In the most recent US tax reform, branded as Trump’s “One Big Beautiful Bill”, the American government introduced several changes, unfortunately, what did not change was citizenship-based-taxation (CBT).
While most nations adopt a residency-based taxation(RBT) model that taxes individuals based on where they live and earn income, the U.S. uniquely enforces taxation by citizenship. For decades expat Americans have been advocating for a shift from citizenship-based taxation to residency-based taxation, but this plea has yet again fallen on deaf ears.
Citizenship-based-taxation and the burdens it brings
The “One Big Beautiful Bill” didn’t remove American expats’ complex and costly compliance burden of filing US tax returns, reporting on foreign bank accounts and assets, and paying tax on income that has in many cases already been taxed where they live. Some of the main challenges that CBT pose for American expats and their advisers include:
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Loss of Banking Access
Due to FATCA, many foreign banks and wealth managers now refuse U.S. clients altogether, citing compliance burdens. -
Mismatch of Wealth Structures
Discretionary trusts, foundations, and common estate planning tools abroad often trigger harsh U.S. tax treatment or are completely unworkable. -
Overexposure Through Disclosure
Forms like FBAR and FATCA introduce reputational risk and audit exposure in jurisdictions that value client confidentiality. -
Planning for Exit
Increasingly, advisers are asked to assist with lawful renunciation of U.S. citizenship not out of disloyalty, but as a last resort against untenable tax complexity.
Citizenship-based-taxation limits globally mobile American families’ access to international investment opportunities, impedes their use of local retirement products, and often results in them having less competitive portfolios compared to their non-U.S. peers. The fiscal obligations tied to U.S. citizenship also deter foreign talent in the US from naturalizing, knowing that American citizenship carries lifelong reporting and taxation demands.
Who does the One Big Beautiful Bill serve?
Trump’s latest tax bill offers generous perks to large corporations and high-income earners. It gives permanent deductions to U.S. multinationals, and rolls back some confusing rules that made it harder for corporations to manage their global structures. But while these changes make life easier for businesses, they do nothing to help American citizens living overseas.
What’s frustrating many is that the tax cuts that the “One Big Beautiful Bill” include, come at a hefty price tag. Some estimate these tax cuts could add nearly US$ 4 trillion to the national debt.
To examine the proposed tax changes in further detail click the segment in the accordion below.
Corporate Tax
- FDII deduction made permanent: Favours U.S. exporters by reducing the effective tax rate on foreign sales.
- GILTI deduction extended: Maintains a lower tax rate on certain foreign-earned income.
- Downward attribution repealed: Eases CFC compliance for U.S. shareholders in foreign firms.
- Full foreign tax credit restored: GILTI-related taxes paid abroad now fully creditable.
- Planning certainty: Key international corporate provisions from TCJA now long-term fixtures.
HNWI
- TCJA tax cuts extended: Preserves top rate at 37% and avoids scheduled increases.
- SALT cap raised: Up to $40,000 deductible for state/local taxes—especially valuable in high-tax states.
- No wealth tax introduced: Capital gains and estate tax structures remain unchanged.
- CBT remains: No relief for American HNWIs abroad facing double taxation and compliance burdens.
Middle Income Earners
- Standard deduction increase: Temporary boosts through 2028 ($1,000–$2,000 depending on filing status).
- New deductions introduced: Write-offs for tips, overtime, and U.S.-assembled car loan interest.
- Elderly tax break: Additional $4,000 deduction for seniors earning under $75K (single) or $150K (joint).
- Benefits expire post-Trump term: Most incentives sunset by end of 2028.
- No changes to income brackets: Middle-tier tax rates remain as under TCJA.
Social and Public Spending
- Medicaid work requirements added: Could lead to loss of coverage for over 5 million people.
- SNAP access restricted: Tighter rules may affect nearly 11 million recipients.
- Program cuts fund tax breaks: Spending reductions offset individual and corporate relief.
- No new welfare expansion: Emphasis placed on fiscal restraint, not benefit growth.
- Budget impact: Bill projected to add $3.8 trillion to the national debt (CBO).
Green Energy
- Clean energy tax credits phased out: Ends support for solar, wind, and electric vehicles by 2028.
- Home energy efficiency subsidies discontinued: No federal aid after 2025 for upgrades.
- Manufacturing tax breaks repealed: Incentives for clean tech producers removed by 2031.
- Biden-era programs rolled back: Climate policies reversed without replacements.
- Shift in priority: Emphasis returns to traditional energy and industrial growth.
Immigration
- $70B in enforcement spending: Funds wall construction, surveillance, and mass deportations.
- ICE workforce expansion: 10,000 new agents to be hired by 2029.
- Higher asylum fees: Cost barriers added for humanitarian applicants.
- No legal immigration reform: Skilled worker visas and integration policy unchanged.
- Security over access: Resources focus on restriction, not migration facilitation.
Capital flight and citizenship renunciations
According to the U.S. Treasury, over 4,000 Americans renounced citizenship in 2023, many of them wealthy individuals. Their reasons were not political, they were structural: tax fatigue, blocked access to foreign banks, and limitations on investment freedom.
If more globally mobile citizens are choosing to sever ties with the U.S., the citizenship-based-taxation model is evidently not working. It’s repelling capital, talent, and influence, the very pillars of long-term economic strength.
Switching to residence-based-taxation would align the U.S. with global norms and offer greater capital mobility. It would reduce the burdens of compliance and give expat Americans better access to international financial services. Most importantly, it could curb the number of American citizenship renunciations that we have been seeing in recent years as Americans
