December 21, 2018

Tax Fairness for Americans Abroad Act

Democrats Abroad welcomes the introduction of H.R. 7358, the Tax Fairness for Americans Abroad Act. H.R. 7358 is not a perfect bill and, coming on the eve of adjournment, it cannot be given serious consideration or debate. That said, it is a milestone for advocates of a switch from the current U.S. system of Citizenship Based Taxation to the globally-accepted norm of Residency Based Taxation (RBT), and raises to attention important issues that Congress must address with hearings in the 116th Congress. 

The U.S. currently taxes its citizens on their worldwide income, even if they are living abroad.  Under RBT Americans living outside of the U.S. would continue to report their U.S.-sourced income to the Internal Revenue Service but would report income generated in their country of residence – and pay tax on it – only to the local tax authority. Americans living abroad would no longer report income generated in their country of residence to the U.S. Internal Revenue Service.

Democrats Abroad has supported a switch to RBT since we were founded over 50 years ago.  Over the last two years Democrats Abroad worked in collaboration with other organizations representing Americans abroad advocating in support of RBT.  We are pleased that we now have a framework for building a RBT model that we believe could achieve these important things –

  • facilitate participation by those living abroad temporarily, for decades or for an indeterminate period of time;
  • include provisions for all Americans abroad to transition into “non-residency” status for tax purposes;
  • be revenue-neutral to the federal government; and
  • contain anti-tax avoidance mechanisms to prevent abuse by U.S. taxpayers who are not bona fide residents abroad.

We will work with the 116th Congress to develop and introduce a bona fide RBT bill with public hearings into issues impacting Americans abroad ahead of discussions on specific reforms such as the introduction of RBT.

Democrats Abroad and others have kept potential RBT bill co-sponsors apprised so that they are not at a standing start in January 2019.  We are committed to picking up where we left off and carrying on with our work to make the U.S. tax code fairer to Americans living abroad. This not only includes working to introduce RBT, but also to reform the GOP Tax Cuts and Jobs Act to include “transition tax” relief for American owners of small to medium sized businesses abroad and to exempt from FATCA reporting the financial accounts of bona fide Americans abroad in our countries of residence.