No Taxation Without Physical Location

Trump Should Follow Through on His Promise to End Taxation of Americans Abroad

There is a quiet crisis unfolding among Americans living overseas. According to a 2025 survey by Greenback, an international tax consultancy, nearly half of U.S. citizens abroad are considering renouncing their citizenship, up from 30% just the year prior. Of those, 61% cite taxes as a driving factor. Each year, somewhere between 5,000 and 6,000 Americans go through with it, permanently severing ties with their country of birth.

This is the tragic consequence of a tax system that treats its own citizens like suspects no matter where on earth they happen to live. More fundamentally, this approach defies one of the key principles of good taxation: taxing income based only on where it is earned.

An Outlier Among Nations

The United States operates on a citizenship-based tax system, meaning that American citizens owe the IRS a full accounting of their worldwide income regardless of where they live, work, or pay taxes locally. If you moved to Berlin a decade ago, married a German, built a life there and haven’t set foot on American soil since, you still file with the IRS every April. You still report your foreign bank accounts, and your bank account reports back to the IRS about you. You still navigate a thicket of forms, penalties and potential double taxation.

Almost no other country does this. As Cato Institute scholar Adam Michel has noted, “Eritrea’s brutal dictatorship is the only other country to come close, imposing a 2 percent levy on all expatriates.” That’s the company the United States keeps on this particular policy.

Some relief is offered under the Section 911 exclusion, which exempts up to $132,900 (in 2026) of foreign-earned income from U.S. taxation.

The rest of the developed world uses residence- or territory-based taxation—you pay taxes where you live and earn. It’s a principle that is both logically coherent and practically fair. The U.S. nominally understands this logic: In 2018, it shifted corporate taxation to a quasi-territorial model, sparing American multinationals from the competitive disadvantage of being taxed twice on foreign profits. Sixty American companies had “inverted” (relocated their headquarters abroad) partly to escape that burden before reform finally came.

While Congress’ actions gave businesses some relief, individual Americans living abroad are still waiting.

The Everyday Burden

Defenders of the current system sometimes frame it as a concern about the ultra-wealthy hiding money offshore. But as data from the IRS itself shows, most people renouncing their citizenship in recent years have moderate income levels, and about two-thirds have net worth below $1 million. Many are middle-income earners: teachers, engineers, nurses who moved abroad for work or love or family, only to find themselves trapped in bureaucratic purgatory. The complexity of filing under two parallel tax systems, combined with steep penalties for even innocent mistakes, makes ordinary financial life feel precarious.

The Foreign Account Tax Compliance Act, or FATCA, has made things worse. Enacted in 2010 and fully implemented by 2014, FATCA requires foreign banks to report the accounts of U.S. citizens to the IRS. The rational response from many foreign financial institutions has been to simply refuse American clients altogether. Americans abroad report being denied bank accounts, mortgages, and access to local retirement plans, not because of anything they’ve done wrong but because their passport creates a compliance headache for institutions that would rather not bother.

What’s more, proponents of FATCA justified these burdens on the grounds that the act would generate substantial revenue by combating offshore tax evasion. In reality, the actual revenue collected has been minuscule, with congressional estimates projecting just $250 million per year in revenues on previously untaxed offshore assets. Worse still, most of the limited revenue collected is not tax revenue at all, but penalties associated with noncompliance with the Report on Foreign Bank and Financial Accounts.

The human consequences are not abstract. Former U.K. prime minister Boris Johnson, born in New York, raised in Britain, renounced his U.S. citizenship after the IRS sent him a tax bill for the sale of his London home. Even American Olympic athletes have been hit with tax bills on the value of their medals and prize money earned overseas. The system does not discriminate between billionaires evading taxes and ordinary people living their lives.

A Reform Within Reach

During the 2024 campaign, Donald Trump made a specific and welcome promise: “I support ending the double taxation of overseas Americans.” It was a direct acknowledgment that the current system is broken. Now, with a Republican trifecta in Washington, the political window to act is open.

The solution is not complicated in principle. The U.S. should adopt a residence-based or territorial tax system for individuals, one where Americans living and working abroad pay taxes to the country where they actually reside, and only U.S.-sourced income remains subject to American taxation. This is what virtually every other developed nation already does. It is what the U.S. already does for corporations. There is no principled reason individuals should be treated differently.

As Veronique de Rugy has argued, such a reform would “stop treating solid citizens like criminals—all while maintaining the ability to tax U.S. residents on their worldwide income and combat actual tax evasion.” The goal is not to create loopholes; it is to eliminate a burden that falls hardest on people who are doing nothing wrong.

The Economic Case

Beyond fairness, there is a straightforward economic argument for moving to a residence-based or territorial system. Americans living abroad often serve as informal ambassadors for U.S. commerce, working for American multinationals, opening foreign markets, building relationships that bring business back home. When the Section 911 foreign income exclusion was curtailed under President Carter in 1976, his own Export Council warned that the change put Americans at a competitive disadvantage abroad and contributed to a measurable loss of U.S. market share overseas. The exclusion was later restored under Reagan precisely because the cost was real.

The worldwide tax system also deters high-skill foreign nationals from building careers in the United States. Any noncitizens who spend more than half the year working in the U.S. become subject to worldwide taxation and face an exit tax if they later wish to leave. For talented professionals weighing options between New York and London or Singapore, this is a meaningful disincentive.

The Moment Is Now

Tax reform is never easy, and FATCA repeal would require an act of Congress. Millions of Americans abroad are not asking for special treatment. They are asking to be treated like citizens of any other developed country and taxed where they live, not chased around the globe by a government whose services they largely don’t use.

That is not an unreasonable request. It is also, in fact, the global norm. It’s time for the United States to join it.