Wealth tax without an exit tax causes wealth flight

To mitigate tax base migration, many nations have implemented national level exit taxes.62 The United States federal level exit tax applies when a United States citizen renounces their citizenship.63 In such a case, the United States would lose the jurisdiction to tax the individual if the individual renounced their citizenship and became a resident of a different nation. Absent the exit tax, a technology company founder with billions worth of stock, for example, could renounce their citizenship and change their residence to the Cayman Islands. If they then sold their stock, the United States would lose the ability to tax the gain, and the individual may pay no tax depending on their new residence nation. To prevent this tax base migration, the United States exit tax considers the citizenship renouncement a realization event.64 Thus, the individual must pay tax to the United States based on their overall accrued wealth up to the point of renouncing their citizenship.65 The current United States exit tax regime became effective in 2008 and replaced a widely criticized continuation tax regime that did not impose an immediate deemed realization but instead tracked the expatriate’s property transactions for ten years after their expatriation.66