Bush's tax repeal on Housing Allowances

[livermore]

Could someone please throw some light on this latest issue on Bush's tax repeal on expatriate housing allowance tax? The cap on Housing Allowance has been raised from $500 to $11,000?

implications, examples would be very much appreciated.

[e90325]

Is this what you're talking about?

"Regrettably, the tax reconciliation conference report, rushed through the Congress in just a few days, reduces the benefits provided by the foreign earned income and employer-provided housing exclusion rules for U.S. citizens living abroad. The conference agreement makes three changes to the foreign earned income exclusion and housing allowance: 1) the income exclusion is indexed for inflation starting in 2006 (rather than 2008 under current law); 2) the base housing amount used in calculating the foreign housing cost exclusion in a taxable year is 16% of the amount of the foreign earned income exclusion limitation (instead of the present law 16% of the grade GS-14, step 1 amount). Reasonable foreign housing expenses in excess of the base housing amount remain excluded from gross income, but the amount of the exclusion is limited to 30 percent of the taxpayer’s foreign earned income exclusion. The Secretary is given authority to issue regulations or other guidance providing for the adjustment of this 30% housing cost limitation based on geographic differences in housing costs relative to housing costs in the United States. And 3) income excluded as either foreign earned income or as a housing allowance is included for purposes of determining the marginal tax rates applicable to non-excluded income. "

[Sleuth]

Here is the WSJ take on it:

Lost in Taxation
May 24, 2006; Page A14
In Sofia Coppola's movie of a couple years ago, "Lost in Translation," Bill
Murray plays an American actor who wanders around Tokyo in a state of
perpetual confusion. Real-life American expatriates will feel the same way
when they figure out that Congress has just revoked a large chunk of their
protection from double taxation.
Unlike citizens of most other countries working overseas, Americans pay
taxes both abroad and at home. Until last week, Section 911 of the U.S. tax
code allowed these unofficial ambassadors to exclude up to $80,000 of their
foreign earnings from U.S. taxes and provided a tax break on additional
compensation, including housing costs, which in places like Hong Kong or
Paris or Dubai can make apartments in Manhattan look affordable.
Congress's revenuers argue that the tax treatment is a gift to fat-cat
corporations, which use it to lower the cost of hiring Americans overseas.
President Carter weakened Section 911 in the 1970s. In the mid-1990s
President Clinton endorsed a proposal to eliminate the exemption until the
outcry from U.S. business made him realize it was bad politics.
Republicans aren't that bright. Chuck Grassley, the Iowa Republican who
chairs the Senate Finance Committee, slipped a last-minute amendment into
the tax bill that President Bush signed into law last week. The changes
nudge up expatriates' tax exemption to $82,400 but substantially raise
taxes
on additional compensation and effectively cap housing benefits. They are
also all retroactive to January 1.
The point of this exercise was to "pay for" the bill's other tax relief.
Under the static analysis favored by the Joint Tax Committee, the expat
effrontery will raise $2.1 billion over the next decade. Good luck.
American
businesses will react. PricewaterhouseCoopers estimates that 24,000
Americans employed in America could lose their jobs, never mind those
working overseas. That means tax revenues may undershoot the Senate
committee's expectations.
Mr. Grassley won't even squeeze the fat cats. Middle managers -- whose
overall compensation shoots up once housing benefits and cost-of-living
allowances are added -- will likely be affected most. These workers often
are married with children and would just as soon stay home. But as the
world's economy integrates and overseas experience becomes a must,
Americans
are heading abroad at a younger age. A recent GMAC Global Relocation Survey
estimates that well over half of all expatriates today are between the ages
of 20 and 39. These aren't people raking in cash.
Section 911 will have the biggest impact on American businesses in the
fastest-growing parts of the globe -- the Middle East and Asia -- that have
some of the world's lowest-tax regimes. Since Americans pay tax abroad and
then use that to offset tax owed at home, expats in low-tax countries like
Hong Kong and Saudi Arabia will feel the most pain.
The U.S. is one of only a handful of countries that taxes its citizens'
incomes regardless of where they reside. And unlike Eritrea and North
Korea,
other members of this exclusive club, the U.S. actually collects taxes from
its nationals abroad. A better idea would be for the U.S. to follow the
example of virtually every other developed country and adopt a territorial
tax regime that leaves its citizens overseas alone.
Some 4.1 million Americans are living abroad. In an election year when
Republicans are down in the polls, they have just offended a constituency
they can ill afford to lose.

[kombuchakid]

there was a dubious response in the SCMP on Tuesday
+++
Poor fat-cat expats


Overseas Americans who voted for the Republicans are upset that they may lose their tax exemptions under proposed US legislation ("Republicans furious at plan to raise tax" May 22).

Boo hoo. I feel so badly for these overseas and overpaid fat cats. Their Cayman Islands bank accounts and Thai beach villas will surely go down the tubes, thus forcing them to take drastic measures like sending their children to, gasp, non-Ivy League schools.

Maybe next time these overseas flag-wavers will think twice before zealously backing a clown who has failed in every endeavour he has attempted in life except stealing the US presidency.

CHARLES HENNING, Guangzhou


There should be a spirited response response on Thursday.

[tx75070]

Has this already been signed into law and now in effect? Or is it just on the table? As a middle manager with kids and a large housing allowance by US standards, this might make me decide to leave HK.

[PDLM]

this might make me decide to leave HK.

Have you considered the alternative of a leaving your citizenship?

[tx75070]

Have you considered the alternative of a leaving your citizenship?

I can't do that, because I do eventually want to live in the US again.

[Sleuth]

Has this already been signed into law and now in effect? Or is it just on the table? As a middle manager with kids and a large housing allowance by US standards, this might make me decide to leave HK.

Signed into law last week and retro-active to 1 January. There is a chance that the business lobbies will get it repealed and that the repeal will also be retro-active to 1 January.
And as far as that comment in the SCMP, I have no Cayman Island accounts, nor a Thai beach villa and my one-week old is a long way from worrying about college. But, as the WSJ pointed out, this won't really hurt people like that guy describes. It is the people without tons of money that will be hurt.
And, while Bush signed it, it was Charles Grassley's fault and I doubt that many in Congress realized what Grassley was doing. Such is the unfortunate fact of life in the US Congress--no one really knows everything that is in every bill. You think the President actually reads all those hundreds of pages before signing? He gets the Cliff Notes version.