This paper is an executive summary of two in-depth OAW position papers that are available at www.overseasamericansweek.com

Taxation of Americans overseas has become patently unfair

• Changes in US and foreign tax structures have accentuated incompatibilities between tax systems.
• Double taxation is more severe than ever.
• Due to the devaluating dollar, foreign currency salaries are artificially inflated when translated into dollars for US tax purposes, pushing overseas Americans into higher tax brackets.
• The Foreign Earned Income Exclusion (FEIE) under Section 911 of the US tax code has not kept up with economic reality. If the original amount allowed in 1962 had been systematically indexed to inflation, it would exceed $250,000 today. It only stands at $91,400.
• TIPRA legislation (2006) reduced the protection value of the FEIE.
• The housing exclusion represents a zip-code tax lottery of overseas Americans.

US taxation of overseas Americans and foreign affiliates impeded US exports

President Obama launched the National Export Initiative in his State of the Union message of January 2010. The Administration aims to develop a coherent export policy, with a stated goal of doubling US exports in five years. But the proposals announced lack a key component – the need to encourage American companies to send US citizens to sell US goods. The second OAW position paper identifies numerous self-imposed roadblocks to increasing exports and formulated specific recommendations.

The OAW position paper fully concurs with reports prepared by the GAO and the President’s Export Council in 1978, 1979 and 1981 which substantiate the vial role played by US citizens working abroad for American corporations selling American products overseas; they systematically recommend residency-based taxation instead of citizenship-based taxation. Congress ignored these recommendations.

Specific impediments to exports identified in the position paper include the following:

• Misguided US tax policies have increased taxation of overseas Americans, making them too expensive to deploy abroad.
• Taxation of compensation paid to a private sector employee for expenses directly linked to an overseas post has driven expatriated staff out of the foreign job market.
• The inadequate level of the FEIE, the stacking provision of TIPRA and the dollar devaluation have pushed overseas salaries into higher tax brackets and priced private US citizens out of the market.
• Tax reporting for Controlled Foreign Corporations (CFC) is a nightmare; it must be greatly simplified to encourage small- and medium-sized enterprises to establish sales subsidiaries abroad.
• To entice SMEs to export, deferred taxation of overseas sales subsidiaries must be maintained; the US tax rate on dividends paid to the parent corporation must be set at zero or at a very low rate.

OAW recommendations for taxation of US citizens overseas and Controlled Foreign Corporations

• Increase the FEIE to $250,000 and simplify the housing exclusion under Section 911 of the US tax code
• Exclude employer compensation for high overseas living costs from taxable salary
• Greatly simplify tax reporting of CFCs for SMEs and overseas American entrepreneurs
• Eliminate or significantly reduce the US tax rate on dividend repatriation from foreign affiliates.