Americans Abroad Should Be Taxed

Sen. Chuck Grassley (R., Iowa), Ranking Member, Committee on Finance, Washington, in a Letter published by the Wall Street Journal, October 3, 2007.

In regard to your Sept. 25, 2007 editorial "Uncle Sam's Long Arm": The U.S. has taxed its citizens, regardless of where they live, since the income tax began in 1913. The foreign tax credit prevents the double taxation of Americans working overseas. It's not my "brainchild" to change the taxation of U.S. citizens who live abroad. The 2006 changes came at the recommendation of the nonpartisan Joint Committee on Taxation after it became clear that U.S. taxpayers living abroad were receiving an overly generous U.S. tax subsidy relative to those living and working in the U.S.

The Treasury Department isn't stepping in to save taxpayers from evil Congress and adjust the housing allowance for Americans working abroad. Congress explicitly gave Treasury the authority to make that change when we revised tax code Section 911.

Pre-reform, Section 911 allowed citizens working and living abroad to exclude all or a portion of their compensation from taxable income and exclude from taxable income housing costs paid or reimbursed by an employer over a base amount (or deduct unreimbursed housing costs). Congress's Section 911 changes put a reasonable, objective limit on the amount of the subsidy for housing cost reimbursement exclusions or deductions.

Individuals living and working abroad can continue to exclude a sizable amount of income -- up to $93,936 -- that those living and working in the U.S. cannot exclude.

The exclusion amount -- including housing -- will continue to rise with inflation, and the housing cost limit is also subject to adjustment by Treasury to take into account geographic differences in housing costs relative to housing costs in the U.S. Americans working abroad still come out pretty well in comparison to their domestic peers.

These changes were a matter of fairness. An American in Peoria can't exclude any salary or housing costs from taxable income. Why should an American in Paris not face reasonable limits?

For responses to this letter, click here