On May 22 a US congressional conference committee decided to keep the $80,000 exemption from income tax that US citizens living abroad enjoy.

The US Senate approved the repeal of the exemption when it passed its version of the tax bill May 15. The US House versions of the bill retained the measure, the so-called Section 911 exemption.

The bottom line for US citizens living abroad is that they can continue exempting the first $80,000 in earned income that they make overseas from the amount on which they pay US income taxes.

The wrangling over the proposed overseas tax change was a very small part of a $350 billion tax cut plan that was expected to get final approval in both chambers as this issue of The Panama News was being uploaded.

The exemption does not cover dividends, interest paid to taxpayers or other forms on non-earned income. Nor does the exemption cover pensions and annuity payments that originate in the United States. The exemption also does not apply to US government employees who are working abroad, including members of the military.

The Senate included the repeal of the exemption when it passed its version of the tax bill because it planned to allocate the money raised that way to other types of tax cuts.

An estimated 4 million US citizens live overseas, according to a congressional estimate.

President George Bush went to Capitol Hill to thank congressional leaders for the legislation to cut US taxes. Bush claimed victory in the congressional struggle over tax cuts even though the deal cuts taxes by less than half of what he requested. Republicans said that they had enough votes in both the House and Senate to pass the final version.

The president's original plan for $726 billion in tax cuts was rejected as too high by members of both political parties. He failed to line up support for a slightly smaller plan while criticizing a competing $350 billion package as "itty bitty."

Bush is now set to sign an even smaller plan approved only after a legislative bargaining session called by Vice President Dick Cheney. Despite the difficulties behind the deal, the following day Bush praised the plan as giving more people more money to spend to help the economy.

Democrats say the tax cuts unfairly favor the rich by reducing taxes on corporate dividends.

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