OPINION
As polarized as politics in the United States have become, there is one issue that absolutely unites every American living outside the country: ending the double taxation of Americans living abroad.
Our current system burdens ordinary Americans with excessive compliance costs that enrich lawyers and accountants while producing little actual revenue for the U.S. Treasury.
Now, with the introduction of new legislation, Americans abroad can see the light at the end of the tunnel for the first time in many years.
Earlier this summer Tax Fairness for Americans Abroad helped broker a compromise proposal for residence-based taxation, which we published on Oct. 1.
Later that month Donald Trump publicly pledged that, if elected, he would end the double taxation of Americans living abroad.
Then, on Dec. 18, Rep. Darin LaHood, R-Ill., introduced the Residence-Based Taxation for Americans Abroad Act in keeping with that campaign pledge.
Now, we have a real chance to solve a problem for the millions of Americans that has forced them to spend huge amounts in accounting fees, ruined relationships, and made it impossible for them to live normal lives
Most Americans abroad aren’t rich and don’t actually owe any U.S. taxes.
Rather, as the name of the bill suggests, the Residence-Based Taxation for Americans Abroad Act (H.R. 10468) would give Americans abroad the option of being taxed on the basis of where they live, not who they are.
Americans live outside of the country for many reasons.
Some are born in the United States to foreign parents and leave as children with little connection to the country.
Others are born-and-raised Americans who go abroad for work, for love, for school or for retirement. What all of them discover is that being an American outside the United States comes with significant tax and financial consequences.
The United States is unique among free countries in the world in taxing its citizens on their worldwide income, regardless of where they live.
This system is called citizenship-based taxation.
The only other country that still uses this onerous approach is Eritrea, a dictatorship.
Because Americans in other countries still have to file U.S. taxes, they are also subject to all kinds of other rules and regulations intended to prevent tax evasion and money laundering.
In practice this means local banks in other countries want nothing to do with Americans because of the cost, complexity and risks of complying with U.S. laws.
Americans also face draconian penalties for noncompliance.
The bill would also help American companies that want to employ Americans abroad and have been stymied under the current U.S. system, which increases costs for U.S. companies to send Americans to work abroad.
Many do not even bother to try and only hire local employees abroad – an upside-down situation in which U.S. tax law discriminates against Americans in favor of foreigners!
The U.S. Chamber of Commerce has complained about this for years, but there has been little progress towards a solution — until now.
We hope 2025 is different.
Tax Fairness for Americans Abroad worked closely with the office of Mr. LaHood to develop the legislative language for his bill and residence-based taxation.
We believe this legislation should be a bipartisan success.
We worked with tax experts from both sides of the aisle as well as political independents who all collaborated to develop the proposal.
The bill establishes a process for U.S. citizens living abroad to elect to be treated as non-residents for tax purposes without having to give up their U.S. citizenship, just like other countries.
Electing Americans would only have to file U.S. tax returns if they have U.S. income.
The bill also has a guardrail to prevent the wealthy from avoiding taxes by imposing a departure tax on their deferred income.
"Accidental" Americans and others who have lived outside the country since the age of 25 or since March 28, 2010 (the date that FATCA was adopted) would automatically be exempt from the departure tax.
Similarly, Americans who have led regular lives overseas for three of the five years before they apply could also opt out of U.S. taxation without a departure tax. All Americans born abroad to U.S. parents would automatically be opted out of U.S. taxation unless they later move to the United States.
Fundamentally, residence-based taxation is a non-partisan issue.
The biggest risk to the adoption of this bill in the new Congress is that it falls prey to the same ultra-partisanship that has doomed many sensible proposals over the past decade.
That would be a tragedy.
All Democrats and Republicans who understand this issue recognize the need for a solution, and Mr. LaHood’s bill is by far the most thorough, thoughtful and bipartisan solution to date.
It’s essential for all Americans that this bill be enacted into law.
Brandon Mitchener is the executive director of Tax Fairness for Americans Abroad.