American expats would have been returning to the US in droves or renouncing their citizenship. There really wouldn't be a financial choice in the matter. Imagine having to pay full taxes on your income in both the US and your country of residence! Already we have plenty of problems abroad.
- The earned income exemption is not indexed to inflation, thus being an effective tax increase every year.
- The devalued dollar artificially inflates our wages abroad, thus being an effective tax increase again!.
- Most people claiming the earned income exclusion still paid US taxes ($4.2 billion in 2006 is a huge amount of double taxation)
- We pay Medicare but we're not allowed to claim it
- Because we've moved abroad, we're no longer allowed to deduct pension contributions
- If I take a foreign pension instead of a US pension, my social security will be cut, even though I've paid for it.
There are many benefits to living abroad and if you earn under the earned income threshold, you won't be impacted by most of this, but finding out that they've already gone after one of my few legal benefits is horrifying.
I'd like to point out that inflation = devaluation of the currency, so your first two points are saying the same thing.
ReplyDeleteAs far as indexing the exemption to inflation, which country's inflation? Inflation in the foreign country is irrelevant, since the exemption is stated in terms of US Dollars. The only time it could matter is if inflation in the US is greater than inflation in your country, and even then, the delta from one year's tax burden to the next year's would be negligible.
Given that expats don't all live in the same country, how do you propose indexing to inflation such that only those living in countries with lower inflation than the US are given the benefit of the indexed exclusion? For the ones living in countries with greater inflation than the US, an exemption indexed to US inflation amounts to a tax cut every year.
@Raul: when I mentioned to "devaluation" in the second bullet point, I was referring to the exchange rates, a separate issue from inflation. Sorry for that confusion.
ReplyDeleteAs for inflation, it would have to be indexed against US inflation because you have to pay in US dollars. No other system would really be practical. As for the rest of your comments, you simply can't avoid the fact that these issues are going to be complicated and will have side-effects. All laws do. Are you suggesting we shouldn't try to be fair to expats because it's complicated?
Or the US could make this a lot simpler by using residence-based taxation like every other friggin' country on the planet (except for the Eritrean dictatorship).
US needs to come up with a better way of dealing with this. Right now they just want to see where they can get money from.
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