1. The Availability of Social Security Pensions for Americans Abroad
 

A number of the major trading nations of the world have provisions in their national social security programs for voluntary participation by their citizens living abroad. To encourage their citizens to live and work abroad, and build overseas markets for their exports, these countries want to ensure that their overseas citizens, when they retire and come home, will have some guaranteed minimum basic pension.
 

The U.S. Government opposes the concept of voluntary participation by overseas Americans. President Carter explained the U.S. Government's position in his "Report on Equitable Treatment of United States Citizens Living Abroad", which he sent to the Congress on August 27, 1979. According to this report, "A basic problem with any voluntary participation scheme is adverse selection. Those persons who would volunteer to participate in social security would tend to be those who would receive the largest returns on their contributions, thereby unduly increasing the cost of the program."⁽¹⁾ Subsequent administrations have maintained this opposition because only those Americans abroad who would get something back would contribute. This is a curious objection to a program whose very purpose is to provide benefits in return for contributions.
 

ACA believes that the U.S. Government should welcome the voluntary participation of overseas Americans in the American social security system as a measure of solidarity with those who one day plan to come home and want to make prudent provision for this return. ACA believes that it would be in the interest of all Americans if legislation would be amended to enable voluntary participation in U.S. Social Security programs for all Americans living abroad.
 

2. Double Jeopardy for Some Self-Employed Americans Abroad
 

Paradoxically, there are some Americans living overseas who are being forced to participate in U.S. Social Security, and who are in a disadvantageous situation because of this. Since 1984, Americans working abroad have to pay Social Security Self-Employment Tax on self-employment income earned abroad, even though all of the same earned income can be excluded from U.S. income tax.⁽²⁾ The U.S. Tax Code does not allow any credit against the self-employment tax for a similar tax paid to a foreign social security system, and such foreign tax is not deductible for purposes of computing net earnings from self-employment. This obviously imposes a heavy additional burden on self-employed Americans residing abroad in countries that do not have bi-lateral social security totalization agreements with the United States. These individuals are thus subject to double taxation by two social security systems and the second contribution is itself taxed by the United States.
 

ACA believes that the pre-1984 practice should be reinstated and that the mandatory Social Security Self-Employment Tax should be excluded for Americans who are bona fide residents of a foreign country. Alternatively, American bona fide residents abroad should be entitled to a credit against the U.S. Social Security Self-Employment Tax for taxes paid to a foreign obligatory social insurance system.
 

3. Different Earnings Limits Tests Hurt Some Overseas Americans
 

The earnings limits on outside income for those between the ages of 62-64 years under the current social security pension system do not operate the same way abroad as they do in the United States. While Americans at home have a dollar amount earnings limit beyond which they start to lose some social security pension benefits, the system used abroad limits the amount of time per month that an individual can work in employment or self-employment which is not subject to U.S. Social Security taxes to no more than 45 hours per month or else all of the benefits for that month will be lost. This loss of benefits applies automatically to all U.S. citizens who are owners or part owners of a trade or business even if the U.S. citizen does not actually work in the trade or business or even receive any income from it! This causes a real hardship for both overseas American entrepreneurs, as well as those on very small pensions who take low salary jobs which require working more than one week per month. The beneficiaries of this special provision are those in usually well paid liberal professions who can adjust their outside work schedules to fall within the time limits.
 

ACA believes that the United States should not favor some Americans over others living and working abroad. The law should apply a consistent earnings limit test for all Americans at home and abroad, and should be so amended.
 

4. Unfair Denial of Social Security Benefits to U.S. Citizens
 

The "Windfall Elimination Provision" of the Social Security Act⁽³⁾ stipulates that almost everyone (there are a few exceptions) who has a pension derived from employment not covered by Social Security, including foreign source pensions to which contributions have been made, will have their Social Security benefits computed in such a way that for every $ 100 of such a pension, the Social Security benefits will be lowered by approximately $ 50. This causes material financial hardship for overseas Americans who earn only modest foreign source pensions.
 

As explained by the Congress when windfall elimination was introduced, it was supposed "to remove an unintended advantage that the heavy weighting in the Social Security benefit formula now provides for persons who have substantial pensions from non-covered employment."⁽⁴⁾ Small foreign pensions are obviously not substantial in any respect. ACA does not believe that the Congress really intended to penalize overseas Americans with small foreign source pensions in this way.
 

Congressman Barney Frank and a number of co-sponsors introduced HR 860 in the 106^th Congress, 1^st Session, on 25 February 1999. This proposed to amend the windfall elimination provisions to provide for a $ 2,000 per month exclusion for foreign source pensions before the elimination provisions would thereafter incrementally apply. ACA strongly supported HR 860 and urges the 107^th Congress to enact such legislation.
 

5. Unfair Denial of Social Security Benefits to Certain Foreign Spouses and Adopted Children of U.S. Citizens
 

Foreign spouses of U.S. citizens must have been married to the U.S. citizen spouse and lived with the U.S. citizen spouse in the United States for five years to be eligible to receive dependency and survivor benefits.
 

Children who cannot meet the residency requirement on their own may be considered to meet it if the requirement is met by the worker and the other parent.
 

Children who are adopted outside the United States will not be paid any dependency or survivor benefits even if the prior U.S. residency requirement is met.
 

Curiously, this loss of benefits does not apply to citizens of Greece, Ireland, Israel or Japan, or citizens or residents of countries with which the U.S. has a Social Security Agreement.
 

ACA opposes selective discrimination against foreign spouses on the basis of their country of origin or residence. Once again this does violence to equal treatment for all U.S. citizens. This discrimination should be amended out of the Social Security laws.
 

6. Loss of Supplemental Social Security Benefits Abroad
 

Current U.S. Social Security laws and regulations call for Supplemental Social Security Income (SSI) benefits to be cut off for persons who live outside the United States for more than 30 consecutive days. This not only imposes a hardship on civilians abroad but also surprisingly also hits overseas members of the U.S. Armed Forces and their dependents. Disabled children who need special care and who have received benefits under SSI provisions at home, lose these benefits once their parents move abroad.
 

ACA believes that this provision is unfair and the loss of these benefits brings no significant material benefit to the United States. These benefits should be made available to all eligible individuals no matter where they live.
 

7. Withholding Tax on Social Security and Survivors Benefits of Non-Resident Alien Spouses of American Citizens
 

Social Security benefits received by non-resident alien spouses of U.S. citizens are subject to U.S. income tax withholding of 30% on one-half of the benefit amount.
 

Similarly, a 30% withholding tax is applied to survivors benefits payable to non-resident aliens under the Civil Service Retirement Plan, the Retired Serviceman's Family Protection Plan, and the Survivor Benefit Plan.
 

While the general principle of withholding taxes on payments from United States sources to non-resident aliens is not at issue, ACA recommends that an exception be made for Social Security and other survivor and social insurance benefits payable to the surviving non-resident alien spouses of deceased Americans by eliminating or reducing the withholding tax, at least for nationals of countries with which the United States has concluded Totalization Agreements.
 
 

8. Exception to Taxation of Social Security Benefits when Filing as "Married Filing Separately"
 

Since 1984, up to half of a person's Social Security benefits can be taxable income if the adjusted gross income plus non-taxable interest and half of the social security benefits exceeds a base amount. The base amount is $ 25,000 for an individual, $ 35,000 for a couple filing jointly, but zero for a couple filing separately if they lived together any time during the year.
 

"Married Filing Separately" status is quite often used by Americans abroad who are married to non-resident aliens because the non-resident alien spouse does not normally have U.S. tax obligations.
 

ACA believes that current treatment of U.S. citizens who use the "Married Filing Separately" status abroad is discriminatory and should be remedied.
 

ACA proposes that as in the case of "Unmarried" and "Married Filing Jointly", a base amount deduction should also be allowed for other income before the Social Security benefit becomes taxable when overseas Americans file tax returns as "Married Filing Separately".
 

WHAT CAN AND SHOULD BE DONE ?
 

ACA urges the Administration and the Congress to rethink the overall strategy and tactics of the Social Security programs of the United States as they apply to U.S. citizens living and working abroad. Were the United States to make such changes it would not be innovating on the world stage, but catching up with other countries who believe that helping their overseas citizens helps their national economy back home. American programs should also be designed to encourage U.S. citizens to help build a stronger market for U.S. products and services in the rapidly globalizing world economy. Current laws act as disincentives to Americans to live and work abroad and should be amended.

1. ¹ White House Report to Congress as Required by Section 611, Public Law 95-426.

2. ² Section 911 of the Internal Revenue Code of 1986.

3. ³ Provision 113 of the Social Security Amendments Act of 1983.

4. ⁴ Social Security Administration, OLPR, March 27, 1984.