WASHINGTON, 14 June 2003 — In May of this year, the US Senate considered taxing all Americans working overseas. The initiative met stiff resistance from Americans abroad — between 4 and 8 million Americans are estimated to work overseas — who strongly opposed the effort to repeal the Section 911 provision.
The Senate shelved the idea, but some experts fear the issue is not dead.
“The US is the only major industrialized country in the world that taxes its citizens on the money they earn while working outside the country, which means that Americans are more expensive to hire for overseas jobs than any other nationality,” said David Hamod, president of Intercom, a consulting firm that works with American citizens groups and US chambers of commerce around the world.
If the American has to pay taxes, then the company is going to have to provide him or her with a higher salary so they’ll have a higher after-tax income, said Hamod.
“What makes it especially tricky is that the IRS treats some things as income that don’t show up in the employees pocket at all, such as schooling and home leave, both of which are part of the compensation a company pays to an employee as an incentive to get them to move overseas.”
Currently Americans abroad can exclude up to $80,000 before paying US taxes.
Businessmen worry if Americans working overseas are taxed on all their full income then many will opt to stay home.
“Basically (the tax exemption) allows US employees to remain competitive in the foreign marketplace. These companies can use their experts to run their international operations rather than trying to hire to local person to do the same job,” said Judy Scarabello, vice president for tax policy at the National Foreign Trade Council, an open tax and trade organization based in Washington.
Problems began when the Senate began looking for ways to offset the cost of tax cuts. They realized if they eliminated the Section 911 exclusive they could would gather $35 billion in 10 years from Americans working overseas, which made them a very attractive target.
“What they didn’t adequately take into consideration was the potential of hundreds of thousands of jobs at stake, and the many, many billions of dollars worth of business that would dry up if those overseas Americans came home,” said Hamod,.
“For the moment Section 911 is ‘off the table,’ on the Hill, but we have to remain vigilant because it could come back into play at any time,” warned Hamod.
