How Trump can follow through on his campaign promise to stop double-taxing American expats
In the final weeks of his campaign, President-elect Donald Trump appealed to an often-overlooked constituency, Americans overseas, with a pledge to end the “double-taxation” of their income.
But unlike many Trump campaign talking points, this isn’t a partisan issue. In fact, it’s one with broad cross-aisle support. A coalition of organizations ranging from Democrats Abroad, an arm of the Democratic Party, to the fiscally conservative National Taxpayers Union all support eliminating undue tax burdens on Americans overseas.
From a policy perspective, eliminating the current requirement that American expats pay taxes on their foreign income to the United States as well as their country of residence makes perfect sense. Only two other countries require citizenship-based taxation: Eritrea and North Korea. As a simple matter of fairness, no U.S. citizen should be taxed twice.
But it’s not just about the IRS bill. Expats also face significantly more paperwork, requiring them to hire professional help that may be hard to afford. Contrary to the stereotype perpetuated by the media, most Americans abroad aren’t living in fancy villas. A majority of Americans abroad have a gross household income of less than $100,000.
The tax treatment of income earned overseas also hurts our economy and the economies of our trading partners. While studying and working abroad, Americans acquire skills in all kinds of fields, including finance, natural resources, the sciences, and engineering. When they come home, they bring their new knowledge with them to benefit U.S. enterprises.
Many Americans abroad work for U.S. companies—and thus help bolster U.S. businesses expanding into new markets. And many work in jobs that promote trade.
Double taxation discourages all these activities. It even encourages some to stay abroad permanently. In fact, nearly one-third of Americans living abroad are either planning to renounce their citizenship or are seriously considering it, according to a recent survey. Of these expats, three in four cited the burden of managing and filing U.S. taxes as a primary motivator. This is sad because people should not feel they have to change their lives and the lives of their families based on taxes.
Host countries also benefit from expat U.S. citizens—and are hurt by policies that discourage Americans from living overseas. For one thing, the countries of residence gain talent. American professionals bring diverse skills, knowledge, and perspectives. They fill workforce gaps, contribute to public finances through taxes paid, and provide access to their networks in U.S. markets.
Getting rid of double taxation for U.S. citizens abroad isn’t a new idea. In 2018, Rep. George Holding (R-NC) introduced the Tax Fairness for Americans Abroad Act. And in the past few years, Democrats introduced several bills that would transition the United States to a system in which Americans have the option to pay taxes based only on their place of residency, rather than on citizenship.
Residency-based taxation (RBT) would not change the way an individual’s U.S. income is taxed, only foreign income. Such a switch wouldn’t require massive redrafting of the Internal Revenue Code—and it needn’t be mandatory for American expats who would rather stick with the current system. According to research we conducted in 2022, residency-based taxation could be adopted without any loss of revenue to the U.S. Treasury.
Naturally, members of Congress do not want to vote for something that appeals to billionaires looking for loopholes to avoid paying taxes. So the next Congress could prevent abuses by excluding certain “tax haven” countries from residency-based taxation policies and making a handful of other nip-and-tuck changes.
This is an issue of enormous importance to a sizable number of American voters. It’s critical that President Trump follows through on this campaign promise.
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