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| From ACA.CH website
Foreign Earned Income Exclusion Under Attack   A bill (S. 3018), “The Bipartisan Tax Fairness and Simplification Act of 2010” introduced late-February 2010 by Senators Ron Wyden (D-OR) and Judd Gregg (R-NH), aims to make the Federal income tax system "simpler, fairer, and more fiscally responsible." Among other things, the bill would eliminate the foreign earned income exclusion, which concerns all US taxpayers living and working abroad.
The proposed legislation would also eliminate the Alternative Minimum Tax – which raises taxes for millions of middle-class Americans – and will reduce the number of individual tax brackets from the current six to three: 15 percent, 25 percent, and 35 percent. Additionally, it would streamline the tax code by eliminating a number of "specialized tax breaks" that favor one business sector or group of individuals over another. Among these “specialized tax breaks” is Section 911 of the Internal Revenue Code – the foreign earned income exclusion, which concerns all US taxpayers living and working abroad.
ACA is reviewing the text of the bill, which is currently referred to the Senate Committee on Finance and has no additional co-sponsors, to ascertain its potential impact on overseas Americans and its chances of passing. | |
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The elimination of the foreign earned income exclusion would make tax criminals of additional millions of relatively low-paid American citizens, many or mostly dual nationals, living abroad, for whom a $10,000 penalty for failure to file the various reporting forms (3520, 5471, FBAR) are a sick joke that (assuming they know of their liability) prevent them -- like all those Vietnam draft absconders in Canada in the 1970s (as to which see this:
http://www.uniset.ca/other/news/wp_ronaldanderson.html ) -- stayed out of the USA for decades.
For those in "normal" and high tax countries (but bear in mind that in Europe wealth taxes, high rates of payroll tax and purchase taxes such as VAT are not creditable or usually deductible for US income tax) it may make slight difference. But I remember a discussion with the IRS Rep in Paris while visiting Abidjan: I told him of an unnamed American teacher in Nigeria making $25,000 in salary in USD, but with the overvaluation in the 1970s of the naira his small flat and small car brought his "salary" for US tax purposes to something under $100,000 making his US tax more than his salary, and unpayable. The same was true at the time for english teachers in Japan.
Pres. Carter had eliminated the Foreign Earned Income Exclusion: is this a stupid experiment they want to repeat? Do they want to make criminals of so many people and make the tax law object of even more scorn and ridicule to the degree that -- like so many laws that are not respected -- it is all that easier to justify nonfiling?
The IRS man from Paris told me in all sincerity that he just hoped that the teacher, and those like him, could stay beneath the radar. The IRS would certainly not be seeking them out.
While Congress chose to do something about distressed mortgagors and short sales of houses (anyway tax on cancellation of debt income doesn't apply in bankruptcy or when insolvent) it refused to act in the cases of those taxed on dot.com stock options where between the time of exercise and the time of sale the stock became worthless. The only solution for such people was (1) to file separate returns if married and (2) wait out the time (3 years usually) to discharge the tax in bankruptcy.
Laws that are not respected are not obeyed. The 83%/98% income tax that Margaret Thatcher reduced to 40% crippled the British economy. India has, or had, a similar counterproductive tax rate that could only lead to evasion, cheating and emigration.
But that's not all: the US, together with the OECD, would like to abolish the Revenue Rule, Lord Mansfield's 1775 dictum against one country enforcing foreign public law, and in particular the tax law, of another country. The US would like to have cross-border collection agreements with more countries (only the Canadian one is fully effective, and then only against persons who are not citizens of Canada, or in the reverse case the US). One way that the IRS (and HMRC) have done so is redefining common-law fraud and moneylaundering to include tax cheating: that's what enabled Switzerland to extradite Ian Leaf to Britain.
Let's see how far this goes. It's a pity when the low paid are made scapegoats for politicians' folly. Does anyone think that Lebanese-Americans are going to pay US income tax?
http://www.professionalsaa.com/tax/A...%20Lebanon.htm Is the IRS going to go to Lebanon to investigate; are they going to go dumpster diving in Hezbollah country?