Senators Consider Repeal Of Section 911 To Help Pay For Tax Cuts

by Mike Godfrey, Tax-News.com, Washington

09 May 2003

A report from Bloomberg this week indicates that Republican senators are considering repealing a tax break enjoyed by US citizens working abroad to offset the cost of President Bush's dividend tax cut.

Taxpayers qualify for so-called Section 911 exemption when they have lived outside of the United States for one complete tax year, or 330 days in twelve months. Research by the Congressional Budget Office has found that many consider this tax break gives employees based overseas an unfair advantage against their domestic colleagues, and the Joint Committee on Taxation has estimated that repealing the law would generate $34 billion in extra revenue over the next ten years.

The proposal is likely to encounter opposition from large US corporations however, many of whom pay their employees' taxes as an incentive to take overseas assignments. Rick Grafmeyer, a tax lawyer and former chief of staff on the congressional Joint Committee on Taxation told Bloomberg that the move "in effect is a tax increase for corporations," adding: "If you're involved in international work, your taxes would go up."

Likewise, David Hammond of the Section 911 coalition, which in 1999 included firms such as Caterpillar, McDonnel Douglas and Oracle, condemned the idea of repealing the law. "We would consider it short-term thinking," he explained. "It is one of the most important provisions affecting American workers and U.S. companies overseas."

Senate Finance Committee chairman Charles Grassley also recently suggested that new rules to discourage US corporations from setting up operations offshore to take advantage of more favourable tax regimes could help generate more revenue for the Treasury.

Other developments that emerged from a series of meetings in Congress this week include a Republican plan to eliminate tax on dividends for 86% of taxpayers. This would be done by exempting the first $500 in dividend income from tax, and allowing 10% of the dividend to remain tax free for the subsequent five years.

Crucially for the Bush administration, this latest proposal seem to have finally won the support of key swing voters in the Senate, Olympia Snowe and George Voinovich, who until now had been vehemently opposed to tax cuts costing more than $350 billion.

"The agreement seems to be what I've been hoping for - a robust tax cut that gives the economy a needed shot in the arm without shooting the deficit in the foot," Ohio Senator Voinovich revealed in a written statement.

Meanwhile, Snowe also expressed her support for the deal in a statement this week: "Given my concern about future deficits, I believe the plan is a fiscally responsible approach," the Maine Senator observed.

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