legislation (or regulation) to reflect such an attitude.
In 2023 the Court again applied this approach. In Students for Fair Admissions, Inc. v. Harvard College, the Court held that race-based admissions policies at two U.S. universities violated the Equal Protection Clause of the Fourteenth Amendment. In explaining that the policies were inherently suspect and subject to strict scrutiny, the majority as well as two concurring opinions make clear that race and nationality are inextricably linked. “[A]ntipathy” toward distinctions based on race or nationality, the Court further explains, is “deeply rooted in our Nation’s constitutional and demographic history.” Students for Fair Admissions, Inc. v. Harvard College, No. 20-1199 (U.S. June 29, 2023), at 18.
The United States treats Americans abroad like second-class citizens
Given the Court’s teaching that laws drawing distinctions based on nationality or race reflect “prejudice and antipathy” on the part of the legislature and “a view that those in the burdened class are not as worthy or deserving as others,” it should not come as a surprise that the U.S. nationality-based tax system burdens Americans living outside the United States in manners that neither U.S. residents nor persons living outside the United States who are not American are burdened. The multitude of ways this occurs is catalogued in [various places, including the Table on page 1290 of this article and the Appendix to this article.]
There are three additional ways that the U.S. nationality-based tax system violates the Fourteenth Amendment:
By creating conditions which cause people to renounce their U.S. citizenship, resulting in the “forcible destruction of citizenship;”
By relegating Americans living outside the United States to second-class citizenship; and
Because the rules were adopted and are maintained by animus towards Americans living outside the United States – the rules are justified by portraying overseas Americans as unpatriotic, necessarily wealthy, and as living overseas for the purpose of avoiding U.S. taxation.
Further, the U.S. nationality-based tax system violates multiple human rights established in multiple human rights instruments that the United States has signed and ratified. These include (i) the right to leave one’s country; (ii) the right to work: free choice of work and freedom from discrimination in work; (iii) equality in dignity and rights; (iv) freedom from the arbitrary deprivation of nationality and the right to return to one’s country; and (v) the right of other countries of self-determination.
For all these reasons, I believe the only appropriate remedy is an end to nationality-based taxation. The U.S. government should embrace the principle of residence-based taxation, which is the law in virtually every other country in the world.
Further information:
The Myths and Truths of Extraterritorial Taxation, 32 Cornell J. L. Pub. Pol’y 185 (2022).
What a Decision on Affirmative Action Teaches About Taxation, 51 Rutgers L. Rec. 102 (2023).
Does the Federal Budget Trump Constitutional Rights?, 52 Hofstra L. Rev. 389 (2024).
A detailed citation for each element of this table is available at Laura Snyder, Extraterritorial Taxation #8: More Violations of Equal Protection, SEAT Working Paper Series No. 2023/8, at 5-7 (June 5, 2023).