American expats would have been returning to the US in droves or renouncing their citizenship. There really wouldn't be a financial choice in the matter. Imagine having to pay full taxes on your income in both the US and your country of residence! Already we have plenty of problems abroad.
- The earned income exemption is not indexed to inflation, thus being an effective tax increase every year.
- The devalued dollar artificially inflates our wages abroad, thus being an effective tax increase again!.
- Most people claiming the earned income exclusion still paid US taxes ($4.2 billion in 2006 is a huge amount of double taxation)
- We pay Medicare but we're not allowed to claim it
- Because we've moved abroad, we're no longer allowed to deduct pension contributions
- If I take a foreign pension instead of a US pension, my social security will be cut, even though I've paid for it.
There are many benefits to living abroad and if you earn under the earned income threshold, you won't be impacted by most of this, but finding out that they've already gone after one of my few legal benefits is horrifying.