WASHINGTON—Republican presidential nominee Donald Trump said he supports lowering taxes on U.S. citizens who live abroad, marking a new attempt by the former president to win support from an often-overlooked group of voters.
The U.S. has an unusual system for taxing its citizens on their total income regardless of where they earned it and where they live, making America alone among major countries with such a rule. Other countries use systems that base taxation on where people live. The U.S. policy dates back to the 1860s and the income tax created to finance the Civil War.
Essentially, an American living in Paris would have tax obligations to both France and the U.S., though the U.S. tax code already contains features meant to mitigate double taxation. A French citizen residing in New York typically wouldn’t owe France any taxes on U.S. income.
“I support ending the double taxation of overseas Americans,” Trump said in a statement to The Wall Street Journal.
Like his prior campaign ideas to eliminate taxes on tips, Social Security benefits and overtime pay, Trump’s latest tax-policy promise goes beyond extension of his expiring 2017 tax cuts and the ideas he pushed during his first term as president, and it is aimed at a targeted demographic.
A narrow policy shift could eliminate a frustrating and unique burden for Americans abroad, especially those with higher incomes and investments who owe U.S. taxes on their worldwide income on top of taxes they pay where they live. That can be particularly annoying for so-called accidental Americans, who have citizenship because they were born in the U.S. but have few ties to the country.
A more expansive revision of the tax code could open opportunities for wealthy Americans to move overseas, retain their citizenship and escape some U.S. taxes.
What Trump means by double taxation remains uncertain, and campaign officials offered no additional details about exactly what policy change he would try to push through Congress.
Solomon Yue, the chief executive of Republicans Overseas, an advocacy group, is part of a decadelong push to ease U.S. tax burdens on Americans abroad. Yue said he was inspired by Trump’s earlier tax proposals aimed at other constituencies and realized he might have a chance to get his issue added to that list.
Yue, a longtime Republican National Committee official, said he urged Trump campaign aides to get the subject in front of the former president and to keep any position simple rather than getting into a detailed explanation of citizenship-based taxation versus residence-based taxation. That effort helped lead to Trump’s new support for the issue, according to Yue.
“America first also means Americans first, regardless of where they are residing,” Yue said, praising Trump’s support for cutting taxes for Americans who live abroad. “It’s a giant first step,” Yue added.
Roughly 4.4 million U.S. citizens lived abroad in 2022, according to the most recent statistics available from the Federal Voting Assistance Program, which helps people get information on how to cast ballots. Some 2.8 million of those were 18 years or older and eligible to vote in their former states, according to the group.
The Trump campaign is hoping the proposal will appeal to many of those voters, particularly those who live in Israel, according to a person familiar with the matter.
“Fellow Americans living abroad, your vote is more important than ever,” Trump said in the statement.
Polls show a neck-and-neck race between Trump and Vice President Kamala Harris, who has been offering her own financial incentives, including Medicare coverage of long-term home care and tax credits for new parents and first-time home buyers. Harris hasn’t announced a proposal to change taxes for Americans abroad.
There are some limits on the U.S. tax on Americans abroad. They don’t have to pay American taxes on their first $126,500 in earned income, and there are some exclusions for housing costs.
They can also get tax credits for some payments to foreign governments, so they are only paying the U.S. when U.S. taxes are higher than their local taxes. But higher earners and people with investment or retirement income sometimes have to pay the U.S. on top of their foreign taxes.
Often, the compliance costs for filing tax returns can far exceed the actual taxes that Americans owe, said Marylouise Serrato, executive director of American Citizens Abroad, a nonpartisan group that has been advocating for a move toward residence-based taxation.
“It makes it very difficult and complex to file, and it also limits the ability of a lot of Americans to invest and live when they’re overseas,” she said.
But not everyone agrees that Americans overseas carry an undue tax burden or that the U.S. rules are an overreach.
“They are voluntarily retaining this connection to the United States,” said Michael Kirsch, a Notre Dame law professor who has written on citizenship-based taxation. “If we were to move to a residence-based taxation system, then I think we have to think long and hard about what the consequences would be for social cohesion and what our country would look like.”
For now, the only sure way out of the U.S. tax net is to renounce citizenship. For some millionaires and others, that comes with an exit tax.
Advocates for Americans abroad have been working for years on ideas to shift the U.S. from citizenship-based taxation to residence-based taxation. One option would tax Americans abroad the same way that the U.S. taxes nonresident foreigners.
They pay taxes on certain U.S.-sourced income and dividends, but don’t face full, worldwide U.S. taxation on all their income. American Citizens Abroad has estimated that transition taxes and fees could make such a plan revenue-neutral, basically by lowering taxes on current Americans abroad and imposing one-time taxes on citizens who move away.
The challenge, Kirsch said, would be trying to prevent wealthy Americans with significant assets from establishing residences in low-tax countries.
“I’ve got to assume that a lot of people would be on the move,” he said of a pure residence-based system. For example, take Monaco, where there is no personal income tax. “For the amounts involved, I’ve never been to Monaco, but I’ve heard it’s a nice place,” he said.
Yue said that once the idea got to Congress, there would be a need for guardrails to prevent abuse. There could be limits for residents of very-low-tax countries. The definitions of what it means to be a resident for tax purposes and what counts as U.S. income would be extraordinarily important.
