May 21, 2003
The Honorable Bill Frist
United States Senate
Washington, DC 20510
Re: U.S. Jobs Abroad and the Strengthening U.S. Exports
Dear Mr. Majority Leader:
We support and appreciate recent Congressional action designed to strengthen the U.S. economy and provide tax relief to the American people. As you continue consideration of this legislation, however, we ask that you avoid using revenue offsets that would raise taxes on U.S. businesses and American workers abroad, thereby seriously undermining their ability to remain internationally competitive.
Specifically, we write to express our concern about the repeal of IRC Section 911 included in the Senate passed version of H.R. 2, the “Jobs and Growth Tax Relief Reconciliation Act of 2003.” IRC Section 911 allows U.S. citizens living and working abroad to exclude up to $80,000 in foreign earnings from gross income. The United States is the only major industrial country that does not completely exempt the foreign earned income of its citizens working abroad from taxation. For decades, IRC Section 911 has been a key tool in offering Americans some relief from that burden.
The repeal of IRC Section 911 clearly is contrary to the intent of the overall legislation. It will result in the shift of tens of thousands of jobs now held by U.S. citizens working abroad to foreign nationals and/or significantly increase the financial burden on U.S. multi-nationals, reducing their ability to keep pace with their foreign competitors
When Congress last addressed IRC Section 911 six years ago, it increased the exclusion amount, thereby recognizing the significance of the provision to the competitive position of U.S. companies and to retaining qualified U.S. workers in important international posts. If anything, these goals are more important today than they ever were.
A similar tax increase on Americans working abroad experimented with during the 1970s is instructive when looking at the likely fallout from a repeal of Section 911. In 1978, Congress briefly repealed the provision and, although it was replaced with a less comprehensive measure, the General Accounting Office (GAO) reported a significant decline in the number of Americans working abroad. A 1980 study by Chase Econometrics entitled The Economic Impact of Changing Taxation of U.S. Workers Overseas, analyzed the IRC Section 911 repeal and concluded that for every ten percent drop in Americans overseas, a five percent drop in U.S. exports would result. The study went on to state that the “drop in U.S. income due to a five 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.”
A GAO study published the following year reached similar conclusions and recommended that Congress “consider placing Americans working abroad on an income tax basis comparable with that of citizens of competitor countries who generally are not taxed on their foreign earned income.” Yet the damage to the U.S. economy detailed in these studies was the result of just a three-year repeal of Section 911, partially mitigated by a replacement measure designed to soften the impact. The repeal currently being contemplated by Congress would include no such provisions, exposing U.S. firms and expatriate workers – and by extension, the U.S. economy – to the full force of the tax increase.
We believe that measures targeting U.S. multinationals and expatriate workers would prove highly counterproductive. An increased tax burden for the hundreds of thousands of Americans working abroad and their U.S. employers will inevitably add to the growing numbers of Americans unable to find work at home and hurt the U.S. export sector. We strongly believe that the repeal of IRC Section 911 would send the wrong signal both to U.S. businesses struggling to compete internationally as well as U.S. workers already coping with the effects of a sluggish global economy.
We respectfully request that repeal of IRC Section 911 be removed from the conference report on the economic growth package and that it not be considered as a revenue offset in any future tax legislation.
Alliance of American Insurers
American Bankers Association
American Chemistry Council
American Citizens Abroad
American Council of Engineering Companies
American Council on International Personnel
American Petroleum Institute
Americans for Tax Reform
Associated General Contractors of America
The Business Roundtable
Coalition of Service Industries
The Design Professionals Coalition
Financial Executives International
The Financial Services Roundtable
Information Technology Association of America
National Foreign Trade Council
Software Finance and Tax Executives Council
U.S. Chamber of Commerce
U.S. Council for International Business