Overseas tax issues are complicated. They are interwoven with each other, exacerbated by interactions with foreign laws, and muddied by a persistent lack of regulatory guidance. This makes it tempting to point to residency-based taxation (RBT) as a silver bullet…
The brutal reality is that while a change to U.S. tax residency is arguably the most effective solution, Congress is not yet ready for it. For that to happen, we need:
- Sound policy that addresses our needs and that motivates Congress
- Clear, consistent, and unified messaging from abroad
- Awareness & understanding of our issues on the Hill
All these are long-term efforts, each at different stages:
- We have spent the past three years consulting with experts and stakeholders to develop a proposal that separates U.S. Citizenship from U.S. Tax Residency. While we are certain that the policy will continue to evolve as we work to sell it on the Hill, we are satisfied that this is the fairest, most balanced, and most adaptable starting point.
- The past few months have seen intensive, hours-long discussions while we worked to come to a consensus internally and with other organizations on how to adjust and strengthen an RBT policy package that we can all get behind. We are cautiously optimistic that we will all be able to deliver a common message to Washington about what RBT is and why it works.
- While we have an idea of how Congress can be motivated to pass RBT, no one has successfully gotten the ball rolling on this yet. Overseas groups need to be establishing and strengthening their relationships with key offices.
Democrats Abroad has supported RBT in its party platform since at least 2012. We now can confidently and publicly say that our vision of it:
- Fully ends U.S. Tax Residency when an individual elects to complete a “Termination of Residence” procedure, entailing a final tax filing and payment of a non-punitive departure tax. They remain a U.S. citizen and retain their voting rights.
- Treats “Non-Resident-Citizens” in line with “Non-Resident-Aliens” today, taxing them only on U.S. source income with minimal paperwork and in accordance with tax treaties with their country of residence. The Savings Clause is accounted for in the plan.
- Takes steps to address banking problems linked to U.S. citizenship.
- Contains “grandfathering” rules for current long-term Americans abroad.
Further details about the plan were discussed in our webinar on February 28, 2024 “How to pass RBT”.
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