Tax hike for American expats

Marketplace Staff Jun 26, 2006

TESS VIGELAND: What would you guess is the most expensive city to live in in the world? New York? London? Tokyo? Not according to an annual survey out today from Mercer Human Resources. Nope, the most expensive city in the world is . . . Moscow. Followed by Seoul, South Korea and then Tokyo. Mercer bases its rankings on the cost of basics like housing, food and transportation, as well as entertainment.

Living abroad is often expensive for the four million Americans who work overseas. And it could get even more spendy, thanks to the recent tax cut package passed by Congress. Economist Magazine writer and commentator Tom Easton says Congress has betrayed expats in more ways than one.

TOM EASTON: This summer, I’m moving from New York to Hong Kong. It wouldn’t surprise me if I were the last American ever posted overseas by any company.

That has nothing to do with me or my employer, The Economist. It’s simply a result of American tax policies.

America wants to make sure no one evades taxes. So it taxes its citizens regardless of where they work, unlike every other developed country in the world.

Pricewaterhouse estimates we have 200,000 fewer jobs in America because of that.

But now, it has gotten worse. If you move to a place with enormous housing costs, any corporate subsidies will also be taxable.

So, companies will either pay employees less, and fewer Americans will want to go abroad. Or companies will have to pay them more. So, why hire them?

American citizens are clearly the best sales force for US products and services.

If fewer of them go abroad, that means all US companies will sell fewer products there.

And it means American multinationals will likely stock offices abroad with foreign nationals instead. Those foreign nationals will push the sourcing of products from their home countries.

In the short-term, companies might kick in for the extra cost, along with the money for a classified ad to find a replacement from anywhere but America.

In the long-term, this new tax will hurt all sorts of people. Housing subsidies are often a critical inducement for American teachers overseas. Eventually, it could even affect the American military.

Republicans vowed in 1999 not to raise personal taxes. The new tax breaks this vow, and it does it in a particularly damaging way.

But then again, overseas voters workers aren’t a coherent voting bloc. And America voters aren’t likely to understand the implications.

When I get to Hong Kong, I assume I’ll hear lots of complaints. But only until every other American is gone.
VIGELAND: Tom Easton is New York bureau chief of The Economist. He comes to us by special arrangment with that magazine.

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