Washington (July 7, 2004) — The American Institute of CPAs has joined a coalition of U.S. business groups in urging Congress to rethink a provision of the “Jumpstart Our Business Strength (JOBS) Act” that critics say could backfire on American workers.
Under current law, Internal Revenue Code Section 911 allows Americans working overseas to exclude up to $80,000 in income annually from U.S. taxes. Their employers may provide an unlimited tax-free housing allowance on top of that break.
The JOBS Act, which passed the Senate earlier this year, would combine the housing expense and foreign earned income tax exclusions and cap the total tax benefit for U.S. workers abroad at $80,000.
AICPA Tax Executive Committee Chair Robert A. Zarzar told Congressional leaders that reducing the tax break for U.S. workers overseas “will almost certainly result in less employment for Americans abroad.” This, in turn, would impact on U.S. exports, and destroy jobs in this country as well, he argued.
Zarzar’s concerns are underscored by the findings of a study by Chase Econometrics, which concluded that a drop in employment levels among Americans abroad could have serious consequences for the job market for workers in this country. According to that study, every 10 percent drop in American workers overseas would result in a 5 percent reduction in U.S. exports. According to the researchers, the decline in U.S. income due to a 5 percent drop in real exports would “raise domestic unemployment by 80,000 (persons) and reduce federal receipts on personal and corporate income taxes by more than $6 billion — many times the value of increased taxes on overseas workers.”
The accounting profession’s objections to the JOBS Act’s 911 provisions were echoed by a multinational business coalition that includes the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers. In a separate letter to Congressional leaders, the coalition warned that the reduction in the Section 911 exclusion “could shift tens of thousands of jobs now held by U.S. citizens working abroad to foreign nationals and significantly increase the financial burden on U.S. multinationals, reducing their ability to keep pace with their foreign competitors.”
AICPA and other critics of the proposed new limits on Section 911 exclusions argued that there are valid reasons for giving Americans a tax break when they work abroad.
The U.S. is the only major industrialized nation that doesn't exempt the foreign-earned income of its citizens working abroad from taxation. The exclusions in the current law are designed to level the playing field for American workers and employers.
In addition to equalizing the tax treatment for Americans and their foreign counterparts competing for the same overseas jobs, the 911 housing exclusion is intended to “recognize the hardships involved in employment abroad, including higher, and frequently duplicative, housing costs and irretrievable expenses and losses resulting from cross-border sales and purchases of housing,” Zarzar explained.
— Ken Rankin
