Although this is not the most well written piece I want to try to write some posts looking at specific situations to show the unfairness of the US Tax System. Two industries I keep coming back to are airlines and shipping. Some historical background. For many decades the US was historically very dominant in both airlines and the manufacturing of aircraft and as such tried to encourage a very liberalized system of regulating international air transport on the basis that the US would always be dominant especially in the face what were for many years bloated inefficient state owned air carriers that existed in much of Europe and South America. While there were some bumps such as domestic de-regulation in the US itself the US has always pushed for something known as “Open Skies” something that culminated in an agreement between the Netherlands and the US in the early 1990s that basically eliminated all commercial restrictions on airline service between the two countries. The US quickly went to town signing “Open Skies” agreements with as many countries as they could including many small ones that had no history of direct air service with the US. Some enterprising countries though such as the United Arab Emirates, Qatar, and Singapore started their own state owned carriers that being much more competitive than the US historical competition in Europe could now under the US Open Skies policy “dump” an virtually unlimited amount of seat capacity into the US and setup their home countries as a sort of hub and spoke system to fly passengers onward to other neighboring larger countries. Thus you have Emirates Airlines with the largest fleet of Airbus A380s in the world flying passenger nonstop from San Francisco to Dubai and then on to India. Now whatever the merits of the US “Open Skies” policy it is I suspect water under the bridge. However want to make two key points first the success of Emirates has hurt both the main US airlines and their US Citizen employees and second almost no one who works for Emirates Airlines is a UAE national. Thats right almost no one right up to the CEO and its same thing for other Middle Eastern airlines such as Qatar Airways and Ethihad.
So who works for Emirates Airlines. In terms of pilots Europeans, Canadian, Australians, and “some” Americans. Flight Attendants as I understood are a mix of everywhere. However as we all know Americans have a very distinct disadvantage in applying for these types of jobs. Just in terms of pure economics as Dubai and the UAE have no income tax a Canadian or European applicant can have the same standard of living as a competing American by simply lowering their salary demand to less than what the American will have to pay in US tax residing outside the US.
Now what about the Foriegn Earned Income Exclusion. Well it does help having said that the going rate airlines pilots is now above $95,000 and here is the real kicker the FEIE doesn’t apply to income earned in international waters so thus an American pilot working for Emirate Airlines would still have to pay US tax on a prorated basis for the time he spent flying over the Persian Gulf or the Indian Ocean on the otherside of the Earth from the USA.
Next up I will try to look at some specific situation involving international shipping which is now almost completely devoid of US citizens working in it.