Residency-Based Taxation (RBT) and the 2018 Midterms. What's Next?

Who holds control of the House and Senate?

Recent mid-term elections have shifted the balance of power in the US House of Representatives from Republican to Democratic control. Democrats now control 225 seats to the Republican 197 seats.[1]

The Senate now stands at 51 seats in Republican control and 46 seats in Democratic control.[2]

One seat is still undetermined in the hotly contested race in Florida. However, regardless of whether these seats go Republican or Democrat, the balance of power in the Senate will remain with the Republicans.

More importantly however is the fact that the two tax-writing committees, the Senate Finance Committee and the House Ways and Means Committee, will change radically. Since all revenue (tax) bills must originate in the House, the Ways and Means Committee is especially vital. As to both committees, the ratio of majority party committee members to minority party committee members can change. Of course, the actual Members on the committee will change and the Chairperson will change. Decisions on who sits on a committee are made by the leadership. Safe to say that Chairman Brady (Republican-Texas) will be replaced as Chairman of House Ways and Means Committee by Richard Neal (Democrat-Massachusetts).

Also, the professional staffs of these committees and in the Members’ offices are changing. ACA is monitoring these staffing changes and is ready to react once positions are filled.

Which party supports RBT?

In the lead up to the Tax Cuts and Jobs Act (TCJA), there was strong support of RBT by many Republican legislators, notably Congressman Holding. However, there are Democrats in the legislature that also support tax reform for US citizens overseas. ACA, as a non-partisan organization, has been instrumental in working both sides of the aisle to garner support for RBT and identify co-signers for when legislation is introduced. ACA knows that it is critical that support for RBT is bi-partisan, no matter which party is in control of the two chambers of Congress, therefore ACA’s focus since the beginning has been to educate and build support in both parties for RBT. 

ACA has said from the outset that RBT must be revenue-neutral, tight against abuse and sculpted in such a way that no one is worse off than they are under current rules. These basic tenets have been widely embraced, and they set the parameters, for both Democrats and Republicans in Congress, and among the private groups that support tax reform for US citizens overseas. ACA knows this because ACA has been instrumental in working with these offices and educating them on RBT and compliancy issues facing US citizens overseas.

What has ACA done and what is ACA doing to keep the momentum behind RBT?

ACA was the first organization to publicly present a detailed approach for enacting RBT, giving legislators and the tax-writing committees a platform or roadmap on which to build legislation.  ACA’s approach does not focus on building off corporate tax reform because ACA is laser-focused on providing the offices working on tax reform with a proposal that addresses the needs of individuals living and working overseas.

The toggle switch determining whether an individual is taxable on worldwide income or taxable only on US income – and not on foreign income – is residency. Corporations can be resident in more than one country. Under new corporate legislation, skipping over many details, foreign income, whether earned by US corporation or by its non-US subsidiary, can now go untaxed or lightly taxed. The toggle switch here is geography or, some would call it, territoriality.

Residency-based taxation for individuals is tantamount to territoriality for individuals because the end result is that foreign income is not taxed.

As noted earlier, ACA has presented our detailed approach to RBT to congressional offices on both the Republican side and the Democratic side. More importantly, ACA has maintained  close relationships with the tax-writing committees, Joint Committee on Taxation (JCT), Senate Finance and House Ways & Means, and presented these committees with, not only the RBT approach, but with our data.

ACA and its contractor, District Economics Group (DEG), worked together to produce baseline data and revenue estimates for RBT. This data and revenue estimates provide Congress with extremely valuable information about taxation of US citizens abroad. This work lays out as completely as possible, using all available data, the critically important details. There is no way to effectively consider legislative proposals without having a grasp on the numbers. Congress and the tax-writing committees now have this important data with ACA revenue estimates. This data can be used along with existing government data, drawn from tax returns, to help guide the drafting of legislation.

On a confidential basis, ACA has received information about proposals being developed. It is enjoined from releasing details, and it has scrupulously complied with understandings agreed to by it. This has allowed ACA to make a series of contributions, including detailed comments to draft proposals.

ACA has also partnered with and supported the efforts of other organizations advocating for RBT.  ACA has attended meetings with other stakeholders, shared ideas and thoughts, and engaged in collaborative efforts for RBT. The first of these was an ACA co-sign letter in May of 2017 with AmChams and Americans for Tax Reform (ATR) supporting our efforts. These efforts have helped bring in more support as can be seen with this recent letter by groups supporting RBT.

Will the next Congress be focused on tax reform?

Tax reform is still very much on the table and in discussion. Whether Democrats open the next Congress with re-examining TCJA and making changes and refinements or reversing policy, tax reform will be very much alive. In the next Congress, starting in January, Republicans will want to insure that the reforms passed under TCJA remain in place and Democrats will want to ensure that tax policy that was not taken-up or overlooked be addressed. 

Although there are no crystal ball projections on how this will play out, the ground work that has been done to date on RBT is key to what happens next. ACA’s advocacy efforts are continuing and building. ACA is meeting with Congressional offices, to educate and build support among both Republicans and Democrats. ACA continues to share its knowledge, data and insights with Congressional offices, the tax-writing committees and other stakeholders. 

Right now ACA is pushing to have RBT legislation proposed this year, before the end of this Congress. Having a bill put on the table will be an enormous step forward. It will in large measure outline the work and legislative debate to follow. An RBT bill in all likelihood will never be enacted as a stand-alone bill, but it can be added to other legislation, probably tax legislation, for this to happen its terms must be hammered out and the legislative language set. Then, it is a matter of looking for legislative opportunities and being prepared to “jump” at the right time.

Having a 24/7 presence in Washington, DC, being non-partisan and able to advocate to both parties, having the knowledge-base of data from ACA’s research on the subject, all give ACA a unique ability to advance RBT. Known to be fleet of foot, ACA is ready as well as determined to see RBT enacted.

How can I help ACA?

You can help ACA keep the momentum for RBT by:

• Writing to your representative in support of RBT. Letters to Representatives are best when they are written from your personal point of view. To find your Representative in Congress see: (https://www.house.gov/representatives/find-your-representative and https://www.senate.gov)
• Join ACA! If you are not already a member, then join ACA.  We are only as strong as our members and we need your support. https://www.americansabroad.org/memberships/applications/membership-application/
• DONATE directly to RBT efforts. Your donation can make change. Donate today so that ACA can continue to advocate to Congress. https://americancitizensabroadglobalfoundation.wildapricot.org/donate/

Lastly, and importantly, stay tuned and be ready to react and push RBT forward!

[1] As of this writing, 13 seats are still to be determined.  However, they do not change the balance of power now with the Democrats.

[2] Two seats are held by Independents: Maine and Vermont.