ACA's Executive Director publishes op-ed in Boston Herald
Posted by Aca Admin on January 27, 2025
Boston Herald, January 27, 2025
Serrato: Stop double-taxing Americans living abroad
Some of the new president’s campaign promises will be controversial and difficult to fulfill. There’s one that Donald Trump and Congress could enact within a year: end double taxation for American citizens abroad.
About 5.2 million Americans live abroad — more than the populations of Chicago and Houston combined. Under the U.S. system, they owe income tax not only to their country of residence but to the United States, too. For example, a Floridian earning a salary in Frankfurt has to pay German taxes and file a return with the IRS. This is known as citizenship-based taxation, and it’s unfair. It also hurts our country’s economy.
During Trump’s first term, he signed the Tax Cuts and Jobs Act of 2017. It lowered taxes and offered expanded deductions for many Americans but left citizenship-based taxation in place. With large sections of the bill expiring in 2025, Congress must debate which measures to extend or change.
Almost every country recognizes this system as unfair and opts for residency-based taxation, in which people pay taxes based on where they live, not their nationality. In fact, the only countries that use citizenship-based taxation are the dictatorships of Eritrea and North Korea — hardly models of good government.
Some expats qualify for deductions from their IRS bill. Still, in those cases, the paperwork and legal complexity of filing a parallel return often impose significant costs. Expats typically lack access to IRS services like Volunteer Income Tax Assistance, making accountants and lawyers essential.
The effect of our current system goes far beyond the individual level — it hurts the U.S. economy and competitiveness. Americans abroad return money to the United States in myriad ways, from supporting family back home to investing in U.S. companies. Many launch businesses or work for companies that trade with the United States. By making it harder for Americans to start or expand businesses in other countries, we’re limiting our tools to counter influence from adversaries.
Double taxation also makes it more difficult for Americans to get hired by multinational corporations. The inflated tax burden means employing Americans overseas is almost 40 percent more expensive compared to workers from countries with residency-based taxation.
This makes it unnecessarily difficult for entrepreneurs, academics, artists and other skilled professionals from America to work abroad, even if that might be best for them — and our economy.
We should encourage American citizens to be industry leaders. Citizenship-based taxation does just the opposite.
Defenders of citizenship-based taxation worry that getting rid of it could create tax loopholes that lower revenue. A study by American Citizens Abroad found that with a few oversight measures, such as excluding residents of tax havens or creating minimum requirements to prove residency abroad, the United States could transition without reducing government revenue or running up the deficit.
The cause of ending double taxation for U.S. expats is a rare instance of bipartisan agreement. The expiration of the 2017 tax cuts might prompt legislative squabbles in other areas, but whatever the new president finds himself up against, this is one popular campaign promise he could realize soon. He’d be doing the right thing for Americans abroad and at home.
And some of the groundwork has already been laid. Last month, Rep. Darin LaHood, R-Ill., introduced a proposal to eliminate the citizenship-based taxation requirement. Now is the perfect opportunity to re-introduce and refine that proposal.
Both sides of the aisle recognize the fiscal burden American citizens face abroad. There’s reason to be optimistic — it seems to be a matter of time until reason (and residency-based taxation) prevails.
American politics still has room for common sense and commonality, and ending the double taxation of our citizens will be an excellent demonstration of that.