What is a legislative “score” — and why does it matter for residence-based taxation?
Our movement saw great success in the last Congress with Rep. Darin LaHood’s (R-IL) introduction of the “Residence-Based Taxation for Americans Abroad Act.” This was the first major piece of legislation in many years to advance the discussion about residence-based taxation in the United States. The bill introduced last year was always intended to be a discussion draft, as Rep. LaHood stated that the bill’s introduction “provides an opportunity for stakeholders and Americans living abroad to provide feedback ahead of reintroduction in the 119th Congress.”
While we await the bill’s reintroduction, we thought it would be useful to explain a bill’s revenue estimate, commonly referred to as a “score”. Issued by the Joint Committee on Taxation (JCT), it is an essential aspect of the feedback and reintroduction process.
An official revenue estimate
A score represents an estimate of how much the change in law would cost the federal government. It can make or break an initiative, as some members of Congress will not consider initiatives that would increase the federal deficit. It can also influence whether a bill can advance under fast-track budget reconciliation rules or needs to follow a different path to adoption.
The LaHood bill would shift the United States away from its controversial citizenship-based taxation model—an approach shared only by Eritrea, a dictatorship—and align it with the residence-based tax systems used by nearly every other developed nation.
The bill was designed to be as close as possible to revenue neutral, or even slightly revenue positive, in order to remove potential obstacles to its adoption. But Congress looks to its professional staff of lawyers and economists on the JCT to determine whether a bill scores well or poorly. Thankfully, Rep. LaHood will have the opportunity to adjust the bill based on the JCT’s feedback before he introduces the legislation in this Congress.
Understanding Scoring
The JCT will provide a conventional estimate of the bill, which includes the direct effects it would have on federal revenues as well a limited behavioral effects. To do this, it uses a rigorous methodology based on confidential taxpayer data, economic modeling, and historical trends to ensure accurate, nonpartisan revenue estimates. Some of the factors that the JCT looks at include:
Impact on Federal Revenue: Will the reform lead to a net loss or gain in tax collection, and how much?
Behavioral Effects: How will expatriates and businesses react to the reform? Would they be more or less compliant with the remaining tax obligations with regard to U.S. sourced income?
Precedents from Similar Policies: Have analogous tax reforms yielded the expected fiscal outcomes?
Fiscal Safeguards: The bill includes a departure tax mechanism to prevent significant revenue losses for the U.S. Treasury during the transition to residence-based taxation. How will such a mechanism affect participation in the proposed residence-based-tax system?
Financial Compliance Considerations: The bill allows non-resident Americans to obtain a certificate of non-residency for FATCA purposes, reducing compliance burdens on foreign financial institutions and ensuring continued access to banking services abroad. Will such a certificate affect tax compliance under FACTA generally?
Compliance and Enforcement Costs: The JCT evaluates the reform’s impact on IRS enforcement, compliance burdens on taxpayers, and administrative costs to ensure the overall feasibility of the proposal.
TFFAA’s Role in Optimizing Scoring
Tax Fairness for Americans Abroad, which has spearheaded the push for residence-based taxation, is also participating in the scoring by addressing questions that arise during the process. Together with Brownstein Hyatt Farber Schreck, one of Washington’s premier government relations firms, TFFAA has worked to ensure that the bill is drafted comprehensively and avoids potential abuse so its impact is evaluated on the basis of the most realistic assumptions possible.
TFFAA included multiple safeguards into the proposal that inspired the LaHood bill, including:
Revenue Offsets: Mechanisms to balance potential revenue losses with new revenue streams.
Departure Tax Provisions: Ensuring fiscal responsibility by requiring a departure tax on deferred income for very wealthy citizens, with exceptions for long-term residents abroad and those below a certain net worth threshold.
Alignment with Estimating Methodology: Structuring the bill’s provisions to improve compliance and prevent abuse to reinforce credibility.
These safeguards were deliberately crafted to navigate the rigorous scoring process and mitigate political opposition.
The Road Ahead
As Mr. LaHood continues to gather feedback on the RBT bill, TFFAA is actively advocating for a fair and accurate assessment of the bill’s fiscal impact. This moment presents an important opportunity to advance bipartisan residence-based taxation reform, whether through the budget reconciliation bill or other legislative pathways.
The outcome of the scoring process will be a defining moment for the Residence-Based Taxation for Americans Abroad Act. Based on the JCT’s feedback, Mr. LaHood’s office can tweak the bill before it is re-introduced in the House and introduced in the Senate in order to ensure its revenue neutrality and ensure it is as complete and effective as possible—to the benefit of millions of Americans abroad.
TFFAA remains committed to ensuring that lawmakers understand the full scope of the economic and fiscal benefits of residence-based taxation. Whether through the budget reconciliation bill or an alternative legislative path, our fight for tax fairness for Americans abroad continues.