JULY 1981 - VOLUME 2 - NUMBER 7
U.S. Taxes: Giving the Jet Set a Break
Buried in the Reagan administration's tax revision proposals is a provision that could save U.S. multinationals millions of dollars. This sweetener would exempt up to $75,000 (the first $50,000 plus one-half of the next $50,000) of the income earned by the employees of U.S. firms operating overseas from U.S. taxes.
The bill would also relax the eligibility restrictions for the exemption, and would grant multinationals' employees abroad a blanket housing deduction of $6000. The Senate Finance Committee has already adopted the tax provision, and the House Ways and Means Committee has passed a similar version.
A staff attorney with the Senate committee said that Congress members have received a "flood of mail" from employees of U.S. multinationals pressing for the tax exclusion on the grounds that the present system-which basically taxes income according to the difference between the cost of living in the U.S. and the cost of living in the country where the employee resided-makes it too expensive for the firms to hire Americans to work abroad. This, in turn, reduces the opportunity to sell American goods overseas, argue the corporations.
According to a staffer with the House committee, several oil companies also assisted with the lobbying campaign. And Senator Lloyd Bentsen (D-Texas), a leading representative of oil interests in Congress, tried unsuccessfully to raise the tax exemption ceiling provided for in the bill from $75,000 in 1981 to $95,000 in 1985.
The Treasury Department estimates that the proposed change would cost taxpayers $300 million in foregone revenues in 1982, rising to $600 million in 1986. These estimates appear low, however, since a similar blanket exclusion that existed in 1977 (for $20,000 to $25,000 of foreign-earned income) cost the Treasury an estimated $498 million.