— U.S. Citizen Abroad (@USCitizenAbroad) August 6, 2020
Kudos to American Citizens Abroad for producing a superb article demonstrating:
1. The harm that citizenship-based taxation does to individual Americans abroad; and
2. Demonstrating that the only way to cease harming Americans abroad is to end citizenship-based taxation.
This is seriously good article that puts much of the harm in the TCJA into historical perspective. Although the article makes it clear that much of the damage can be fixed through Treasury regulations (including the two which have been recently been the topic of discussion), the article “Keeps The Faith”, by reminding us that citizenship-based taxation must end! ACA deserves credit for NOT wavering from that position. Given that the Democratic Party has failed to include ending citizenship-based taxation in their platform and the Republican Party appears to not have recently reconsidered the issue, it appears that proponents of ending US citizenship-based taxation are fewer than ever. From that perspective, ACA deserves a special thanks. (It is also significant and tragic that Representative George Holding who pioneered the ONLY serious attempt to fix CBT is retiring. There is no evidence that his 2018 Bill will be introduced again.)
The article begins with …
Transition Tax and GILTI. Both these maddeningly complicated provisions are the product of the massive Tax Cuts and Jobs Act enacted immediately after the 2016 election, as a majority of the House and the Senate were in a near panic to deliver tax cuts to their supporters. The structure of the legislation jumped around radically from one approach to another in the last couple of months. The final version was a mash up. Transition Tax and GILTI materialized when it was seen that the new Participation Exemption System for taxing corporations’ foreign income (a form of territorial taxation for corporations – but not individuals, including Americans abroad) would lose several hundred billion dollars in tax revenue over the relevant 10-year period. The Transition Tax, which hits not only corporations, the ones benefited by the new Participation Exemption System, but also individuals, more than plug the hole. GILTI, which was directed principally at US corporations with profitable intellectual property and operations in low-tax foreign countries, was estimated to pick up about one-third of what Transition Tax picks up, but this number is halved after deductions for foreign-derived intangible income and global intangible low-taxed income.
The article concludes with …
US citizens living and working abroad experience an increasingly long list of problems resulting from the imposition of citizenship-based taxation. Problems from the Transition Tax and GILTI provisions are one more example of why RBT is ultimately the right corrective measure. Communications to ACA with regard to overseas small businesses indicate that some individuals pay upward from $5,000 to $10,000 simply to comply with requirements – even when they don’t owe any additional US taxes. Regrettably, some small businesses call it quits given the onerous filing requirements.
It’s time for Congress to hold hearings on taxation of Americans abroad and the problems of citizenship-based taxation. Everything relating to residency-based taxation should be put on the table. Then everyone can move to drafting an RBT bill. To learn more about RBT please visit the ACA website at: https://www.americansabroad.org . This update can also be found online here: https://www.americansabroad.org/news/aca-update-the-torturous-road-leading-to-tcja-and-its-progeny-the-transition-tax-and-gilti/
Not only is ACA fighting the US Government but it’s also fighting the individual Americans abroad who are unwilling to admit that US citizenship-based taxation is a problem that is larger than their individual circumstances.