The Honorable Jim DeMint
United States Senate
Washington, DC 20510
Dear Senator DeMint:
On behalf of the 350,000 members of the National Taxpayers Union, I write to offer our endorsement for your legislation, the Working American Competitiveness Act (S. 3496). By eliminating double taxation on Americans working overseas, your legislation would make hiring our citizens for international jobs more attractive for businesses focused on remaining competitive in the global marketplace. As an organization dedicated to lowering overall tax burdens and eliminating harmful cases of double taxation, NTU agrees that the time has come to stop levying domestic taxes on expatriate Americans who already 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 US 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 US Tax Code, which only protects a limited amount of worldwide income before US taxes are piled on to the foreign tax burden. Specifically, Americans working abroad can only shield the first $82,400 they earn from the clutches of the IRS. Congress has recently worsened this double-taxation burden 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 working abroad to cover the cost of paying taxes to two countries, American workers are not as attractive job candidates as they otherwise could be. In addition, companies looking to relocate to the US are deterred from doing so because Americans remaining abroad would fall into the double-taxation trap. Your legislation is so critical to economic growth because it removes the income cap altogether, thereby encouraging investment in American workers.
The National Taxpayers Union thanks you for your leadership on this issue and strongly urges your colleagues to support this pro-taxpayer proposal. Roll call votes on S. 3496 will be heavily weighted in our annual Rating of Congress.
Sincerely,
Kristina Rasmussen
Senior Government Affairs Manager