Update on Advocacy for ACA's Residency-Based Taxation (RBT) Approach
On December 5, 2016, ACA, released to the public a straightforward, “vanilla” approach replacing citizenship-based taxation with residency-based taxation. A Written Description and a Side-by-Side Comparison (updated November 1, 2017) were posted on the ACA website, together with Frequently Asked Questions. This work is not a proposal "per se" but summarizes the existing Internal Revenue Code provisions and the changes that might be made under a so-called “vanilla” approach. Questions and comments were solicited. At the same time, ACA began “crowd-funding” the costs of best-quality revenue estimates to support enactment of RBT and worked on building a coalition to back RBT.
In May of 2017, ACA began the revenue estimation with District Economic Group (DEG) to "score" RBT. Revenue estimates are key to the advancement of RBT as they provide the baseline, constructed with detailed data, that lays out an approach that can be supported by all the concerned parties and accepted, indeed embraced, by Members of Congress and the tax-writing committees. Key to adoption of RBT is making it revenue neutral so Treasury does not lose tax dollars and tight against abuse. These two issues will be key concerns for the Congress in considering the passage of any tax reform.
On November 6, 2017, the revenue estimation or "scoring" work was completed and the DEG study estimates that a revenue neutral budget score for RBT can be arrived at within the 10-year congressional budget window of 2018 through 2027. Click here to see DEG's letter.
On December 22, 2017, President Trump signed into law H.R. 1, the Republicans' tax reform plan. In both the House and Senate versions that were debated and discussed, residency or territorial tax treatment for individuals was not included, although it was included for Corporations in the final bill that was signed into law.
Under H.R. 1, Americans abroad will continue to be taxed on a citizenship basis the same as taxpayers residing in one of the States or the District of Columbia, just about everything in the legislation is relevant, including changes in individuals’ tax rates, deductions, credits, estate, gift and generation-skipping transfers taxes, changes in corporations’ tax rates, small business rules, and literally a hundred other provisions. For a full analysis of H.R. 1 and how it affects Americans overseas (along with next steps) see: https://www.americansabroad.org/tax-reform-bill-hr1-and-americans-abroad-what-happened-whats-next/.
Now that H.R. 1 has passed, there are strong indications that Congress will soon return to the subject of tax law changes to make corrections in what was done and to address issues that were postponed. ACA's advocacy work is even more important. ACA is back in the offices of key champions in the House and Senate and will be presenting our revenue estimates to the Joint Committee on Taxation and other interested parties on Capitol Hill and at Treasury Department. More importantly, ACA has called for Congress to hold hearings on the subject of tax reform for Americans overseas. It is time for Congress to review every aspect of tax reform for Americans overseas, the background, the workings of existing law, the numbers, the real-life stories, all need to be aired, and now’s the time to do it. In this manner, Congress will have all the elements it needs to write and pass legislation. https://www.americansabroad.org/news/aca-calls-on-congress-to-hold-hearings-on-taxation-of-americans-abroad/
The ACA RBT approach is an important tool for Legislators and the Administration because it gives them a straightforward means of moving from existing provisions to RBT. The essential elements of the RBT approach meet the needs of the community of Americans abroad, while at the same time avoiding a loss of revenue and the creation of loopholes. Novel concepts and provisions intended to act as revenue raisers—aimed at persons that are not in the population of Americans residing abroad—are avoided so as to not “muddy the water."
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