The problem with taxing foreign-earned income
SUSTG Analysis | Richard Wilson | 6.25.12
Eritrea is one of only two countries in the world that applies citizenship-based taxation in addition to residence-based taxation. The other? The United States of America.
In fact, the US is the ONLY industrialized country in the world to impose citizenship-based taxation. The immediate result for American expatriates is a blizzard of confusing and complex filing and reporting requirements that have kept innumerable accounting firms in the black and thousands of Americans up all night. Their constant (and unwelcome) traveling companions include IRS Form 2555, US Code section 911, cost of living adjustment tables, physical presence tests, housing expense formulas and, coming soon, Form 8938 (Foreign Account Tax Compliance Act).
However, as Dr. Saud Al-Ammari notes in this pointed analysis, “Free Advice to My Schoolmate Barak Obama: Want to Grow Exports and Create More Jobs? Don’t Tax Americans Abroad,” the larger issue is what this tax policy means for American exports and American jobs. Dr. Al-Ammari writes:
The US Chamber of Commerce and other business groups couldn’t agree more with Dr. Al-Ammari. The Middle East Council of American Chambers of Commerce (MECACC), an affiliate of the US Chamber of Commerce represents the over 700 US companies in the GCC states where some 50,000 civilian Americans live and work (one of the largest US expatriate communities relative to the host nations’ size).
According to MECACC, United States sales of goods and services to the GCC have totaled more than $20 billion annually; creating or sustaining more than half a million jobs in the United States. (According to U.S. Department of Commerce statistics, one in every eleven manufacturing and agricultural production jobs in 2010 was created by exports).
Yet the matter of taxation of Americans abroad (or double-taxation in many cases as host countries tax expatriates as well) remains a political football and a constant legislative struggle for American business advocates. Even when the Obama administration is actively pursuing its National Export Initiative, the allure of additional tax revenue makes abolishing the exclusion entirely an annual darling of US lawmakers.
MECACC and others have been fighting this legislative battle since the 1970s and they make their case to Congress at least once every year during their Door Knock campaigns. For a full report on their May 2012 Door Knock, click here. Among the recommendations arising from this Door Knock is strong support for the efforts being made by Congressman Dave Camp (R – MI) and other leaders on The Ways and Means Committee to:
While MECACC and others continue their work, the extraordinary aspect of Dr. Al-Ammari’s analysis below is that he is not American; he is Saudi. His analysis stems from years of experience of seeing companies inclined to hire Americans but unable to do so because the comparative cost is so prohibitive.
An objective observer, Dr. Al-Ammari encourages President Obama and Congress to, “reform the anachronistic income tax policy of the United States that is harming the ability of America to compete in the global economy.”
Free Advice to My Schoolmate Barak Obama: Want to Grow Exports and Create More Jobs? Don’t Tax Americans Abroad
By Dr. Saud Al-Ammari