Former President Trump is seeking to court American voters overseas by pledging to end what he called the “double taxation” of citizens living abroad.
In a video released October 10, the Republican presidential nominee appealed to foreign-based citizens by vowing to reduce their U.S. tax liability. “Once and for all, I’m going to end double taxation on our overseas citizens,” Trump said. “You have been wanting this for years, and no one has been listening to you.”
The United States is one of the few countries that taxes citizens on worldwide income, regardless of where they are based. While there are provisions available to Americans living abroad, including an earned income exclusion of up to $126,000 per person and a tax credit for foreign-source income, advocacy groups have called the potential for any duplication of tax liability unfair.
Marylouise Serrato, executive director of American Citizens Abroad, welcomed Trump’s announcement and called on the Democratic presidential nominee, Vice President Kamala Harris, to make a similar pledge.
“It’s important for both major party candidates seeking the presidency and Members of Congress to commit to a tax policy that treats hard working Americans overseas fairly,” Serrato said in a statement.
Serrato confirmed to Tax Notes that her organization has yet to receive a response from the Harris camp. “We haven’t heard back from them. . . . We’re still trying to get in touch,” she said.
Serrato argued that current-law measures such as the income exclusion and the tax credit don’t “completely wipe away” issues regarding income reporting and double taxation, pointing out that many citizens abroad have been struggling to comply with rules enacted as part of the Foreign Account Tax Compliance Act.
That law requires foreign financial institutions to identify accounts of possible U.S. citizens and added income reporting requirements for U.S. citizens living abroad.
An Inexpensive Proposal
Serrato also pointed to her group’s own analysis suggesting that ending taxation on Americans overseas could be revenue neutral and avoid benefiting wealthy tax dodgers. “It can be done in a way where loopholes are closed and delivers for the majority of Americans living abroad,” she said.
Ruth Mason of the University of Virginia School of Law believes a lack of revenue coming in from U.S. citizens living overseas, combined with growing complexity, means there could be political appetite for reform.
“Because the citizenship tax is probably not a large revenue raiser and is unfair in a lot of common scenarios, I can imagine there being bipartisan support to repeal it,” Mason told Tax Notes. “Certainly, the party that repeals the citizenship tax will get a huge boost of support from Americans abroad, and based on the data we have, there’s no reason to think it would be expensive.”
Mason pointed out that the national taxpayer advocate has found that most Americans abroad have no residual U.S. tax liability.
Reuven S. Avi-Yonah of the University of Michigan Law School believes concerns over double taxation are exaggerated, noting that in addition to the income exclusion limit and tax credit, many U.S. citizens live in countries that have a tax treaty with the United States, and those treaties often provide “tiebreakers” to ensure there isn’t double income taxation.
“Thus, the double taxation argument is spurious,” Avi-Yonah said in an email. “There are many more cases where Americans living overseas enjoy double non-taxation because of sections 911 or 933 than cases of double taxation.”
The Harris campaign didn’t respond to a request for comment by press time.