Surviving the ex-pat tax

Miranda Kennedy Nov 22, 2006

KAI RYSSDAL: Most of us won’t have to deal with the Internal Revenue Service for another four or five months yet. But Americans living overseas already have the tax man breathing down their necks. Back in May Congress passed, and the president signed, a $69 billion tax cut. Down in the fine print, though, was a provision to raise taxes on expatriates and their American employers. Retroactively. The new rule’s expected to rake in more than $2 billion in tax revenue over the coming decade. But that’s only if it doesn’t backfire. Miranda Kennedy reports from Kuala Lumpur, Malaysia.

MIRANDA KENNEDY: When Vince Leusner’s employers, at the ad company Grey Global, first offered him a promotion if he moved to Kuala Lumpur, he dismissed it out of hand. But they persisted.

VINCE LEUSNER: After they offered it to me three or four times, I finally gave it some serious consideration. So I’ve been out here for over six years now. You know, it’s just an incredibly fascinating experience.

He’s now CFO for Asia. He says despite what a lot of his friends think, the benefits of the expat life aren’t really financial. He gets some perks, like a company-paid SUV, but he’s making about the same as he made in New York. Still, his family’s quality of life hasn’t suffered. The Kuala Lumpur house is just as comfortable as their suburban Philadelphia home. They have cable TV. Vince’s three teenage kids hang out at the city’s luxury malls and go to an international high school.

LEUSNER: I think they all appreciate it, that they think it’s a good lifestyle. And it’s still the same routine things that my kids would get if they went to Council Rock High School back home. It’s still math and science and, you know, the play, and the choir . . .

The family still goes to church every Sunday. It’s the same Catholic service, although they can’t always understand the priest’s thick accent.

Vince wants to extend his posting until his kids finish high school, but with the new tax law, he’s not sure he’ll be able to.

He’s also president of the American Chamber of Commerce in Malaysia. He says U.S. companies worry that the tax change will make them less competitive.

LEUSNER: Americans have to pay both Malaysian tax and American tax. The burden of the cost falls on the employer. So the bottom line is, it’s cheaper to employ British expats than it is to employ American expats.

Up to 60% cheaper. The new bill slashed expat housing deductions and raised tax rates. Vince reckons it was pushed through by congressmen who think people like him are living it up in castles full of servants.

LEUSNER: I know of a great many expats who are working very hard in the support of their companies, that aren’t laying by the pool eating bon bons and drinking tropical drinks. Personally I’ve been here for several years and I had wanted to take up golf when I came here, and I haven’t been able to fit it in yet.

Vince finds all the hullabaloo in Congress about expat spending pretty ironic. To show me why, he takes me out to a restaurant that’s popular with his family, and with many of his American colleagues here.

LEUSNER: This Susie’s corner, it’s like a piece of pavement, surrounded by chain-link fence and on the other side of the chain-link fence are like, stray dogs, looking to get a piece of meat.

The dogs stay on their side of the fence. We sit at grubby plastic tables and order bottles of local beer and the $2 pepper steaks that are legendary among Vince’s Texan friends. Vince and his son Drew tell me that before they moved here, they hadn’t spent more than a couple weeks outside the U.S. They hadn’t spent much time thinking about the world outside the U.S., either.

VINCE LEUSNER: It heightens your sensitivity to be outside of the United States.

DREW LEUSNER: Like, not just how it’ll affect Americans but how it will affect various other parts of the world.

VINCE LEUSNER: You get to interact with different people from different religions and different cultures. You know, it just makes for a world that’s more understanding perhaps.

Vince worries some of that understanding will be lost, if companies cut back on their overseas employees. And his kids are worried too. To his surprise, all three of them want to stay in Malaysia — even if it means missing the prom at Council Rock High School.

In Kuala Lumpur, I’m Miranda Kennedy for Marketplace.

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