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Democrats Abroad wants to know what issues matter to you as a Democrat living abroad. Your input can help shape DA’s 2020 Platform. Run a Kitchen Table Talk - information here - and make your voice heard! Topics on Taxation included below (scroll for the full list).  Add your own through the Kitchen Table Talk New Topic form. 

Residency Based Taxation 

Do you support amending the Internal Revenue Code to abolish taxation based on citizenship and instead adopt Residency-Based Taxation, a system in which Americans living outside the U.S. would continue to declare income generated in the U.S. but would be exempted from reporting to the Internal Revenue Service (IRS) income earned in their country of residence?

BACKGROUND

  • The United States taxes its citizens and residents on their worldwide income based on a principle of citizenship-based taxation, unlike all other industrialized countries that tax income based on a principle of territoriality;
  • The overwhelming majority of Americans living abroad are small business owners, English teachers, or retirees;
  • Due to unintended adverse Internal Revenue Code treatment, US pensioners, single mothers, disabled, and others eking an existence through non-qualified non-U.S. pension plans, social welfare payments from foreign governments, and other foreign government provided support are double taxed, first by the country providing this assistance and then by the United States - which taxes income supplied by a foreign entity. .  
  • The United States policy of citizens-based taxation requires citizens living abroad to report income using extremely complex forms that force the majority of American abroad filers to engage expensive tax professionals with both local and U.S. tax filing knowledge and experience;
  • An October 2017 survey by Democrats Abroad suggests that citizens living outside the country incur tax preparation costs of $500 on average, greatly exceeding the average $200 incurred by U.S.-based citizens. Further, the filings of citizens living outside the country often indicate that no tax is owed. When filings of citizens living outside the country do indicate that tax is owed, they are taxed twice on the same dollar of income – first by their country of residence and next by the U.S.;
  • Double-taxation and onerous tax preparation and compliance costs puts American job seekers abroad at a significant disadvantage to non-American workers;
  • Tax equalization increases costs associated with hiring overseas American workers causing multinational corporations, including those headquartered in America, to hire fewer Americans abroad, thus decreasing American exports;
  • Whereas, the cost of enforcing CBT far exceeds the revenues it generates;
  • Whereas, all other industrialized countries use residence-based taxation (RBT) to tax the income of their citizens and residents, thereby avoiding both double taxation and the need to engage foreign powers in tax enforcement of citizens living abroad;
  • Whereas, the findings of an October 2017 survey by Democrats Abroad of U.S. citizens of all political preferences residing abroad indicate that 84% of survey participants support a switch from Citizenship Based Taxation to Residency Based Taxation;[1]
  • Whereas, RBT’s perceived threats to the First and Seventeenth Amendment rights of citizens living abroad to vote in federal elections are overwhelmed by the fact that citizenship based taxation pre-dates voting rights for citizens abroad and the endorsement by Congress which passed UOCAVA[2] to simplify and protect federal voting regulations for citizens living abroad;
  • Whereas, a system of Residency Based Taxation would not impact the taxation of the U.S.-sourced income of citizens living abroad, which they would continue to report;
  • Whereas, the Internal Revenue Service has well-established guidelines for determining that an American is a bona fide resident of a foreign country;
  • Whereas, according to witness testimonies before a congressional hearing in April of 2017, being subjected to taxation by two jurisdiction and banking service discrimination are the main reasons for Americans living abroad renouncing U.S. citizenship;
  • Be it resolved that, Democrats Abroad supports ceasing taxation based on citizenship and supports the universally accepted notion of taxation based on the residence of the taxpayer;

REFERENCES

  • Can we please stop paying twice? Reforming the U.S. Tax Code for Americans abroad’ 2017, Democrats Abroad, October, available at https://d3n8a8pro7vhmx.cloudfront.net/democratsabroad/pages/13975/attachments/original/1507632642/Can_We_Please_Stop_Paying_Twice_DEMOCRATS_ABROAD.pdf?1507632642.

Repeal and Replace Trump 2017 Tax Law

Do you support the effective repeal of Trump’s regressive 2017 Tax Law, to end massive giveaways to ultrarich oligarchs and corporations amounting in the trillions, at the expense of average Americans and future generations, and to instead enact policies and programs that strengthen the working and middle class upon which our economy is built?

BACKGROUND

  • TRUMP’s 2017 TAX LAW was a sham and a con sold to the American people, giving little to no short-term tax relief to ordinary Americans, and no long-term relief, in exchange for massive, tax breaks for the rich and for corporations, costing our country an estimated 1.9 trillion USD, while doing nothing for the American economy.

REFERENCES