Democrats Abroad was on Capitol Hill again on May 14-16 for meetings with Congress about legislation to enact a switch from our current system of Citizenship Based Taxation to Residency Based Taxation (RBT).[1]  Across the three days we held 18 meetings, 12 of which[2] were with members of the all-important Congressional tax-writing subcommittees[3] and so featured detailed discussion of the design elements of an RBT bill.  Of course, we always discuss the circumstances faced by Americans abroad being subjected to taxation in two (or more) jurisdictions and the personal and financial cost of maintaining U.S tax compliance.  The research data and case studies we present are critical to our efforts to underscore the urgent need for reform.

Twelve of the meetings were with House members; six were in the Senate.  Ten meetings were with Democrats; eight meetings were with Republicans.

Further to our previous reports, we continue to engage closely with Rep. George Holding’s team who lead the work to develop legislation to enact RBT in the 115^th Congress.  They continue to demonstrate commitment to introducing a bill that can generate bi-partisan support in both houses.  Our work this year has focused on building support for the RBT proposal amongst other Ways and Means Committee members who can partner with Holding through the arduous legislation-writing process. 

It is our view (and the view of others) that Rep. Don Beyer (D-VA 8^th district), is an ideal partner in fighting for RBT given his service on the Ways and Means Committee and his years of experience living abroad.  We understand discussions have occurred between Holding and Beyer and we continue to encourage Rep. Beyer as well.  When we met with the Congressman in March his support for RBT was in evidence.  When we met on Thursday with the Rep. Beyer’s Legislative Director (3^rd time in 12 months) he voiced reasonable concerns.  The benefits of the 2017 Tax Cuts and Jobs Act (TCJA) were highly skewed towards large corporations and the wealthy; many Ways and Means Democrats have this same concern about RBT -  in addition to the concern that RBT will be exploited by wealthy Americans to use real or faux offshore residency in order to move assessable income out of the reach of the IRS.  We describe the anti-avoidance provisions in the RBT proposal to address the latter and use our research on the Americans abroad community to address the former.  Unlike the TCJA, the key beneficiaries of RBT will be predominantly middle-class Americans living abroad, as they vastly outnumber overseas earners making more than the Foreign Earned Income Exclusion.  

Perhaps the most persuasive arguments in support of RBT, however, come from the stories and case studies of affected Americans abroad.  This week (May 20, 21) the global leaders of Democrats Abroad are in Washington DC and, following on from our annual general meeting held in DC May 17-19, they will be on Capitol Hill talking to Congress about issues impacting Americans abroad.  By a wonderful coincidence, there are four DemsAbroad leaders participating in the 2019 DemsAbroad Congressional Door Knock who vote in Virginia’s 8^th District, the seat held by Rep. Don Beyer.  We have arranged a meeting for them with Rep. Beyer and expect them to present compellingly about the personal and financial burden Citizenship Based Taxation places on them, including how it makes creating financial security in retirement so incredibly difficult.  We are hopeful that this week we will move another step closer to having bi-partisan support for RBT legislation in the House. 

What happens next?

While the proposal introducing RBT could take a number of different paths to becoming a bill, we understand that hearings may be required to document the tax problems of Americans abroad and discuss a legislative remedy.  We expect that the bi-partisan Ways and Means Committee RBT leaders would create a consensus view on the RBT design elements, incorporating advice from Legislative Counsel serving the Ways and Means Committee.  The resulting RBT proposal would go to the Joint Committee on Taxation to be scored (i.e. to quantify the impact the legislation would have on the federal budget).  In an ideal world the bill would be “revenue neutral” (as then it could be more easily welcomed as an amendment to another piece of tax legislation that has more momentum in getting to the floor for a vote).  The Ways and Means Committee Legislative Counsel would put the proposal into the language of a draft RBT bill; the draft bill could then be shared with members of the House and Senate in order to attract co-sponsors.  

Democrats Abroad and the other organizations representing Americans abroad have been meeting with elected representatives about expat tax reform for years.  We have a ready list of members who we believe will support an RBT bill enacting legislation that predominantly benefits ordinary, middle-class Americans abroad and includes robust anti-avoidance mechanisms to protect the law from abuse.

So, the work is far from over. 

In our meeting with the Committee’s Legislative Counsel we were advised a bill could be introduced as early as the beginning of 2020.  Of course, election year politics bring their own surprises, distractions and legislative priorities, which makes it difficult to know what timeline is realistic.

Democrats Abroad’s tax advocacy work will continue to focus on generating bi-partisan Ways and Means Committee support for an RBT bill and on Congressional outreach to both parties and both houses to continue to build the profile of this important reform.  In our meetings with Congress we also discuss the need for: an exemption from all FATCA reporting for the accounts of Americans abroad in their countries of residence; relief for Americans abroad from the “transition taxes” in the 2017 TCJA; reforms to the administration of FBAR, including changes to the enormously out-of-proportion penalties for non-willful non-compliance; establishment of a Commission on Americans Abroad; repeal of the Windfall Elimination Provision; and a more reasonable renunciation mechanism for “Accidental Americans”.

Shortly Democrats Abroad will also be reaching out to those who have declared their candidacy to be the Democratic Party nominee for president of the United States to seek their positions on issues such as taxation, voting and immigration as they uniquely impact Americans abroad.

We will continue to report out on our initiatives, and developments in our work and the work of the other amazing organizations representing Americans abroad.  We are grateful for their camaraderie and their commitment to improving the lives of all in the Americans abroad community.

Please send comments or questions to [email protected]

Democrats Abroad Taxation Task Force

[1] Under a system of Residency Based Taxation Americans living and working abroad would will be required to continue to declare their U.S.-sourced income to the IRS but would not be required to declare and pay tax on the income generated in another country.

[2] The balance of the meetings were with “friends of DA” i.e. members of Congress who support our work on behalf of the Americans abroad community and who we engage with regularly in order to keep them up to speed on our work.

[3] The Select Revenue Measures Subcommittee of the House Ways and Means Committee and the Tax Policy Subcommittee of the Senate Finance Committee.