ACA submits statement urging Senate to include residency-based taxation (RBT) in Senate bill



Washington, D.C.
November 27, 2017


ACA’s advocacy on Residency-based taxation (RBT) continues with a communication sent to the Senate prior to the Thanksgiving recess. (  “ACA informed the Senate that it is now their duty to include RBT in the Senate tax reform bill.  There is still time for floor debate and the issue is very much alive,” said Marylouise Serrato, Executive Director.

ACA’s statement to the Senate cited the fact that both the House and the Senate tax bills contain versions of territorial taxation for U.S. corporations whereby foreign income is not taxed. These take the form of a participation exemption, but this benefit runs only to U.S. corporations. Individuals, and Americans abroad in particular, are not benefited at all.  They remain taxable on their worldwide income including foreign income. Americans overseas are especially disadvantaged because living overseas, their income is overwhelmingly foreign source.

“If Congress is bringing the U.S. into the global norm with territorial taxation for corporations, it should not leave Americans overseas outside of that equation,” said Charles Bruce, ACA Legal Counsel and Chairman of ACA Global Foundation.  “ACA proposes a straightforward, potentially revenue neutral approach to correct this situation. Residency-based taxation rules, which would not tax the foreign income of Americans truly resident in a foreign country, can be adopted. U.S. income would remain taxable. This arrives at the same benefit given to U.S. corporations under the territorial approach, residency-based taxation for individuals being the equivalent of territorial taxation for corporations,” added Bruce.

The details of a revenue-neutral RBT approach are set forth in a side-by-side comparison with current law. 

This approach was revised several times in response to comments from individuals on Capitol Hill and at Treasury and members of the public. 

An analysis of the basic RBT approach was conducted, and it was determined to be revenue neutral within the 10-year Congressional budget window of 2018-2027.

ACA’s communication reinforced that drafting of RBT is greatly helped by the fact that most of the legislative language already exists in the Code and need only be modified to apply to U.S. citizens qualifying for RBT. RBT is the only realistic way to change the tax rules to help Americans abroad. Other suggested fixes, such as doing away with the cap on the foreign earned income exclusion, lose a significant amount of revenue and tilt heavily in favor of high earners in low tax countries. Trying to modify the participation exemption in H.R. 1 so as to provide benefits to individuals, not only would muddy the water for these corporate provisions, which no one wants, but it would also be a revenue loser and extraordinarily complicated. 

“We are confident that the Senate has heard us and that offices up on the Hill are seriously considering RBT for tax reform.  JCT as the official revenue estimators of Congress will play a key role in this, and they are aware of ACA’s work on the subject,” said Charles Bruce.


Contact:  Marylouise Serrato 202 322 8441