WASHINGTON: Millions of US citizens working overseas could see their tax bills lowered by an overhaul of the tax system as Republicans edge towards eliminating a requirement for American expatriates to pay taxes both overseas and in the US. Kevin Brady, the Republican head of the House ways and means committee, which is drafting a tax reform bill, said lawmakers were considering the measure, which has been the focus of lobbying by Republicans Overseas, a group of party donors around the world. “It is under consideration. They have made the case,” Mr Brady said in response to a question from the Financial Times at a Christian Science Monitor breakfast. “Lawmakers representing that area of the tax code have made that case.” Some 8.7m Americans live outside the US, excluding military personnel, according to the Association of Americans Resident Overseas.
For those expatriates, the first portion of their foreign earnings — about $100,000 in 2016 — is already shielded from US tax liabilities, but they have to pay tax on any income above that level to both the host authority and the US. The mooted change would therefore benefit those on six-figure salaries. Republicans are striving to pass the first major overhaul of the US tax code since Ronald Reagan in 1986. They are looking at measures that would simplify the code, lower the corporate tax rate, make it less attractive for US companies to keep cash overseas, and changes that they say will help the middle class. Mr Brady later told the FT that lawmakers were taking “seriously” the call for a shift from a citizen-based income tax system to a residence-based system that would only tax people on the income they earn in the US.
Republicans have already decided they want to make an equivalent change for business, switching to a “territorial” regime where most of US companies’ foreign earnings are beyond the reach of American tax collectors. The US Chamber of Commerce, a business lobby group, has urged policymakers to consider US-only taxation for individuals, too, arguing that taxing foreign income hurts American managers at the overseas affiliates of US exporters.
