This article may contain references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services. Nonetheless, our opinions are our own.
The US is the only country that taxes its citizens. Most countries have a territorial tax system where they only tax income earned within their borders. The US has a worldwide tax system where citizens and permanent residents must pay taxes on their global income no matter where they live. President Donald Trump has been lobbying to repeal it but is it time to change?
Worldwide Taxation
The US worldwide tax system was born in 1913 when the 16th Amendment was ratified. Under it, all American citizens wherever they are located cannot escape filing a US tax return and therefore may pay US taxes. This broad coverage has mechanisms like the Foreign Earned Income Exclusion (currently $120,000) and Foreign Tax Credits to avoid double taxation but the compliance burden is still heavy.
The Case for Repeal
Those who want to repeal worldwide taxation, including Trump, make the following points:
Competitive Disadvantage: American expats often have higher total tax burdens than their non-American colleagues so are more expensive for international companies to hire. This reduces opportunities for Americans abroad.
Compliance Complexity: The reporting requirements for Americans abroad are crazy. Beyond standard tax returns, expats must file forms like the FBAR (Foreign Bank Account Report) and FATCA (Foreign Account Tax Compliance Act) disclosures, often requiring expensive professional help.
Citizenship Renunciations: The number of Americans renouncing citizenship has skyrocketed since FATCA was passed in 2010. Many cite the tax burden and compliance costs as the main reasons.
Economic Growth: Switching to territorial taxation could encourage more international economic activity by Americans and potentially increase tax revenue through economic growth.
Arguments for the Status Quo
Defenders of worldwide taxation argue:
Preventing Tax Avoidance: The system was designed to prevent rich Americans from moving assets offshore to avoid taxes.
Fair Share: U.S. citizens keep their citizenship no matter where they live and should pay for national expenses.
Revenue: While compliance costs are high, the government would lose some revenue from high income expats if the system were abolished.
Impact on American Expats
For the 9 million Americans abroad, the current system is a nightmare:
- Many foreign banks won’t serve American clients due to FATCA reporting requirements
- Compliance costs are over $2,000 a year for middle class expats
- Joint accounts with non-American spouses trigger reporting requirements for the non-American partner
- Small business owners have complex corporate reporting requirements
Solutions
Rather than repeal, some tax experts suggest reforms:
- Residence-Based Taxation: Adopt the system used by most developed countries, where expats would not be taxed by their home country
- Simplified Compliance: Keep the system but reduce reporting requirements for moderate income Americans abroad
More Exclusions: Raise the Foreign Earned Income Exclusion and add exclusions for passive income
Looking Ahead
As global mobility increases and more Americans are looking for international careers, the pressure to fix this will only grow. It’s not just about the money, it’s about how America sees its relationship with its citizens beyond its borders.
Trump’s call to repeal is one option, but this issue goes beyond party politics. Republicans and Democrats abroad have been calling for reform, so maybe there’s a bipartisan solution.
Regardless of party, it’s time to have a real conversation about modernizing America’s unique approach to taxing its global citizens. Whether that means full repeal or smart reform, the status quo just isn’t working in our connected world.
Frequently Asked Questions
Q: How many countries have worldwide taxation? A: Very few. Besides the United States, only Eritrea taxes its non-resident citizens on worldwide income.
Q: How much can Americans exclude from foreign income? A: For 2024, the Foreign Earned Income Exclusion allows qualifying Americans to exclude up to around $120,000 of foreign earned income.
Q: Would repealing worldwide taxation only benefit the rich? A: No. While the rich would benefit, middle-class expats often bear disproportionate compliance costs relative to their income and face banking difficulties abroad.
Q: How much does the U.S. collect from expat taxation? A: Exact figures are hard to come by, but studies suggest the compliance costs may be more than the revenue collected, especially when you consider the economic activity discouraged by the current system.
People Also Ask
Does Trump’s tax plan get rid of worldwide taxation? Trump has recently advocated for getting rid of worldwide taxation, but details haven’t been released yet.
How does FATCA affect Americans living abroad? FATCA requires foreign banks to report on American account holders or face severe penalties, so many banks refuse American clients and it’s a huge compliance burden.
Would I still have to file U.S. taxes if worldwide taxation is repealed? Under most proposals, Americans living abroad would file simple information returns but wouldn’t owe tax on foreign income if they meet residency requirements.
How much does tax compliance cost Americans abroad? Average cost is $500 to $3,000 per year, with complex situations costing much more.
Reviewed and edited by Albert Fang.
See a typo or want to suggest an edit/revision to the content? Use the comment form below for feedback.
At FangWallet, we value editorial integrity and open collaboration in curating quality content for readers to enjoy. Much appreciated for the assist.
Did you like our article and find it insightful? We encourage sharing the article link with family and friends to benefit as well - better yet, sharing on social media. Thank you for the support! 🍉
Article Title: Is Trump Right? Should We Repeal Worldwide Individual Taxation?
https://fangwallet.com/2025/04/11/is-trump-right-should-we-repeal-worldwide-individual-taxation/The FangWallet Promise
FangWallet is an editorially independent resource - founded on breaking down challenging financial concepts for anyone to understand since 2014. While we adhere to editorial integrity, note that this post may contain references to products from our partners.
The FangWallet promise is always to have your best interest in mind and be transparent and honest about the financial picture.
Become an Insider
Editorial Disclaimer: The editorial content on this page is not provided by any of the companies mentioned. The opinions expressed here are the author's alone.
The content of this website is for informational purposes only and does not represent investment advice, or an offer or solicitation to buy or sell any security, investment, or product. Investors are encouraged to do their own due diligence, and, if necessary, consult professional advising before making any investment decisions. Investing involves a high degree of risk, and financial losses may occur including the potential loss of principal.
Source Citation References:
+ Inspo
Investopedia. (n.d.). Investopedia. https://www.investopedia.com/
Wikipedia, the free encyclopedia. (n.d.). https://www.wikipedia.org/
Fang, A. (n.d.). FangWallet — Personal Finance Blog on Passive Income Ideas. FangWallet. https://fangwallet.com/
Google Scholar. (n.d.). Google Scholar. https://scholar.google.com/
There are no additional citations or references to note for this article at this time.
