NCPA - National Center for Policy Analysis


June 28, 2006

Changes to section 911 of the U.S. tax code will force U.S. citizens working abroad to pay higher marginal rates and subject their housing to higher taxes.  This will hurt American business overseas, say Newt Gingrich, a senior fellow at the American Enterprise Institute and former speaker of the House of Representatives; and Ken Kies, a managing director at Clark Consulting, served as chief of staff of the Joint Committee on Taxation 1995-98.

Prior to the changes, under Section 911:

  • An individual could exclude up to $82,400 from taxable income, and any earnings in excess of that amount were subjected to standard U.S. income tax rates.
  • They could deduct the cost of foreign housing above a base amount; alternatively, if the employer picked up this cost, the benefit was excludable.

The new changes include:

  • Taxing the first dollar of income above the $82,400 cap at a 25 percent rate, not at the 10 percent rate that previously applied.
  • Capping the foreign housing deduction/exclusion at $11,536 (or $961 a month).

The added cost to Americans already facing a $2.1 billion increase in foreign taxes over the next 10 years is a disincentive to hire Americans abroad, which studies have shown can harm U.S. business: 

  • A 10 percent drop in Americans overseas would result in a 5 percent drop in U.S. exports and could cost $8.7 billion, which would translate into the loss of approximately 143,000 U.S.-based jobs.
  • The added cost will only raise the pricing of U.S. bids, meaning U.S. companies get less work.
  • Some 82 percent of surveyed small- and medium-sized businesses, which tend to hire more Americans, said the loss would have a substantial impact on their ability to secure projects or compete overseas.

Source: Newt Gingrich, Ken Kies, "Our Taxed Expats," Wall Street Journal, June 28, 2006

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