Ending Double Taxation on Americans Abroad is Long Overdue
During the 2024 presidential campaign, President-elect Donald Trump pledged to end “double taxation” on U.S. citizens living abroad. This proposal, if pursued, could transform the financial lives of millions of American expatriates, including myself, an American currently living in Poland. For many of us abroad, the United States’ citizenship-based taxation (CBT) system, which taxes citizens on their worldwide income regardless of residence, results in double taxation as we already pay taxes to the countries in which we reside. Ending this practice would benefit low- and middle-income earners in particular, reduce the compliance burden on all U.S. citizens abroad, and bring the U.S. in line with international tax norms, all while maintaining reasonable protections against tax avoidance.
Citizenship-based taxation in the U.S. has roots dating back to the Civil War. The Revenue Act of 1861 introduced the first federal income tax, including a provision that taxed citizens regardless of where they lived. Initially, CBT was introduced as a way to punish deserters and ensure that all citizens contributed during wartime. Today, this punitive purpose is obsolete, yet the system remains in place, imposing a financial burden on law-abiding Americans abroad who contribute to their host countries’ economies. This policy was reaffirmed in 1913 with the establishment of the modern federal income tax under the 16th Amendment, which cemented CBT as part of U.S. tax policy. However, its impact on citizens abroad remained relatively minimal until recent years, when enforcement became stricter through legislation like the Foreign Account Tax Compliance Act (FATCA) of 2010. FATCA requires foreign financial institutions to report accounts held by U.S. citizens, making it increasingly difficult for Americans abroad to avoid double taxation.
The U.S. stands almost entirely alone in enforcing CBT, with Eritrea being the only other country that imposes a similar tax on its citizens living abroad. Eritrea, often labeled the “North Korea of Africa,” has faced international condemnation for its tax on diaspora citizens, highlighting how globally out-of-step CBT is. Most nations recognize the unfairness of taxing citizens who do not reside within their borders, and nearly all employ residence-based taxation (RBT) instead. The U.S. adherence to CBT places an undue burden on its expatriates and diminishes America’s standing as a promoter of freedom and democracy on the world stage.
Another layer of unfairness is the lack of representation for Americans abroad. Unlike countries such as France, which provides expatriates with specific representatives in their legislature, the U.S. taxes its overseas citizens without offering similar representation. This practice stands in contrast to the founding American principle of “no taxation without representation,” a cornerstone of the very values that defined the American Revolution. This failure to represent citizens who are nonetheless taxed makes CBT feel even more unjust, especially given the complexities and penalties involved in compliance.
Currently, an estimated 9 million U.S. citizens live outside the United States (although estimates vary widely), spread across Europe, Asia, Africa, and other regions. Each year, they must file U.S. tax returns and report their foreign income, even if they’ve paid taxes in their host countries. While the U.S. provides some measures to reduce double taxation, such as the Foreign Earned Income Exclusion (FEIE) and foreign tax credits, these provisions often fall short. Citizens in countries with lower tax rates or high tax thresholds face double taxation burdens that differ by income and region.
The financial strain varies based on where expatriates live and their income level. For Americans living in Europe, where tax rates are often higher than those in the U.S., foreign tax credits are able to help offset some of the tax burden. However, the high cost of living in Europe, along with steep social security contributions in some countries, means that expatriates often still face financial strain, especially at middle-income levels. In Asia, where tax structures differ widely by country, middle-income earners often face more unpredictable outcomes; they may pay significantly more overall than their peers abroad or face stricter residency laws that conflict with U.S. filing requirements.
Double taxation affects all income groups, though the impact is unequal. Low-income expatriates, especially retirees, often struggle to navigate tax compliance costs, as they are less likely to have access to professional assistance. Many of these retirees rely on modest pensions or retirement savings and may face taxation on income that would not even reach the taxable threshold in the U.S. For high-income earners, while the tax burden is still substantial, they have greater access to legal and accounting resources, making compliance easier. Still, they often face complicated reporting requirements under FATCA, which forces foreign banks to report U.S. account holders, making it difficult for expatriates to access financial services.
For many U.S. citizens abroad, compliance with U.S. tax obligations involves complex and costly administrative work. Tax returns for expatriates are lengthy, complex, and often require professional help. This is particularly burdensome for middle-income earners, who cannot always afford the high cost of specialized tax services. The average expatriate spends hundreds, if not thousands, of dollars each year just to meet filing requirements, even if they ultimately owe little or no U.S. tax. This compliance burden often outweighs any real benefit to the U.S. Treasury, as most Americans abroad do not have significant taxable income after applying foreign tax credits and exclusions. Notably, advocates argue that shifting to residence-based taxation would actually save the IRS resources by reducing administrative burdens associated with auditing and tracking the tax obligations of low-liability citizens abroad.
Moreover, the reporting obligations tied to FATCA discourage many foreign banks from accepting American clients, viewing the reporting requirements as intrusive and burdensome. This isolates Americans financially, complicating their access to local banking, loans, and investments. For example, many expatriates in Europe find themselves unable to open simple bank accounts or invest in local retirement plans due to FATCA’s restrictive impact, further marginalizing them within their host countries. Additionally, the clash between U.S. and foreign retirement account regulations complicates saving for the future, forcing many Americans abroad to forgo local retirement products or face steep tax penalties.
The potential benefits of ending double taxation are substantial. Moving from citizenship-based taxation to residence-based taxation would bring the United States in line with almost every other nation in the world (besides Eritrea), where taxes are generally based on residency rather than citizenship. This shift would relieve the financial burden on the millions of Americans living abroad, allowing them to live and work without fearing double taxation. It would also signal that the U.S. recognizes the global nature of today’s workforce, treating expatriates as valued ambassadors rather than taxing them as potential defectors.
This idea is not new. In 2018, Representative George Holding (R-NC) introduced the Tax Fairness for Americans Abroad Act, which sought to end citizenship-based taxation and replace it with a residence-based system. Although the bill did not advance out of committee, it marked a significant legislative effort to align U.S. tax policies with international norms and relieve American expatriates from burdensome tax requirements. Since then, organizations like Republicans Overseas and advocacy groups have continued to champion this issue, pushing for policy changes that would simplify tax compliance for U.S. citizens abroad.
For low- and middle-income earners, this change would provide critical relief. The cost of living abroad often exceeds that of life in the U.S., especially in countries with high taxes and living expenses, like those in Western Europe. Freeing lower-income expatriates from U.S. tax burdens would mean more disposable income, reduced administrative hassle, and less dependence on costly professional tax services. Middle-income earners, who are most affected by these tax complexities, would benefit immensely, as they often struggle to pay compliance costs and navigate the reporting requirements without access to wealth management resources.
For high-income earners, residence-based taxation would simplify their tax obligations and reduce the need for complex compliance measures, although some protective measures would likely remain in place to ensure tax compliance. As it stands, the tax revenue from U.S. citizens abroad is relatively small compared to the overall budget. However, the U.S. could still maintain protective mechanisms to prevent tax avoidance, targeting high earners or those in tax havens if needed. A well-designed residence-based system could balance the interests of all income levels while ensuring that the wealthy do not evade taxes by moving abroad.
President-elect Trump’s pledge to end double taxation has brought new attention to an issue that expatriates have been raising for years. Advocacy groups like Republicans Overseas have long argued that citizenship-based taxation is an outdated and unfair practice, pressing for reforms that would align the U.S. with the rest of the world’s tax policies. Trump’s support for ending CBT may provide momentum, but any change would require Congress to amend the tax code, as tax law falls under legislative authority. Some members of Congress have shown interest in reforms that reduce the burden on Americans abroad, though concerns about potential tax evasion would likely influence the structure of any reform.
The possibility of bipartisan support also exists, as lawmakers may view ending double taxation as a pro-growth policy that benefits middle-income expatriates and small businesses, particularly those impacted by foreign tax credit limitations. Democrats, who often advocate for tax fairness, might support reforms that relieve the tax burden on low- and middle-income earners. Meanwhile, Republicans may back changes that improve U.S. global competitiveness and encourage expatriates to remain connected to the U.S. rather than renouncing their citizenship, a trend that has grown under the current tax system.
While the exact shape of any reform remains to be seen, a shift to residence-based taxation could feasibly pass if it includes provisions to prevent tax avoidance among high-income earners. Exempting long-term expatriates or establishing clear residency definitions would allow Congress to address this issue without compromising revenue or raising fears of tax abuse. Given the potential economic and political benefits, a residence-based system would strengthen the bond between America and its citizens abroad, making it easier for them to contribute to the U.S. economy while pursuing lives and careers internationally.
Ending double taxation on Americans abroad would be a pragmatic, fair, and globally aligned policy change that recognizes the financial and personal challenges faced by U.S. expatriates. While there are valid concerns about potential tax avoidance, carefully structured legislation could provide relief to the millions of low- and middle-income Americans living abroad without significantly impacting U.S. revenue. With President-elect Trump’s renewed attention to this issue, the possibility of reform has never been closer. It is time for the United States to adopt residence-based taxation, supporting its citizens abroad—myself and others—as valued members of the American community, no matter where in the world they may live.
Michael J. Hout is the Editor of Liberty Affair. He currently resides in Warsaw, Poland. Follow him on X: @michaeljhout
