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Should the United States Maintain Its “Worldwide Tax Basis” for Its Citizens or Should It Take on A “Residence Tax Basis” as It Relates to International Taxation of Individuals?

Napoleon Yancey Jan. 6, 2020

If you are a citizen of the United States (U.S.), then you are required to file a tax return regardless of where you live in the world and regardless of where you have earned your income. For example, let's say person X has been a U.S. citizen all their lives. Person X moves to France and has lived there for 10 years and makes all of their income from work in France. Because person X is a U.S. citizen they are still required to file a tax return in the U.S. despite the fact that they have to pay taxes to the French Government.

In my personal opinion, I believe the U.S. should adopt the residence tax basis to determine who is subject to individual taxation. The U.S. is the only country to use the worldwide tax basis for the calculation of income taxes. To me, it makes more sense to tax a person based on the income made within the respective countries rather than to try and include all of the income that a person makes regardless of where it is made. The first issue I see with the worldwide method is that it increases the probability of a person being subject to double taxation (taxed by the country where the income was earned and the country utilizing the worldwide basis system). Second, the worldwide system increases the regulatory burden of living outside of the U.S. if you are a citizen. Having to work with an additional taxing jurisdiction only due to the fact that you are a citizen of that jurisdiction seems to be unreasonably burdensome.

In summary, I believe the U.S. should shift towards the Residency Tax Basis system. Yes, there are some mechanisms in place to try and reduce the risk of double taxation and reduce the burden of the worldwide system, there is still enough unmitigated frustration that the U.S. should follow the wider world's approach to individual taxation on the international level. Making this shift would also put less pressure on U.S. citizens to renounce their citizenship rather than deal with tax compliance in a jurisdiction that they have performed no worked or received any financial gain.