The new "Tax Cut Package" from George W Bush looks actually like a tax increase for American expatriates. As expressed by the IHT actually, those expected to feel the most pain are expatriate workers who earn comfortable, but not lavish, livings and semi- retired workers earning some foreign income while drawing U.S. Social Security, pensions and other income from U.S. sources. Many of these expatriates will be pushed into higher U.S. brackets, as will employees and independent professionals in no-tax and low-tax areas like much of the Middle East, some Caribbean nations and Hong Kong.

The foreign-earned income exclusion is expected to be lifted to $82,400 in the new law and indexed to US inflation after 2008. However there are some new legislation proposed by a Republican Senator hoping to ease expat income tax and eliminate the cap on income that Americans working abroad can earn without having to pay both local and U.S. taxes on it, a change meant to bring the U.S. system in line with those of other industrialized countries.

On the other hand, the new law cap the exclusion for housing allowances (rent, utilities, insurance ...). It is currently calculated as 30% of the foreign-earned income exclusion, minus the 16% that would be paid in the US. With the new law it is more or less eliminated.

Usually in most countries the US have signed treaties to avoid double taxations. But in countries such as Saudi Arabia or Hong Kong with low or none income tax, American expats will fill the change more painful. For senior executives, it is more likely that companies will take charge of the increase in taxation. But people affected will be probably middle-tax payers and people who retire while still earning an income from abroad.

Foreign salary of $150,000 and US ordinary income of $10,000

• Old law: $1,519
• New law: $2,686
• %change: +77%

Foreign salary of $1,000,000 and US ordinary salary of $50,000

• Old law: $15,925
  New law: $16,098
  %change: +1%

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