(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Gabriel Rubin

WASHINGTON, Oct 22 (Reuters Breakingviews) - Donald Trump finally trotted out a useful tax idea, however accidental it probably is. The Republican presidential candidate has been floating an array of handouts that would expand an already bloated national deficit. His latest idea, however, is to effectively unwind an out-of-step, 160-year-old policy of levying at home any income earned by Americans living abroad. If structured correctly, it would be a sensible change.

Exempting worker tips, overtime wages and Social Security income from taxes are among Trump’s many ill-conceived campaign giveaways. Altogether, including an extension of tax breaks he signed into law in 2017 but before factoring in whopping tariffs he has vowed to impose, they would sacrifice nearly $8 trillion of revenue over a decade, according to the Tax Foundation research outfit. By comparison, the expatriate benefit wouldn’t cost much.

Details of the plan are nonexistent, so it could easily turn into something that benefits the super-rich, allowing them to renounce U.S. citizenship more easily and only pay taxes where they live. With strengthened safeguards, however, the United States would join most other countries by only collecting income tax from residents.

The existing tax code sticks even individuals with little connection to the United States, other than having been born there, with annual payments. It’s a system further muddled by various exemptions, income thresholds and bilateral treaties. Globetrotting Americans paid more than $12 billion in U.S. income taxes last year, according to the Internal Revenue Service.

A ban on so-called double taxation would make the accounting easier. The typical expat earns less than the $126,500 that triggers the U.S. liability, but especially in energy and finance hubs such as Saudi Arabia and Singapore, income is much higher. To avoid U.S. taxation, Americans must surrender their passport. The incentive to do so grew in 2010, with the Foreign Account Tax Compliance Act, which requires banks to report U.S.-taxpayer accounts overseas that exceed $50,000. In the decade following implementation, nearly 37,000 people renounced their citizenship, 15 times more than in the five years prior.

Although Washington imposes a hefty exit tax, there’s a big risk that without the worldwide income policy, the system could easily be gamed. The FATCA provisions help, as does the Biden administration’s move to boost funding for IRS enforcers. Combined with an airtight end to worldwide income taxation, Trump’s likely attempt to pander to a bloc of rich voters might yet be shaped into effective policy that helps prevent tax evasion.

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CONTEXT NEWS

Republican presidential nominee Donald Trump on Oct. 9 said he supports changing U.S. tax policy to avoid double taxation of foreign income earned by American expatriates. About 4.4 million U.S. citizens live abroad, according to the most recent statistics available from the Federal Voting Assistance Program.

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(Editing by Jeffrey Goldfarb and Pranav Kiran)

((For previous columns by the author, Reuters customers can click on gabriel.rubin@thomsonreuters.com))