In the final weeks of his campaign, President-elect Donald Trump appealed to an often-overlooked constituency, Americans living abroad, to pledge to end “double taxation” on their income.
But unlike many points of the Trump campaign, this is not a partisan issue. In fact, it is with a wide cross-oil support. A coalition of organizations from Democrats Abroad, an arm of the Democratic Party, to the fiscally conservative National Taxpayers Union, all support ending the disproportionate tax burden on Americans living abroad.
From a policy perspective, eliminating the current requirement that U.S. expatriates pay taxes on their foreign income to the United States as well as to their country of residence is important. Only two other countries require a citizenship-based tax: Eritrea and North Korea. As a simple matter of fairness, no American citizen should be taxed twice.
But it’s not just about the IRS bill. Foreigners also face significantly more paperwork, requiring them to hire professional help that can be difficult to afford. Contrary to the stereotype perpetuated by the media, most Americans abroad are not living in fancy villas. The majority of Americans living abroad have a gross household income of less than $100,000.
Taxing income earned abroad hurts our economy and the economies of our trading partners. While studying and working abroad, Americans gain expertise in a variety of fields, including finance, natural resources, science and engineering. When they come home, they bring their new knowledge with them to benefit American institutions.
Many Americans abroad work for American companies—and thus help fuel American businesses expanding into new markets. And many work in jobs that promote commerce.
Double taxation discourages all these activities. It even encourages some to live abroad permanently. In fact, according to a recent survey, nearly one-third of Americans living abroad are either thinking of renouncing their citizenship or are seriously considering it. Of these expats, three out of four cited the burden of managing and filing US taxes as a primary motivation. It’s sad because people shouldn’t feel like they have to change their lives and the lives of their families based on taxes.
Host countries also benefit from foreign American citizens—and are affected by policies that discourage Americans from living abroad. For one thing, countries of residence attract talent. American professionals bring diverse skills, knowledge and perspectives. They fill manpower gaps, contribute to public finances through taxes paid, and provide access to their networks in US markets.
Avoiding double taxation for US citizens abroad is not a new idea. In 2018, Rep. George Holding (R-NC) introduced the Tax Fairness for Americans Abroad Act. And in the past few years, Democrats have introduced several bills that would move the United States to a system in which Americans are taxed based solely on their place of residence rather than citizenship.
A residence-based tax (RBT) would not change the way an individual’s US income is taxed, only foreign income. Such a switch would not require a major overhaul of the Internal Revenue Code—and is not mandatory for American expats who would stick with the current system. According to our research, in 2022, a residency-based tax could be adopted without any loss of revenue to the US Treasury.
Naturally, members of Congress don’t want to vote for something that appeals to billionaires looking for loopholes to avoid paying taxes. So the next Congress could curb abuses by excluding certain “tax haven” countries from residency-based tax policies and making a handful of other nip-and-tuck changes.
This is an issue of great importance to a large number of American voters. It is important that President Trump follows through on this campaign promise.
Be sure to read more comments posted by good luck:
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect their views and beliefs. good luck.
