August 1, 1996

Section 911 of the internal Revenue Code provides a $70,000 foreign earned income exclusion for U.S. citizens who are physically present in a foreign country or countries for a period of 11 out of 12 months, While this is better than no exclusion, it does not match the resident-based tax treatment enjoyed by citizens of other countries with whom Americans must compete. The House Ways & Means Committee held hearings on fundamental tax reform on July 18 which addressed- the matter of the foreign earned income exclusion and its impact on American business. Representing The Section 911 Coalition. an organization consisting of companies, business organizations, non-profit associations and individuals who share a common interest in 91 1, was Mr. Jeffrey Kaufman, Director, Services to Executive Abroad, Coopers & Lybrand, the large accounting and tax service firm. Mr. Kaufman has worked on international tax, compensation and human resource issues affecting U.S. expatriates for over fifteen years.

Currently there are three proposals before the Ways & Means Committee: A 100% exclusion based on the Armey Flat Tax, a partial exclusion similar to the current 911 authored by Senators Nunn and Domenici. and no exclusion as recommended by the "Bingaman R Corp. Proposal".

The motto or slogan of The Section 911 Coalition is "Americans Abroad = U.S. Exports = U.S, Jobs". which just about says it all. To reinforce those words, Mr. Kaufman testified "In recent years, exports have been the most impressive engine of growth for America's economy. Between 1986 and 1993, according to the U.S. Department of Commerce, nearly 40 percent of the growth of America's Gross Domestic Product resulted from exports of goods and services. Commerce Dept. Statistics also indicate that every $1 billion in U.S. Exports creates or sustains 17.000 man-years of direct domestic employment. The United State exported $701.2 billion worth of goods and services in 1994, which translates into nearly 12 million American jobs. Exports don't happen by themselves. Independent studies and raw statistical data show a direct correlation between the number of Americans working overseas and the level of U.S. exports. You've got to put your sales people in the field. Americans abroad are the best sales people for U.S. goods and services overseas. In the ongoing pursuit of international market share, the Section 911 exclusion has proved to be a very important factor. U.S. sales forces and service providers can only go where it is cost effective.

The current Section 911 exclusion for income earned abroad is the mechanism by which the Internal Revenue Code reduces U.S. tax barriers to the deployment of sales and service industry personnel around the globe. It has a direct impact on the U.S. based support operations of the companies they work for, U.S. based suppliers and service companies that do business with their employers, as well as many other unrelated U.S. companies that develop relationships once the markets abroad grow more comfortable with our culture and learn the benefits of seeking out U.S. businesses". Mr. Kaufman and The Section 911 Coalition did an outstanding job in presenting the case not only for the current 911 exclusion but for providing a full foreign earned income exclusion. What the Congress really needs to do is change U.S. tax policy from citizen-based to resident-based, meaning that if you are resident in the U.S. you pay taxes just like the rest of us. If you live and work overseas you would pay no taxes. In this way U.S. business and American workers would be on an equal footing with the rest of the world.

There was obviously much more testimony given by Mr. Kaufman, but essentially that was the gist of it. According to Jane Dudley, Director of Governmental Affairs with the law firm of Whiteford, Taylor & Preston, a consultant to The 911 Coalition and our "eyes and cars" for more than a dozen years in Washington, the dialogue at the hearings was "very encouraging". She reports that "both House Ways & Means Chairman Bill Archer and Representative Gibbons were so supportive and the Committee as a whole took a lot of time to discuss this and other international tax issues which effect competitiveness". If real tax reform becomes a reality, 911 could be improved. Even if a total exclusion is not adopted, Bill Archer's proposal for a $100,000 exclusion might be. Good work guys.