More Information
To find out more about the status of the possible repeal of the FEIE (Foreign Earned Income Exclusion), visit the web site for Democrats Abroad, which has a special page concerning the FEIE repeal. They also have a page telling you how to contact your representatives, a better guide than the few links I posted below.
Interestingly enough, the web site for Republicans Abroad has no information about any of this. In fact, their web site, in holding with conservative values, I guess, is primarily members-only. There’s a bit of information on how to vote Republican, but if you want anything more, it’ll cost you $100 a year for the entry-level package (other rates: “Envoy,” $250; “Diplomat,” $500; “Ambassador,” $1,000; and “Presidential Advisory Committee,” $5,000).
Democrats Abroad, in contrast, offers cost-free membership, and the web site provides a good deal more resources, including news stories like this FEIE repeal.
Interestingly, the Republicans Abroad site also mentions the FEIE, but not the recent news about it. On their “Benefits of Membership” page, they claim that one benefit is for them to lobby to “dramatically increase the Section 911 Tax Exemption.” Despite the fact that the repeal is being pushed for by Republicans, as it has before in the past. I guess they need more “Diplomats” and “Ambassadors” to join, as they’re not doing too hot a job of getting their party to go along with even keeping the FEIE that we have now….
My understanding is it’s all pretty simple.
As it is now, for the first $80K of your income you pay no U.S. taxes. After that you pay normal U.S. taxes but you can subtract any foreign taxes you paid.
The proposed bill would remove the $80K part so you would always pay U.S. taxes but you could still subtract the foreign taxes you paid.
There are terminalogy issues. They call it a “foreign tax credit” because you use it as a credit against U.S. taxes you owe. (as in you owe $10 but you already have $3 credit) It’s not called a “deduction” because deductions are from your income, not from your taxes.
Seperate from the argument about not getting benefits from the U.S. and therefore feeling like we should not have to pay taxes there’s a simpler issue. At least for me, I get paid about 1/2 what I would make in the U.S. living in a place with a higher cost of living (Japan). The point is costs of living and average incomes are different in different parts of the world and we can’t all be treated the same.
Yeah, I called the IRS office and they said that under the Foreign Tax Credit, any income tax could be credited, and potentially your entire U.S. tax debt could be voided. However, income-based taxes such as kokumin hoken (national health insurance) and social security taxes (pension) could not be credited–only the national, prefectural, and local (city/ward) taxes.
I agree on the cost-of-living point, but I seriously doubt they would take this into effect legally. After all, it costs WAY more to live in San Francisco than in rural Arkansas, but people living in both places pay the same federal taxes.
Good news! “The group also agreed to kill one particularly controversial offset, the elimination of $32 billion in tax breaks for overseas workers.” From here: http://www.cnn.com/2003/ALLPOLITICS/05/20/tax.cuts/index.html