Wall Street Journal: Trump’s Tax Plan for Americans Living Overseas Gains Congressional Support

According to a Wall Street Journal article, Rep. Darin LaHood has introduced a new bill aiming to fulfill Donald Trump’s campaign promise to simplify taxation for Americans abroad. The proposal seeks to allow U.S. expatriates to adopt a residence-based tax system (RBT), taxing them only in their country of residence.

Current U.S. Tax System

The U.S. employs a citizenship-based taxation (CBT) system, which requires Americans living abroad to file U.S. tax returns and potentially pay taxes on worldwide income. 

This system, dating back to the Civil War, is unique among major nations, as most countries tax based on residency. While the U.S. offers exclusions for up to $126,500 in earned income and foreign tax credits, compliance costs remain high, especially for higher-income individuals and retirees. Accidental Americans—those born in the U.S. or with an American parent, but with no strong ties to the U.S. and often unaware of their American citizenship—face particular challenges.

Proposed Changes: Residence-Based Taxation for Americans Abroad Act

LaHood’s bill would allow expatriates to switch to a residence-based tax system (RBT) system, where:

• Foreign income would be exempt from U.S. taxes, but U.S.-sourced income would remain taxable.
• Wealthy individuals (net worth exceeding $13.61 million) opting into the system would pay a one-time “departure tax” on global assets.
• Long-term expatriates and compliant taxpayers could avoid the departure tax under specific conditions.
• According to the ACA (Americans Citizens Abroad) electing individuals must certify under penalty of perjury that they have met all tax requirements for the 5 preceding taxable years and submit all required evidence. 

Revenue and Implementation

The Wall Street Journal highlights that the revenue lost from exempting foreign income would be offset by the departure tax and application fees. Provisions may be adjusted to maintain revenue neutrality. Although an official cost estimate is not yet available, the bill has received input from advocacy groups like Tax Fairness for Americans Abroad.

Challenges and Concerns

There are significant challenges to implementing the proposal. Reforming CBT would require bipartisan support, something that has repeatedly failed in the past. 

Critics fear that RBT could enable tax avoidance, allowing wealthy Americans to relocate to low-tax countries, potentially reducing IRS revenues. Public sentiment remains cautious, with concerns that such reforms might disproportionately benefit the wealthy while leaving middle- and lower-income taxpayers burdened.

Advocacy and Outlook

Americans living abroad have long sought relief from double taxation and compliance burdens. Advocacy organizations have welcomed the bill but emphasize the need for clarity and transparency in its provisions. While the proposal offers hope, its success depends on bipartisan support and addressing concerns about revenue losses and fairness.

If enacted, the legislation could modernize the U.S. tax system and ease burdens for expatriates. However, the complexity of the current system and entrenched political resistance suggest that significant hurdles remain. 

LaHood aims to include the proposal in broader tax reforms that Congress is likely to pass in 2025.

Position of Americans Overseas

As an advocacy organization for Americans required to file U.S. tax returns, Americans Overseas recognizes the potential benefits of tax reform for millions of expatriates. However, the group remains cautious about the details of the proposed bill and its long-term implications. In previous years, several attempts have been made to ease the burdens on Americans abroad. Americans Overseas welcomes these developments, but to truly speak of progress, we need more information about the feasibility and conditions. We don’t want to give people false hope. 

One thing is clear: in all the proposals, the U.S. is seeking transparency and information, and if you want to qualify for relief, you must, perhaps logically, you have to be tax compliant.

Americans Overseas continues to advocate for fair and achievable reforms that address the needs of expatriates without creating undue economic consequences. In the meantime, the organization urges Americans living abroad to remain compliant with existing laws and regulations, as any future reforms would likely require adherence to current rules as a condition for participation.

Contact us for more information

Read more:

• Wall Street Journal: Trump’s pledge to end double taxation for Americans Overseas – political stunt or real change?
• Trump’s Unlikely Promise: Ending Double Taxation for Americans Living Overseas

Sources: 

• Proposal: Residence-Based Taxation for Americans Abroad Act
• Wall Street Journal: Trump Pledged to Cut Taxes for Expats. This Republican Wants to Make It a Reality.
• Residence-based taxation legislation introduced by Representative LaHood in the 118th Congress