Donald Trump’s project of gradually replacing the progressive income tax with an across-the-board tariff of 10 to 20 percent on all imported goods—which Kamala Harris and Tim Walz describe, quite accurately, as a national sales tax—proceeds apace. The latest instance is Trump’s promise to stop making American citizens who live abroad pay income tax to the United States. This would incentivize wealthy Americans to resettle abroad, which is not a policy you’d expect from a self-professed America Firster. Trump’s xenophobia in this instance bows to the more conventionally Republican imperative to pander to the rich. With Trump, oligarchy comes first.
As The Wall Street Journal’s Richard Rubin and Alex Leary, who broke the story Wednesday, explained, the U.S. differs from most peer nations in that we require our citizens to pay income tax even when that person lives in and pays taxes to another country. Trump calls this “double taxation,” and in a sense it is. But more to the point, it is progressive taxation.
America’s peer nations in the Organization for Economic Cooperation and Development, or OECD, are in most respects more progressive, in the sense that they redistribute more income. But in one key respect—taxation—they are less progressive because they prefer to achieve redistribution through government spending. In France, government expenditures constitute 58 percent of gross domestic product, according to the International Monetary Fund. In Germany, it’s 59 percent. In the U.S., it’s only 36 percent.
In other OECD countries the overall tax burden is consistently higher, but these other tax systems rely much more than we do on payroll taxes and value added taxes, or VAT. The latter are basically a form of sales tax. The U.S. is one of very few OECD countries (the others are Australia, Canada, Denmark, Iceland, Ireland, and New Zealand) where the share of taxes drawn from income tax exceeds the share drawn from payroll tax. And the U.S. has no VAT or national sales tax at all (though Trump’s sweeping tariff of 10 to 20 percent on all foreign goods would effectively change that). In 2008, the U.S. had the most progressive tax system of any OECD nation. It recently ceded first place to Ireland, but you get the idea. Other peer nations redistribute more, but almost no peer nation has a tax system as redistributive as America’s. That’s something to be proud of.
Say what you will about Trump’s earlier proposals to eliminate taxation of tips, overtime pay, and Social Security benefits, these weren’t obvious giveaways to the rich. Trump’s proposal to exempt citizens who live abroad occupies a different category, one more like Trump’s pledge to cut corporate taxes from 21 percent to 15 percent for companies that manufacture products in the U.S.—except in this instance the proceeds will go to those who don’t reside in the U.S. What makes Trump’s proposal regressive is the simple fact that Americans living abroad today must pay U.S. income tax only on income exceeding $126,000. Add to this exclusion a deduction for overseas housing expenses and a tax credit that matches dollar for dollar income tax paid to a foreign nation, and fully 82 percent of citizen expatriates don’t pay U.S. taxes. Only the richest 18 percent do.
The new proposal was the brainchild of a group called Republicans Overseas, which announced the policy shift in a press release a full week before the Journal did. (Nobody noticed!) The group’s chief executive, Solomon Yue, told the Journal that he was emboldened to appeal to the Trump campaign after he saw other constituencies receiving tax breaks. As I’ve noted previously, Trump is conducting a sort of fire sale of his prospective presidency. Until now you had to pay in advance, but neither Yue nor Republicans Overseas appears to have contributed a dime this election cycle. With Election Day less than one month off, Trump is more interested in harvesting votes.
The funny thing is that until now, Trump was no particular fan of Americans who live abroad. On September 23, responding with alarm to a Democratic Zoom event for overseas Americans, Trump whined on Truth Social that Democrats were “getting ready to CHEAT” by using a 1986 law “to get ballots, a program that emails ballots overseas without any citizenship check or verification of identity whatsoever.” It may not surprise you to learn that this statement was untrue. Every ballot request from abroad, as well as every completed ballot sent in from abroad, has to be cleared by the same local election officials who clear voter registrations and ballots for voters who live in the U.S.
Now Trump has changed his tune, openly promising overseas voters that if they vote him in they’ll get a tax break. In a video Trump posted Thursday to the Republicans Overseas website, he was bluntly transactional:
You have to make sure that you are registered to vote because I’m going to take very good care of you..… Once and for all I’m going to end double taxation on our overseas citizens. You’ve been wanting this for years and nobody has listened to you, and you deserve it. And I’m going to do it!
Two weeks ago Trump was telling overseas Americans (again, on Truth Social), “IF YOU VOTE ILLEGALLY, YOU’RE GOING TO JAIL.” Now he’s bribing them to vote with a tax cut.
The proposal could well start a stampede of wealthy Americans to low-tax countries. Under the current law, rich Americans can become tax exiles only if they give up their citizenship. Moving to a low-tax jurisdiction like the Bahamas, which has no income tax, hasn’t until now been much help to a rich American citizen because that person still ends up paying nearly all the U.S. tax he’d have paid while living in the U.S. (I’m assuming this rich person has no foreign labor income to exclude; plutocrats don’t move overseas to become salarymen.) But under Trump’s proposal, some oligarchs—most of them, I’d assume, Republicans—can move someplace where they pay no income tax at all, or very little, and continue voting Republican in American elections! I can’t say I’d miss them, but I would miss their money.
As a result of Trump’s new proposal, a Democratic vote can now be thought of as a sort of anticipatory repatriation. American citizenship confers considerable benefits, especially for the rich. It makes no sense to confer those benefits on people who move abroad to dodge taxes. Say what you will about undocumented immigrants, their desire is to come to the greatest nation on earth, not run away from it. They will make much better Americans than Trump’s greedy expats.
