THE WORLD MARKET IS MUCH BIGGER BUT THE PRESENCE OF AMERICAN CITIZENS ABROAD IS NOT:
The world economy has been undergoing a profound change. Local
economic factors have given way to national economic concerns, and with the rise of the European Union, NAFTA and emerging trading blocks in the pacific region we are now witnessing another step toward a truly single
world market. The inadequacies of our trade strategy were clearly manifested in the large increase in the US trade deficit registered in 1993. This deficit means that we are importing more and exporting less than we
should be. That means another loss of jobs at home. This inadequacy is also anecdotally evident to American visitors to markets all over the world who see the dominance of Japanese cars, and consumer electronics goods,
and the absence of American equivalents. We just don't have enough American presence in these markets to hold our own anymore.
Recently, the EU
has ruled our corporate Extraterritorial Income provisions illegal. There is some talk of $4 billion dollars of retaliation that the EU can take on US products, that is unlikely. Why hurt your own consumers who would
have to pay the higher prices?
FOREIGN TRADE HAS BECOME MUCH MORE IMPORTANT:
time, US exports and imports were only a small proportion of the US economy. Any resultant threat to the US competitive position in world trade was dismissed as an acceptable risk compared to the anticipated benefits of
more revenue for the treasury and the alleged protection of jobs at home. As Professor Surrey indicated during a private interview years later, his opinion in 1962, and subsequently, was that if the Congress was really
concerned about the competitive position of overseas Americans, it should specifically enact legislation to subsidize overseas Americans rather than give them any exemption from US taxation. No one foresaw at the time
how important it would become for Americans to invest abroad to build foreign markets for US exports, nor how difficult it would be to get rid of this experimental tax once it was enacted.
DOUBLETALK ON DOUBLE TAXATION:
The Organization for Economic Cooperation and Development (OECD), the club of rich capitalist
nations, set up a working group to develop a model bi-lateral tax treaty to be used by all member countries to address the double taxation issue. This model treaty, which the United States helped craft, calls for
individuals to have a unique tax liability for foreign source income to avoid double taxation. Tax sovereignty was to be uniquely determined by where an individual resides. Under the model tax treaty, tax liability is a
function of living more than six months away from home, and more than six months in a new foreign jurisdiction.
THE TREATIES THAT ONLY HARM AMERICANS:
Interestingly enough, the United States also abides for the most
part by the form and content of this model tax treaty, but with one major exception. After incorporating the provisions that preclude foreigners in the United States from having to pay tax to their home country when
they have lived six months or more in the United States (they are henceforth liable only to pay taxes to the US Government for income earned in the United States), the US Government then unilaterally adds a provision to
all such treaties invalidating the protection against double taxation of foreign source income of US citizens living and working abroad. The US Government insists that its citizens living abroad must be subject to
simultaneous taxation both by the foreign country of residence as well as the United States. Since 1962, US Government policy has been consistent and adamant that overseas Americans must always be in the worst
competitive situation when confronted with individuals of other nationalities in foreign markets.
What to do