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September 2003

Expatriot Community

When does an expatriate become an expatriot? Read on to find out

Recently Americans living abroad have been subject to a new reality in global politics. Their status as “nonresident citizens” of the United States has made them a target for people and organizations wishing to make a political statement. Unbelievable as it may seem the actions of just a handful of people have, over the past few months, come close to destroying the work and lives of many expat Americans.

No, don’t stop reading. We’re not talking about the threat of terrorism—which however real has unfortunately developed soporific qualities to rival Mogadon—and Al-Qaeda does not feature anywhere in this article, much less Iraq or even North Korea. Here we are concerned with a bill approved by the United States Senate Finance Committee on May 8, 2003. The “Jobs and Growth Reconciliation Tax Act of 2003” would have removed the tax exclusion on foreign-earned income for nonresident citizens of the United States in 2004 and every year thereafter, in effect forcing thousands, if not tens of thousands, of Americans to give up their jobs abroad and return home.

Up to now US citizens who do not live in the US have been able to exclude up to $80,000 of income earned outside the US on their taxes every year. The provision to repeal section 911 of the US tax code (as this exclusion is known) was in a bill passed by the Senate, and the provision would certainly have become law had it not been removed in a closed-door meeting between House and Senate members before the final vote to pass the law in both the House and Senate. American citizens living abroad would have been forced to pay both local income tax and U.S. income tax, regardless of income level. Even average earners could have found themselves paying upwards of $10,000 per year in taxes to the IRS—all for services to which they would have no access. And this would be in addition to already sky-high tax rates in many host countries, Germany being a prime example.

The United States is the only industrialized nation in the world that taxes its overseas residents at all. Other countries have residency-based, rather than citizenship-based, systems of taxation—putting Americans working internationally at a cost disadvantage for companies looking to hire them. The double taxation measure was suggested and promoted by Senator Chuck Grassley (R., Iowa), chairman of the Finance Committee, who, judging by comments he has made, would seem to be of the opinion that Americans working overseas belong to an exclusive “jet-set” who do not share the values of their fellow countrymen living at home in states such as Iowa: “…. an American soldier who spends a year in Kabul has to pay his full U.S. tax obligation, but an American working for a private company in Bermuda pays no taxes….”

Two amendments to the bill were, in fact, presented by Senator Breaux (D., La). Both were defeated, but Senator Breaux’s comments to the Senate show a better understanding of the position of overseas residents. He quite correctly stated that taxes would be paid by “…. schoolteachers who work overseas, ministers who work overseas, Catholic relief workers, charitable workers, and technicians who work overseas, earn income overseas, and pay taxes overseas…. They don’t live in this country and don’t get the benefits of living in this country, and therefore we give them a tax exemption....”

Alarmingly, evidence suggests that this provision was not rejected for its content, but to avoid bad press. The effect on American corporations abroad would have been disastrous, not to mention US citizens: the end of a career, a change of residence and the separation from family members and friends won over decades in a foreign land. Many overseas citizens would have returned to the U.S. jobless! Strange indeed then, that the bill carried the name “Jobs and Growth reconciliation Tax Act of 2003.” In the new worldview of certain Americans, those choosing to live outside the country would seem less entitled to fair representation than those within.

As the U.S. budget deficit soars and pressure on the U.S. government to make cuts and savings intensifies, measures of this kind are sure to become more commonplace. For any Americans living in Munich who would like to follow the progress of this bill as it moved through both Houses, information is available online via THOMAS, a listing of U.S. legislative information through the Library of Congress at: http://thomas.loc.gov/. A listing of those who voted against the amendment is also available there.

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