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In May 2006, Americans working and living outside of the territorial United States got slammed with a nasty surprise – a late-night, last minute change, that was inserted into a broader tax bill. The new legislation has resulted in a higher tax bill for Americans living overseas. This new legislation effectively reduces existing tax deductions which limited the amount of foreign earned income to exposed to double taxation – the same income being taxed once by a foreign government and again being subject to tax by the UNITED STATES. Why and How You Can Help
| ACA will regularly inform you how you can help in this effort. Here is how to start: Massive letter writing campaign - First, please write a letter to your (new) Congressman and to your (new) Senators asking them to strongly support the DeMint legislation. Click here to access a model letter which you can and should personalize with your own experience. Include a copy of the list of supporting organizations. You can find reference to your representatives through the site www.congressmerge.com.
- Second, please also write to Senator DeMint a brief letter expressing your appreciation and support for his legislation (S-3496). The letter should be addressed to The Honorable Jim DeMint, SR-340, U.S. Senate, Washington, DC 20510.
- Third, it is essential that Americans overseas maintain constant pressure on Washington. Please make sure that every American you know overseas is aware of this campaign. Every month, you and your friends should send new letters to your representatives insisting on the damage caused by the current double tax legislation and the need to support the DeMint legislation. We must generate thousands of personal letters recounting how the current tax situation unduly penalizes Americans overseas and supporting the DeMint legislation. You can find these addresses for your Congressman and Senators on the website www.congressmerge.com.
- Fourth, please send a copy of all of your letters to info.aca(at)gmail.com or by fax to ACA's Geneva office +41 223400233. This will allow ACA to compile summary documents for lobbying in Washington and to provide specific examples of the hardships that Americans overseas face due to double taxation.
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| Background | | Adverse legislation for your taxes abroad | On a technical level, the legislation hits in two ways. The first measure significantly reduces the amount of the foreign housing exemption/deduction to a basic rate of $11,536, and also placed a variable cap on the maximum housing exclusion. The full list of "Limitation on Housing Expenses for the Purposes of Section 911" for selected areas of the world is available here as (Treasury Notice 2006-87). The second measure changes the way the tax rate, which ultimately determines your tax bill, is determined and applied to the taxable income. This new legislation produces a HIGHER APPLICABLE TAX RATE than before because it ignores the foreign earned income exclusion and housing deduction and determines the tax rate on TOTAL INCOME with NO DEDUCTIONS. This legislation takes effect IMMEDIATELY and is retroactive to January 1, 2006 therefore Americans living overseas will be hit with HIGHER TAX BILLS in 2006. Worst hit will be those Americans living in high rent, low tax regions of the world as they will see the biggest rise in their taxes owed to the US. A detailed analysis by Roger Conklin, former managing director of a Brazilian-owned company marketing US telecommunications products in Brazil and an ACA director, is contained in a letter he wrote in answer to an article in Comparative Advantage analyzing the tax problem and its effect on foreign trade: "Trade deficits, free trade and self-destructive U.S. tax policies." Comparative Advantage is a "Monthly Digest of Global Trade and Investment," initiated in November 2006 by Alston + Bird LLP. The first article focused on "Trade at Midterms." Roger Conklin responded to the editors commenting that they totally ignored an important issued related to the trade deficit of the United States – the fact that Americans working overseas are subject to U.S. taxes. Roger’s reply is particularly noteworthy because it provides the historical development of tax discrimination against overseas Americans along with concrete facts illustrating the impact of this discrimination on the development of U.S. exports. If you are interested in signing up for the Comparative Advantage on-line report you can send your contact information (including your email address to):
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. | | Overseas Americans Week | During Overseas Americans Week in June 2006, an ACA delegation along with representatives of other associations of Americans overseas visited members of the Treasury Department staff. Two key issues were discussed. First, the need for Treasury to utilize the flexibility granted it under the recent change in Section 911 to adapt the ceiling of the housing deduction according to specific regional requirements. The ceiling in the law is 30 % of the foreign earned income exclusion ($82,400 in 2006) less an amount deemed normal interest, hence not deductible. Raising this 30% limit to a higher level is deemed essential by overseas Americans in very high rent areas, including Hong Kong, Japan, the Middle East and certain large European metropolitan areas. For more information on how this amount is calculated for certain areas of the world, see Treasury Notice 2006-87. For ACA background information on these new housing limitation amounts, click here. Second, the Overseas Americans Week delegation elaborated on their strong support for the proposed legislation, “Working American Competitiveness Act”. As a following up on this second point, ACA addressed a letter to Secretary of the Treasury, Henry M. Paulson Jr. The response from the Treasury department is reproduced here. | | New legislation needed | The destructive nature of this latest tax legislation has provoked the outrage of Americans all over the world. ALL organizations representing Americans living and working abroad are taking concrete steps to coordinate their efforts to educate lawmakers on the negative economic impact of this current legislation and to lobby Congress to introduce new legislation that will eliminate double taxation on its citizens; moving the U.S. to a territorial tax system, which will put them in line with our major trading partner nations. Efforts are already underway to alleviate some of the worst impacts of this law. The legislation allows the Treasury Department to adapt regulations concerning the housing deduction amount based on regions. If applied properly this could alleviate some of the worst impact for individuals currently living in high-rent low foreign-tax areas. On a positive note, in the previous Congress, Senator Jim DeMint introduced legislation “Working American Competitiveness Act” (S-3496) in June 2006. In July 2006, identical legislation was introduced into the House (HR-5986) by Rep. Chris Chocola. This legislation would completely eliminate the cap or limit on the amount of foreign earned income that can be excluded when filing a U.S. tax return. This bill would ELIMINATE DOUBLE TAXES, and finally put U.S. Citizens on a level playing field with other nationals. By eliminating the impact of DOUBLE TAXATION we finally remove the financial/cost barrier which has discouraged American companies from sending Americans abroad. This legislation will be have to be re-introduced in the new Congress. | | Now is the time to act | ACA, in conjunction with other associations representing Americans living and working abroad are collaborating as never before and will be putting major efforts into building support for the "Working American Competitiveness Act." Building the needed support in the right places will take TIME, UNWAVERING COMMITMENT and MONEY. We must do all in our capacity to make our legislators in Washington understand that in today’s global economy double taxation of overseas Americans is a self-destructive policy for American competitiveness. | | Support for ACA’s lobbying efforts |
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