Formula for Economic Chaos

In TheStreet.com, Terry Savage has reported some ominous developments on the legislative front in "You'll Pay if You Give Up U.S. Citizenship." She wrote how if the Heroes (HEART) Act of 2008 (http://finance.senate.gov/sitepages/leg/052208.pdf) is signed into law, anyone who renounces American citizenship will have to pay capital gains taxes on assets that appreciate in value, even if they have not been sold. This will be enough to make foreign investors nervous, since once that precedent is established, it is sure to be expanded to other classes of investments. This could make the United States more vulnerable to recessions - one reason why so many foreign investors have poured their money into our country is because of the favorable tax climate here in comparison to other countries. They may be resented, especially if they're from east Asia or the Middle East, but at least they help to keep our economy afloat.

Here are the first four paragraphs of the article:

A lot of people probably can't understand why someone would voluntarily give up American citizenship -- but if someone wanted to do that, they'd now incur financial penalties for it.

Congress just passed a new law that will stop your capital -- or at least a good portion of it -- at the border, should you decide not to be a U.S. citizen anymore. Is it, perhaps, in preparation for the possibility that Americans might rebel at the debt and taxes incurred by their government by leaving for lower-tax locales?

You probably didn't notice this little provision inserted into the Heroes Act of 2008, passed by Congress on June 17. The headlines in the press release about the law were about the increased benefits for veterans and families of deceased military.

But Richard Kohan of Price WaterhouseCoopers drew my attention to one section of the act, which states that anyone voluntarily giving up his or her citizenship will be taxed on all of his assets as if he or she had sold them -- paying capital gains on assets that have increased in value, even though they have not been sold.