On Wednesday May 12 the House of Representatives Subcommittee on Select Revenue Measures (the key tax writing subcommittee of the House Ways and Means Committee) held a hearing on Funding our Nation's Priorities: Reforming the Tax Code's Advantageous Treatment of the Wealthy. Democrats Abroad has submitted this statement for the hearing record and is following up the comments and recommendations in our statement during hearings with Ways and Means Committee members. We encourage tax reform advocates to make a submission of their own.
The Select Revenue Measures subcommittee interest in reforming the tax code's advantageous treatment of the wealthy raises acute concerns for Americans abroad, as we frequently bear unintended adverse consequences of well-intentioned tax policy. In our submission Democrats Abroad outlines our concerns about the potential for tax policy reforms aimed at reducing offshore tax evasion and policy outcomes that advantage wealthy Americans, to exacerbate the tax problems that Americans abroad already struggle with. (It's a chronic problem, but it is still gravely disappointing that there was no attention drawn to the plight of Americans abroad during the hearing.) We have provided in our statement (and the addendum to it) a number of recommendations that we believe will create a fairer system and level the playing field between Americans in the U.S. and outside the U.S.
Our recommendations include these reforms to ensure that the income of ordinary, law-abiding middle-class Americans abroad is not double taxed or punitively taxed:
- Changing to the definition of income that is included in the Foreign Earned Income Exclusion to protect the social welfare payments and retirement benefits of low-income Americans abroad;
- Harmonizing the tax treatment for primary residence homes owned by Americans living abroad with the treatment of primary residence homes owned by citizens living in the U.S.;
- Exempting Americans abroad with income under $400,000 from the GILTI tax;
- Exempting Americans abroad with income under $400,000 from the Passive Foreign Investment Company (PFIC) rules that apply to foreign pension plans, mutual funds and other savings vehicles;
- Eliminating taxation of artificial capital gains (and losses) when no currency has been exchanged, thus allowing the currency of the taxpayer’s country of residence to be the functional currency for tax purposes; and
- Allowing Americans abroad eligible for the Enhanced Child Tax Credit to receive the six months of 2021 Advance payments as well as any future Advance payments, should Congress extend the benefit or renew it indefinitely.
Also these reforms to make tax compliance more accessible to Americans abroad:
- A filing exemption for Americans abroad whose income indicates they owe no U.S. tax, with a simplified earnings declaration certifying eligibility for the exemption;
- A tax credit for the cost of preparing tax filings from abroad over a threshold approximating the average cost incurred by U.S. tax filers for the cost of tax return preparation;
- Provide free e-file systems that include all the IRS electronic forms needed by non-resident filers (for such things as declaring foreign tax credits) and enable them to include electronic attachments needed for information reporting; and
- Improved IRS support to Americans abroad, including:
- staffing in locations abroad;
- online or telephone helplines that can be reached from all countries, are toll-free and are operated by agents with expertise in the issues of non-resident filers;
- access to volunteer tax preparation assistance for low-income and elderly filers abroad;
- IRS portals that guarantee access for Americans with an I.P. address outside the U.S. or without a U.S. address or phone number; and
- IRS payments systems that accommodate the non-U.S. bank accounts of Americans abroad.
- A FATCA Same Country Exception to exclude from all FATCA reporting the accounts of Americans abroad in the country where they live and already pay tax;
- Reforms to the Foreign Bank and Financial Accounts Report (FBAR):
- Index for inflation the $10,000 reporting threshold;
- Create a separate reporting threshold for Americans living abroad perhaps 5 times higher, similar to FATCA reporting;
- Address the duplication of reporting on FBAR and FATCA, as recommended by the IRS National Taxpayer Advocate;
- Address the out-of-proportion penalties for non-willful failure to disclose accounts;
- Restore the option to submit FBAR paper filings; and
- Provide for FBAR reporting in Spanish and other languages.
YOU CAN MAKE A SUBMISSION TOO
Democrats Abroad has the (very often repeated) view that reforms will happen when enough Americans abroad reach out to their members of Congress and demand it. You, too, can submit a Statement for the Record to Congressional hearings like this one. Send it also to your members of Congress. The Statements are reviewed by committee staff who write policy; they AND your members of Congress need to hear your voice.
Make your comments personal, describing the experience of you and your family addressing the oppressive provisions in the tax code that can feel like they are designed to penalize us for living offshore.
DEMOCRATS ABROAD TAXATION TASK FORCE