President Biden has an opportunity to stand above partisan rancor like few before him.
His election was less the result of any broad endorsement of Democratic Party economic or social agendas and more the result of centrists and swing voters crossing party lines in the hopes that Biden might restore the decency that former President Donald Trump stripped from the Oval Office. Because Biden was older on Inauguration Day than was former President Ronald Reagan when he left office, Biden likely will not seek a second term. Never before has lame-duck status coincided so completely with a political honeymoon. This, and the perspective borne of almost a half-century in office, gives Biden a unique opportunity to right past wrongs, even when the immediate political rewards of doing so might be nonexistent.
Biden fancies himself as a globalist, but he now presides over a country whose taxation system punishes people who embrace the globalized economy. While most countries tax income earned in that country, the United States taxes income based on the citizenship of those earning money, regardless of whether or not they live in the U.S. (Eritrea goes farther and seeks to tax based on ethnicity, often retaliating against relatives of those who do not oblige.) Not only is citizenship-based taxation unfair, subjecting Americans abroad to double taxation, and outdated, with some aspects of the law dating back to the Civil War, it also exposes expatriate Americans to onerous regulations. Taxes for Expats, an accountancy specializing in helping Americans abroad navigate their liabilities, has a useful summary of the history of the issue.
The frustrating thing for almost every person caught in the expatriate tax mess is that few people, if anyone, defend the current system. American Citizens Abroad, a nonprofit organization that advocates for the interests of these people, persuasively has shown that a U.S. switch to residence-based taxation would be revenue neutral. That there is no natural electoral constituency for Americans abroad means that both parties are content to let the problem fester. In effect, Americans abroad now suffer taxation without representation.
Biden has an astute sense of history born of decades of government service. He says he seeks not simply to be a placeholder but to be a healer who can right the U.S. on its rails. If he is to succeed, however, Biden must look beyond ordinary policy battles and policy failures that have fallen through the cracks. It is not just an issue of fairness and revenue. Both Biden and Secretary of State-designate Antony Blinken often speak of the need to prioritize “soft power.” They are right, of course, but the most effective means to promote soft power in the 21st century will not be State Department conferences or U.S. Agency for International Development projects, but rather, it will be chambers of commerce and business in general.
It is time to stop punishing Americans abroad. There literally is nothing to lose and everything to gain by switching to residency-based taxation.
