Americans abroad lobby for tax changes
Advocates for U.S. citizens living abroad see a big opportunity in the GOP’s push for tax reform.
A number of fiscally conservative groups are pushing for the repeal of an Obama-era offshore tax law that they say has ensnared Americans residing overseas. Some groups also want tax reform to include a move to residency-based taxation.
For now, a key focus of the advocacy is on repealing the Foreign Account Tax Compliance Act (FATCA), a law Congress passed in 2010 to curb offshore tax evasion.
FATCA requires financial institutions in other countries to report information about accounts held by U.S. citizens. Certain accounts under $50,000 do not have to be reported.
U.S. taxpayers with foreign accounts that exceed certain thresholds have to provide information about the assets in those accounts on an IRS form. Single people living in the U.S. have to fill out the form if their foreign financial assets exceed $50,000 on the last day of the tax year, and U.S. individuals living abroad have to complete the form if their foreign financial assets total more than $200,000.
FATCA was intended to target Americans living in the U.S. who use foreign bank accounts to evade taxes, as well as wealthy Americans abroad who are trying to skirt their obligations. Some of the law’s regulations are designed to ease the burdens on Americans living in other countries.
But critics of the law say that it has caused problems for the estimated 9 million U.S. citizens living overseas.
A coalition of free-market groups sent a letter last month to GOP congressional leaders and the chairmen of the tax-writing committees urging that the repeal of FATCA be included in tax reform legislation.
“FATCA violates our most-cherished principles of due process, presumption of innocence, personal privacy, and national sovereignty,” the groups wrote.
National Taxpayers Union President Pete Sepp, whose group signed the letter, said that even if FATCA reporting requirements exempt people with smaller foreign financial accounts, the law could ensnare non-wealthy people because foreign banks may not want to deal with U.S. customers.
Critics of the law also raise privacy concerns, since it asks for information without probable cause of wrongdoing and creates heavy paperwork burdens and penalties.
“This is asking foreign banks to give up a lot of personal information,” said David Williams, president of the Taxpayers Protection Alliance, another group that signed the letter.
In addition to repealing FATCA, some groups, such as Grover Norquist’s Americans for Tax Reform, are pushing for tax reform to include a move to residency-based taxation.
Currently, U.S. citizens have to pay U.S. taxes on their income regardless of where they live or where the money is earned, though Americans abroad can exclude some of their foreign-earned income and receive credits for foreign taxes paid. But some argue that U.S. citizens should only be taxed on income sourced in the U.S., since most other countries already have residency-based taxation.
“We have this double taxation,” Norquist said. “It’s not fair to Americans who work overseas.”
Norquist said Americans working abroad help boost the U.S. economy because they are likely to still purchase U.S. goods.
Marylouise Serrato, executive director of the nonpartisan group American Citizens Abroad, said that “it’s very difficult to comply with the tax code once you’re overseas” and that residency-based taxation would fit nicely with GOP proposals to move to a “territorial” tax system where corporations’ foreign earnings aren’t subjected to U.S. tax.
President Trump and congressional Republicans have made tax reform one of their biggest priorities this year.
A White House spokeswoman on Monday declined to comment on the administration’s position on FATCA and residency-based taxation, since Trump is still working to create his tax plan.
However, free-market groups have reasons to be optimistic that FATCA elimination and residency-based taxation will be incorporated into a tax package.
Repealing FATCA and moving to residency-based taxation were both included in the Republican Party’s platform last year.
Some Republican lawmakers have pushed for doing away with FATCA. In the last Congress, Sen. Rand Paul (R-Ky.) and Rep. Mark Meadows (R-N.C.) introduced legislation to scrap many of the law’s provisions; then-Rep. Mick Mulvaney (R-S.C.), who is now director of the Office of Management and Budget, was a cosponsor of Meadows’s bill.
The House Republicans’ tax reform blueprint states that the House Ways and Means Committee “will consider the appropriate treatment of individuals living and working abroad in today’s globally integrated economy.”
A spokeswoman for Ways and Means Committee Chairman Kevin Brady (R-Texas) said the committee is looking at the issues that the conservative groups raised in their letter on FATCA repeal.
Supporters of FATCA argue that the law creates transparency while helping the U.S. combat tax evasion.
Frank Clemente, executive director of the liberal-leaning Americans for Tax Fairness, said his group feels “very strongly about transparency” and would push back against efforts to repeal FATCA.
Proponents of the law also note that, after its enactment, the Organization for Economic Cooperation and Development created a Common Reporting Standard that requires financial institutions to disclose information to their governments about nonresidents’ accounts. About 100 countries have agreed to participate in the Common Reporting Standard.
“The notion that FATCA somehow disadvantages American citizens abroad is simply inaccurate,” Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency Coalition, said in a blog post on his group’s website.
The top Democrat on the House Ways and Means Committee, Rep. Richard Neal (Mass.), opposes repeal of FATCA but is willing to work with Republicans on some modifications.
“FATCA has been instrumental in cracking down on tax evasion and improving transparency by requiring information on significant foreign assets held by U.S. taxpayers,” he said. “While I do not support a repeal of this law, I am open to working with my Republican colleagues to make FATCA work more efficiently so that it doesn’t unintentionally harm taxpayers.”