America's independent, non-partisan advocate for overburdened taxpayers.

Letter


Halt Double-Taxation of American Workers and Increase Exports: Support the American Tax Fairness Act of 2011
An Open Letter to the House

August 5, 2011

Dear Member of Congress:

On behalf of our respective organizations’ members nationwide, we urge you to support the American Tax Fairness Act of 2011. This legislation effectively eliminates one of the most punitive examples of double-taxation on American economic activity abroad, thus making it easier for domestic companies to promote exports overseas and for foreign companies to hire U.S. workers. One key objective to ensure the future strength of the U.S. economy should be a competitive tax system that doesn’t impede our ability to produce and promote exports in other countries. The introduction of this bill will make much-needed progress toward this goal.

As organizations dedicated to lowering overall tax burdens and eliminating harmful cases of double-taxation, we believe it is vital for the U.S. government to stop levying domestic taxes on expatriate Americans who pay taxes to their host country. Most industrialized nations tax only the labor carried out within national borders, regardless of citizenship. This “territorial taxation” system is both fair and effective, as individuals living and working abroad will mainly use government services in their country of residency. However, the U.S., virtually alone among major developed nations, continues to tax labor carried out abroad by expatriates. This outmoded and harmful policy (which extends to corporate profits as well) adversely impacts both American companies and citizens abroad, hindering the creation of domestic jobs required to produce exports.

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 shield $92,900 of certain earnings from U.S. income taxes – not as equitable an amount as it may seem. For one, these workers can be located in areas with high costs of living, in many cases exceeding those found in the largest U.S. cities. Additionally, Congress has worsened this discriminatory situation in recent years by stipulating that housing benefits and residual income must be considered when calculating the cap for income excluded from double-taxation. As such, current policy has made it too expensive for many American companies to station their most-talented employees worldwide and pursue business opportunities that pay off here at home. Moreover, there are additional restrictions on Americans living abroad – including substantially higher penalties on errors or omissions on tax filings than those residing on U.S. territory. The American Tax Fairness Act abolishes the arbitrary income cap.

The detrimental effect of Section 911 cannot be ignored by Members on either side of the aisle. Recently the Obama Administration launched a new export initiative, noting that markets overseas are critical to the ability of U.S. businesses to employ more individuals within our own borders and enhance our trade position. This is especially imperative for emerging markets in Asia and the Middle East, where the U.S. is losing competitiveness daily to foreign counterparts. The American Tax Fairness Act would go beyond rhetoric about improving economic growth by removing a major impediment to investment in American workers.

All Members who are concerned about our position in the global economy should cosponsor this important pro-taxpayer bill. To do so, please contact Andrew Shaw in the office of Representative Scott Garrett at 5-4465 or andrew.shaw@mail.house.gov. Both our organizations support passage of the American Tax Fairness Act; roll call votes on the bill will be significantly weighted in National Taxpayers Union’s Rating of Congress.

Sincerely,

Pete Sepp                                        Grover Norquist
Executive Vice President                 President
National Taxpayers Union               Americans for Tax Reform