WASHINGTON — The new year will bring a new administration, and I’ll be watching to see if President-elect Donald Trump’s team finally ends global taxation of American personal income. It is imperative to resolve this issue. Not only would this be sound fiscal policy, it could prevent millions of law-abiding Americans living abroad from being treated as financial pariahs.

Trump seems to agree. “I support an end to double taxation of Americans overseas” he promised in a campaign press release. This problem has its origins in America’s strange global tax system.

Most people don’t realize this, but if you’re a US citizen, the IRS wants to know every dollar or euro you earn, no matter where in the world you earn it. We’re not talking about jet set people or Americans hiding money in offshore accounts. This is a tax grab that applies even if you haven’t lived here in decades and pay your fair share in another country. It’s like the IRS is following you around the world, demanding an accounting of every paycheck, bank account or investment.

Here’s how it works: If you live and work exclusively outside the United States, you must file a U.S. tax return showing your income, foreign bank accounts containing more than $10,000, retirement accounts, investments and other financial details. You are responsible for paying U.S. taxes on income above certain thresholds and navigating complex forms and rules to avoid or minimize double taxation.

This is not only unfair, but particularly unfair. The United States is the only developed country that imposes taxes based on citizenship rather than residency. We are in very bad company. As Adam Michel of the Cato Institute writes, “Eritrea’s brutal dictatorship is the only other country that comes close, imposing a 2% levy on all expatriates. »

Double taxation most often occurs when you live in one of the many countries not covered by a tax treaty, or for income earned abroad not protected by the Section 911 exclusion (which currently exempts up to ‘to $126,500) or other provisions which “allow foreign tax credits to offset similar taxes paid to other governments” Michel explains.

Common financial activities that receive a tax advantage in the country of residence (such as retirement accounts or home sales) may still result in a U.S. tax liability. Americans living abroad must essentially maintain two parallel tax lives and bear a greater burden than taxpayers based in the United States or those in their country of residence.

The best alternative is a territorial tax system, based on the principle that income should be taxed where it is earned. Under such a system, if you are an American living and working in Singapore, the income you earn there is taxed only in Singapore. Territorial taxation is a fundamental concept of sound tax policy that the US citizenship-based system violates. In fact, Trump’s 2017 tax reform transformed global corporate taxation into quasi-territorial taxation.

But the worst part is how remarkably difficult banking has become for many Americans abroad. Thanks to the misguided Foreign Account Tax Compliance Act, foreign financial institutions often choose to deny services to U.S. citizens living abroad rather than comply with complex reporting requirements. These people may therefore encounter enormous difficulties in opening bank accounts, obtaining mortgage loans and participating in local investment and retirement plans.

To recap, Americans abroad must pay taxes in their country of residence, report and possibly pay additional U.S. taxes on the same income, and cannot always expect adequate financial services, all despite they generally receive very few services from the U.S. government. Some who face these burdens have minimal ties to the United States.

The sanctions for non-compliance are extremely disproportionate. Simple reporting errors can result in fines of tens of thousands of dollars, even if no taxes are owed. The complexity makes such mistakes easy to make, even with professional help.

Although the administration has tools to limit FATCA’s enforcement, ending it completely would require repeal by Congress. The best way, of course, would be for Trump and Congress to work together.

As for the underlying problem of global taxation, the United States should join the rest of the developed world and adopt a residency-based tax and reporting system. This would solve all of the problems mentioned above and stop treating solid citizens like criminals – while still retaining the ability to tax US residents on their worldwide income and combat actual tax evasion.

Such reform would also save government resources wasted on processing the complex returns of Americans abroad who ultimately owe no taxes. This would encourage global mobility of U.S. citizens, including those who are abroad promoting U.S. businesses, and make U.S. workers more internationally competitive.

— — —

Véronique de Rugy is the George Gibbs Chair in Political Economy and a senior researcher at the Mercatus Center at George Mason University. To learn more about Véronique de Rugy and read articles by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate webpage at www.creators.com.