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Stop Double-Taxing Americans Working Abroad: Support the American Tax Fairness Act of 2008
August 4, 2008
On behalf of the 362,000 members of the National Taxpayers Union (NTU), I urge you to support the American Tax Fairness Act (H. R. 6614). By eliminating double-taxation on Americans working overseas, this legislation would make the placement of Americans in international jobs a more attractive choice for foreign companies. As an organization dedicated to lowering overall tax burdens and eliminating harmful cases of double-taxation, NTU urges Congress to stop levying domestic taxes on expatriate Americans who pay taxes to their host country.
Almost all industrialized nations tax only the labor carried out within national borders, regardless of citizenship. This "territorial taxation" system makes sense, as individuals living and working abroad will mainly use government services in their country of residency. However, the U.S. is one of only a few countries -- and the only developed nation -- that continues to tax labor carried out abroad by expatriates. This backward-looking policy urgently needs to be improved.
At issue is Section 911 of the U.S. Tax Code, which only protects a limited amount of worldwide income before U.S. taxes are piled on to the foreign tax burden. Specifically, Americans working abroad can only shield the first $87,600 they earn from the clutches of the IRS. Congress has worsened this inequitable situation in recent years by including housing benefits and residual income when calculating the cap for income excluded from double-taxation. Considering that international workers are often located in high-cost-of-living areas, the value of the income exclusion has been effectively reduced for many taxpayers.
The negative economic effect of continuing with the Section 911 status quo is twofold. First, because companies are required to offer higher salaries to expatriates to cover the cost of paying taxes to two countries, American workers are not as viable for potential jobs as they otherwise could be. In addition, companies looking to relocate to the U.S. are deterred from doing so because Americans remaining abroad would fall into the double-taxation trap. The American Tax Fairness Act is so critical to economic growth because it removes the income cap altogether, thereby encouraging investment in American workers.
NTU urges all Members to co-sponsor this important pro-taxpayer bill. Roll call votes on H.R. 6614 will be heavily weighted in our annual Rating of Congress.