183 people that would otherwise be caught by the administration bill, so there is that difference in there.

But the significant issue of retroactivity relates to this fact that somebody could have ceased being a U.S. citizen many years ago but not have asked for a Certificate of Loss of Nationality. Under both the administration bill and Senators Moynihan, Bradley, and Graham's bill, that person would be brought into the worldwide income tax system retroactively.

Secretary SAMUELS. Senator Breaux, can I just add to that? We think that that scenario is highly unlikely. But, let us assume for discussion purposes, that it took place. We think that the Internal Revenue Service and the Treasury, could be given authority administratively to deal with those cases.

It has happened in the past where the Supreme Court has rendered decisions on citizenship. We would look forward to working with the committee to have appropriate statutory language, so that there would be authority to deal with those cases. So we think that it is a situation that can readily be dealt with if, in fact, it occurs, which we think is highly unlikely.

The CHAIRMAN. Senator Grassley.

Senator GRASSLEY. I think we should all remember that we are not talking about whether or not we should pass a bill to tax expatriates, because we have voted on this twice in the Senate and I believe everybody here has voted in support of it. What we are talking about is not whether or not we are going to tax them, but how we are going to do it and to do it in the right way.

My first question would be to both of you, because versions of this bill have been introduced by Senate and House Democrats that would exclude from taxation up to $600,000 of income on an expatriate's deemed sale of assets at expatriation date.

Now, my question is to both of you. Why should Congress grant any exemptions to these persons denying their citizenship, and how much revenue might be generated if no exemption were granted? Mr. KIES. Senator Grassley, I think the amount of additional revenue that would be raised from not granting those exemptions would be relatively modest, only because the number of total people that are expatriating each year generally is a relatively small number.

It would pick up some money but it would not be a significant revenue impact because the majority of the revenue in all of these proposals is for the wealthy individuals that are either contemplating or engaging in acts of expatriation.

Senator GRASSLEY. Well, why should we grant the $600,000 exemption?

Mr. KIES. I think that was a proposal that was included in the administration bill, so they would probably be in a better position to answer that.

Senator GRASSLEY. Mr. Secretary?

Secretary SAMUELS. Senator Grassley, I would like to confirm, in our view, that eliminating the $600,000 exemption would really have no material effect on the revenue estimate. There are not that many taxpayers involved and it is a relatively small amount. Mr. KIES. So we are in agreement on that one.

Senator GRASSLEY. So then we would not do it to raise revenue.

Secretary SAMUELS. It is basically for administrative convenience. It is like a small business exemption. We do not think that we should deal with taxpayers with very small amounts of assets. One, those taxpayers generally would not have a tax avoidance purpose because the amounts involved are not significant. Two, and I think more importantly, we do not think that it would be administratively efficient to have to deal with that group.

The amount last year, I think, was roughly 800 or 900 people who expatriated. They are not the ones that I think are causing the problem. I do not think there is any disagreement on that.

Senator GRASSLEY. I guess the only comment I would make before I go on to my next question would be the extent to which most Americans would not consider $600,000 to be an insignificant amount or a small amount.

Secretary SAMUELS. Senator Grassley, I would agree with that. We actually picked that number because it is the estate tax exemption.

Senator BRADLEY. How big a farm would that be?

Senator GRASSLEY. No, wait. We are talking about people who renounce their citizenship, not people who are living in the United States.

Senator BRADLEY. Yes. But it is a little, small farm.

Senator GRASSLEY. If you are trying to make a case against farmers getting an increase in their exemption. [Laughter.]

Secretary SAMUELS. Senator Grassley, we had to pick a diminimus amount. We picked that number because it was the estate tax exemption.

Senator GRASSLEY. All right. Then I guess, Mr. Kies, you would be the one that should give a point of view for the Congress on this. Treasury has given us their estimates on the proposals.

Joint Tax provides the numbers that we have to go by, and your estimates differ from those of Treasury. We have been over the problems with how many people this affects, but we have not really pointed out the difference in revenue estimates. Are there differences?

Mr. KIES. Senator Grassley, there are some rather significant differences. We estimate that the administration proposal would raise $600 million over the 5-year period, that H.R. 1812, the House bill, would raise $800 million, that H.R. 831, which was the provision previously considered by the Senate Finance Committee, would raise $500 million, and that Senator Moynihan, Bradley, and Graham's bill would raise $200 million. So, there are some differences. In my testimony, and I think Mr. Samuels also commented in his testimony, there are differences in assumptions about the extent of the current problem of current law, and also about the way in which people will react to these various proposals.

Our analysis is that H.R. 1812 will be a more significant deterrent than some of the other proposals, but I think both we and the Treasury Department would acknowledge that we are estimating in an area that is extremely difficult.

Senator GRASSLEY. At least, based upon your estimates, you have concluded then that the House bill raises more revenue than any of the other bills.

Mr. KIES. That is correct, Senator Grassley.

Senator GRASSLEY. All right. You mentioned, Mr. Kies, that the administration's proposal actually gives an incentive to expatriates for some individuals. Could you describe how the incentive would work and, therefore, how the proposal would fail? You mentioned those with low-gain assets would be better off expatriating sooner than later.

Mr. KIES. Well, Senator Grassley, I think the original example that Senator Bradley was positing of somebody who inherits significant wealth or who is on the verge of inheriting significant wealth, those people, if they expatriated, under the administration proposal, would have no tax liability, whereas, under H.R. 1812 they would be taxed on their U.S.-source income for 10 years.

So if you are inheriting, for example, a significant ownership interest in a U.S. corporation that you want to continue owning, under H.R. 1812 you would be subject to tax on the stream of dividend income that would come from that and, indeed, if you later on sold those assets, all of the appreciation would be subject to tax. That is just one example of how there is a difference. The two bills do differ in a variety of respects.

Secretary SAMUELS. Senator Grassley, can I just add to that?
Senator GRASSLEY. Yes.

Secretary SAMUELS. As I mentioned in my oral testimony, and it is more fully described in my written testimony, we understand that reasonable people can differ about the level of revenue estimates. We have explained why we think there are differences.

Where I think we have some difficulty is in the ranking of the estimates. We rank the estimates quite differently than the Joint Committee. We do not see how either the administration's proposal or Senator Moynihan and Senator Bradley's proposal would raise less revenue than H.R. 1812.

H.R. 1812 has the same problems of current law. They allow people to expatriate free of tax by just waiting 10 years. It does not tax expatriates on their foreign-source income. And that there are a variety of ways still available to plan around the law. On this question of someone who just inherits a vast amount of wealth and whether they would be more inclined to expatriate under one or the other bill, we think that the incentive to expatriate under all three is about the same.

Attached to my testimony is a letter from three professors at Harvard Law School who wrote to give us their views on this issue. They concluded that they did not think that there was any incentive, under any of these bills, which would cause that particular hypothetical person to expatriate. By the way, we have not been able to identify any person who meets this profile in the people who have expatriated. In fact, the Harvard professors think that under certain circumstances you can have an incentive under H.R. 1812 to expatriate. If you were planning to sell your business when you are 65, under H.R. 1812 you might expatriate at age 55 so you would avoid U.S. tax. You had waited the 10 years.

So we think that the ranking is where we should not have differences with the Joint Committee. We can understand why we would come to different estimates, but it is the ranking where we have concerns. We have tried to address our reasons for our ranking in our testimony.

The CHAIRMAN. Senator D'Amato, then Senator Moseley-Braun. Senator D'AMATO. Thank you, Mr. Chairman.

I just would touch on the point that you made, Mr. Samuels. It seems to me rather difficult to think that somebody who is an expatriate who does this, gives up their citizenship to save money, is not going to take advantage and hold out for 10 years. If you are talking about wealthy, wealthy people, I mean, they are not dumb. It would just seem to me that H.R. 1812 overrates the revenue incredibly.

As it relates to the $600,000, there are a lot of people in this country who still have a strong attachment, they love this country, but they are older, they have worked here, they want to go back to, whether it is Greece, or Italy, et cetera, some are resident aliens. They are not wealthy people, by any means. They sell their home, their business-you give them up to $600,000—and they can go on back.

We are not trying to stop migration, we are not trying to stop people from meeting that which is in their heart to live with their families, their brothers and sisters, maybe. But I think all of us seek the goal of seeing that people do not try to beat the system. Wealthy people who have made billions of dollars or hundreds of billions of dollars and who now have come up with the schemes that Senator Moynihan has alluded to in this little book about, come on over here and pay $35,000 in the trust, and you can run out on it.

I might also add, it seems to me that, under the present law, Section 877, is something called intent, and we probably not have been as vigorous in going after those who are using these ruses in terms of finding against them, because it is quite clear that, where their intent is to evade the payment of taxes, they have not, for all purposes, escaped the liability. So there is always the question of, can we do a better job.

I would have to say that it seems to me that the provisions advanced by my friend and colleague, Senator Moynihan, and Senator Bradley, I think, at least strikes a balance. I do not want to open the door because, let me tell you, if these guys want to they will not sell those assets over $10 billion, and they do have the estates that they place in trust.

So I think, if you look at those revenue estimates, it will be a lot different if you look at the Moynihan-Gibbons-Bradley bill as opposed to H.R. 1812. But I do think we should do something. If we feel that the intent in the present law opens this loophole, and obviously there are some who share that concern, then let us close the loophole for most of them.

Let us not, though, in so doing, deny people the ability to go back to their ancestral homes and die in peace and take something because, after all, they have been paying taxes all along.

This is not a question that they are escaping taxes; they are not. You keep a reasonable limit. You do not want to impoverish people. It seems to me that that is correct and that is proper.

I thank the Chair.

The CHAIRMAN. Senator Moseley-Braun, then Senator Graham. Senator MOSELEY-BRAUN. Thank you very much, Mr. Chairman.

It is funny how things sometimes get circular in this life. There is an expression that God made the world round so we could not see what was down the road. I was really tickled to find, as part of the case law in this area having to do with expatriations, one of the first cases that I tried as an Assistant U.S. Attorney, what became later Vance vs. Terrazas, which was an expatriation case. I was a junior lawyer. We had a Mexican national who renounced his U.S. citizenship in order to avoid going to the war. It was one of the first trials that I had to try from scratch and go through every step of the process involved with expatriation, and it was not a simple process.

You could not just go and say, I do not want to be a U.S. citizen anymore, you had to fill out forms, you had to go to the embassy. I mean, it was a complicated process and, frankly, the embassies went to great lengths to see to it that people did not mistakenly renounce their U.S. citizenship.

And in the case of Vance vs. Terrazas, which is referenced in some of the underlying documentation here, the Supreme Court went to great lengths to go through what was involved and I do not have my glasses-but the holding was, in sum, "we hold that in proving expatriation, an expatriating act and an intent to relinquish citizenship must be proved by a preponderance of the evidence. We also hold that when one of the statutory expatriating acts is proved, it is constitutional to presume it would have been a voluntary act until and unless otherwise proved by the actor.

If he succeeds, that is to say, if you prove that you have made a mistake, there can be no expatriation. If he fails, the question remains whether on all the evidence the government has satisfied its burden of proof that the expatriating act was performed with the necessary intent to relinquish citizenship."

I raise that, not just to talk about a case that I tried when I first was a baby lawyer in the U.S. Attorney's Office in Chicago, but to talk about what I think is one of the underlying issues in this entire debate, and that is one of fairness, fairness to the people who are left at home.

In the Terrazas case that I tried, I remember being more than a little outraged that the individual who had renounced his citizenship was doing so at the expense of all those other young men who were having to go off to Viet Nam.

And, in this situation, I think the fairness issue is one of all those citizens who renounce their citizenship to go off at the expense of the folks who are left here at home paying taxes.

So, in that regard, it really does become a really fundamental issue of fairness and one in which, quite frankly, again, the voluntariness issue is not an issue because the court-and the President makes it very clear-you really have to go out of your way to do this. This is not something that just happens by accident, you have to knowingly do so, it has to be proved by a preponderance of the evidence. So it is a set of steps.

I also would like to reference to Senator D'Amato, particularly, Anthony D'Amato, at the Northwestern University School of Law, which I also claim from Chicago, talked about the fact that, indeed, a case can be made that the average American taxpayers' rights are infringed under current law if wealthy Americans can expatri