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Residence-Based Taxation: A Necessary and Urgent Tax Reform
almost 5 years ago
# Positive consequences of RBT for the United States
As proposed by ACA, RBT would have numerous and significant positive consequences for the United States. RBT would produce an estimated $33 billion in additional revenue for the U.S. Treasury over ten years, compared to the current system, as explained fully in a later section of this paper and in Exhibit 1 as the United States would:
- collect revenue on U.S. source income of non-resident Americans that currently goes uncollected;
- collect the Departure Tax where applicable;
- collect back-taxes from taxpayers overseas entering into U.S. tax compliance;
- collect tax, as under the current system, from non-resident Americans active in business in the United States.
RBT would, in general, not increase the total amount of income taxes paid by Americans residing abroad;
- higher income tax rates in OECD countries, where the vast majority of Americans abroad reside, will not change;
- U.S. withholding tax on U.S. source income and U.S. taxes on business conducted in the United States should be creditable against the tax liability of the country of residence if there is a bilateral tax treaty or if the country of residence allows foreign tax credits;
- U.S. taxes on U.S. earned income and business activities in the United States should be comparable to taxes paid under the current rules and should be creditable against the tax liability of the country of residence if there is a bi-lateral tax treaty or if the country of residence allows foreign tax credits;
RBT would eliminate, or at least greatly reduce, the very heavy filing and compliance costs paid by overseas filers;
RBT would eliminate penalizing instances of double-taxation which occur under current CBT law due to:
- inherent difference between foreign and U.S. tax systems;
- the requirement to use the U.S. dollar as the functional currency for U.S. tax filing;
- the requirement for employees of U.S. corporations and self-employed entrepreneurs abroad to make social security contributions to both the United States and resident country social security systems in countries lacking a Social Security Totalization agreement with the United States.
RBT would enhance the competitiveness of Americans abroad by:
- liberating American entrepreneurs abroad from double corporate tax filing and from restrictions on entering into partnerships with foreigners;
- opening up access to foreign financial institutions as FATCA will no longer apply to non-resident Americans with a “Departure Certificate”;
- eliminating unfair, prejudicial taxation of Americans based on their overseas residence; eliminating all FBAR filing requirements for Americans abroad, including the provision requiring filing information on the FBAR on foreign accounts over which the American has only signatory authority. This filing requirement makes some foreign businesses unwilling to give U.S. persons signatory authority on company accounts. FBAR filing requirements also encourage foreign spouses to deny access to joint bank & other financial accounts;
RBT would rationalize and reduce the administrative and enforcement burden of the IRS.
RBT would align U.S. tax policy on individuals with tax rules generally applicable in the rest of the world.
In addition, RBT would generate substantial economic benefits for the United States:
- American businesspeople sent abroad will no longer be more expensive to employ than foreigners. U.S. companies will be encouraged to deploy more Americans abroad. This creates jobs for Americans, both at home and abroad, and increases long-term U.S. competitiveness through greater knowledge of foreign markets.
- New domestic jobs from increased export will favorably impact U.S. tax revenue. Every $1 billion of American manufactured goods exported is estimated to generate 7,000 to 10,000 domestic jobs and $150 million in federal tax revenue. Just $100 billion of additional exports, a 5% increase of exports, will generate $15 billion every year in new federal tax revenue, more than twice the current tax revenue from Americans abroad.
- Small and medium-sized U.S. companies, which represent an enormous potential for increasing U.S. exports and consequently domestic jobs,44 will face fewer hurdles when setting up foreign sales operations managed by knowledgeable U.S. staff. American overseas managers share the strategic objectives of the company and established communication channels and have full backing of top management, an important element for success.
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