Senate compromise on tax bills will force Americans working overseas to pay U.S. income tax, while many already pay income tax for their host nations abroad.
WASHINGTON – Bad ideas die slowly, especially in Congress. But according to an influential taxpayer advocacy group, one new Senate compromise needs a quick thumping before it even has the chance of becoming law.
The Senate Finance Committee approved a measure to finance President Bush\’s tax relief plan, which would eliminate the double taxation of dividend income, by raising taxes on Americans living abroad, rather than cutting bloated Washington programs. The President\’s proposal of $700+ billion in tax relief was scaled back considerably and then "paid for" by creating a new tax.
"Tax relief will spur the economy both at home and abroad," said taxpayer advocate Grover Norquist, who heads Americans for Tax Reform (ATR) in Washington. "Senators should question the wisdom of raising one tax to \’pay for\’ another – especially a new tax on workers abroad, which will decimate both private and public investment overseas."
Many businesses, non-profit organizations, and development and democracy building groups working overseas – some, working in Iraq and Afghanistan -work on tight budgets and rely on a tax exemption to attract workers into the field. The tax exemption is a proven method of attracting highly skilled professionals into dangerous areas to build democratic institutions and fight extremism.
The exemption is also often negotiated into these workers\’ salaries, and provides an offset for the taxes these workers often pay on foreign income, VAT, and sales taxes. By eliminating the exemption, the Senate is raising taxes on this group and effectively reducing the number of staff members available for these companies and organizations at a time when they are most needed. The tax hike would create a disincentive for highly skilled people to leave the relative safety of the homeland.
"Americans working abroad help to promote American ideas," continued Norquist, "and they are subject to taxes abroad. Taxing them will hurt both the American economy, as dollars spent abroad always find their way back to the U.S.A., and they pose a threat to American foreign policy when the government needs new problems least."