Some of the new president’s campaign promises will be controversial and difficult to fulfill. But there’s one that Donald Trump and the new Congress could easily enact within a year: end double taxation for American citizens abroad.
About 5.2 million Americans live abroad — more than the populations of Chicago and Houston combined. Under the current U.S. system, they owe income tax not only to their country of residence, but to the United States, too. This is known as citizenship-based taxation, and it’s deeply unfair. It also hurts our country’s economy.
During President Trump’s first term, he signed the Tax Cuts and Jobs Act of 2017. It lowered taxes and offered expanded deductions for many Americans, but left citizenship-based taxation in place. With large sections of the bill expiring in 2025, Congress will have to debate which measures to extend or change.
Almost every other country in the world recognizes this system as unfair, and opts instead for residency-based taxation, in which people pay taxes based on where they live, not their nationality. In fact, the only other countries that use citizenship-based taxation are the dictatorships of Eritrea and North Korea.
Some expats do currently qualify for deductions from their IRS bill, but in those cases, the paperwork and legal complexity of filing a parallel return often impose significant costs.
The impact of our current system goes far beyond the individual level — it hurts the U.S. economy and competitiveness. Americans abroad return money to the United States in myriad ways, from supporting family back home to investing in U.S. companies. By making it harder for Americans to start or expand businesses in other countries, we’re limiting our tools to counter influence from adversaries like China.
Double taxation also makes it more difficult for Americans to get hired by multinational corporations. According to former U.S. Congressman George Holding (R-NC), the inflated tax burden means employing Americans overseas is almost 40% more expensive compared to workers from countries with residency-based taxation.
This makes it unnecessarily difficult for skilled professionals from America to work abroad.
We should encourage American citizens to be industry leaders around the world. Citizenship-based taxation does just the opposite.
Defenders of citizenship-based taxation worry that getting rid of it could create tax loopholes that lower revenue. But a study by my organization — American Citizens Abroad — found that with a few simple oversight measures, such as excluding residents of tax havens or creating minimum requirements to prove residency abroad, the United States could make the transition without reducing government revenue or running up the deficit.
And some of the groundwork has already been laid. In December, Congressman Darin LaHood (R-IL) introduced a proposal that would eliminate the citizenship-based taxation requirement. Now is the perfect opportunity to re-introduce and refine that proposal.
Both sides of the aisle recognize the fiscal burden faced by American citizens abroad. There’s reason to be optimistic — it seems to be just a matter of time until reason (and residency-based taxation) prevails.
Marylouise Serrato is the Executive Director of American Citizens Abroad, an advocacy organization that represents the legislative and regulatory concerns of U.S. citizens overseas.
