Adam N. Michel
Adam N. Michel
The United States stands alone in applying the entire domestic tax regime to all citizens, permanent residents, and tax residents regardless of where they live and work. Eritrea’s brutal dictatorship is the only other country to come close, imposing a 2 percent levy on all expatriates. In a recent video, former President Donald Trump endorsed eliminating the outdated US system of worldwide taxation of Americans living overseas. The reform would enhance the competitiveness of American businesses abroad, attract foreign talent for domestic operations, and ease administrative burdens on US expats.
For these reasons, most other nations use territorial or residence-based taxation, where only income earned by someone within the country’s borders is subject to tax. The US has a quasi-territorial tax system for corporate profits but not for individuals. The territorial approach respects that citizens living and working abroad already pay local taxes on their income.
In contrast, the US system imposes a second layer of tax on top of what citizens pay to their country of residence. Some relief is offered under the Section 911 exclusion, which exempts up to $126,500 (2024) of foreign-earned income from US taxation, and other protections allow foreign tax credits to offset similar taxes paid to other governments.
However, the exclusion and credit system fails to fully resolve the problem. For those Americans living in one of the more than 100 countries without a US tax treaty, more of their income is subject to two layers of tax. For those living in lower-tax jurisdictions, the worldwide system leaves them paying higher taxes than their neighbors and coworkers. Even when no additional US tax is due, the system burdens expatriates with multiple tax systems and other non-tax reporting requirements. This is also the provision of the tax code that slaps our Olympic athletes with hefty tax bills on the value of their winning medals and monetary rewards earned overseas. » Read More
https://www.cato.org/blog/trumps-right-its-time-repeal-worldwide-individual-taxation