My fellow pilots,

The negotiating committee and the MEC have stated that the “tax equalization” formula is a mandatory requirement to opening new foreign domiciles. Please have them explain which governments or jurisdictions have such a prerequisite. I don’t believe they can answer that with any semblance of honesty. But if I’m wrong, please let me know; I will be glad to admit when I’m wrong. This tax equalization is a normal and “customary” practice amongst many corporations. From my personal acquaintance with many American expats employed by other companies, though, I can tell you that most of those companies have a broader view of what "tax equalization" means. For them, it means that they up the employee's pay until it zeroes out the full cost of the overseas taxes, so the employee does not effectively lose the Foreign Earned Income Tax Exclusion when they file with the IRS. The company shoulders this expense so the employee keeps the incentive of the $82,400 partial tax exemption, officially known as the Foreign Earned Income Exclusion (FEIE), when they file their IRS 1040. Besides that,however, the biggest difference is their companies’ willingness to pay their ex-pats full benefits. In other words, their entire housing costs, tuition, roundtrip tickets for families, leased vehicles, all … paid in full. Yes, there are usually limits to the aforementioned; in other words, they don’t have eight children attending the most expensive schools, they don’t live in mansions with helipads, and they don’t drive Ferraris. They do, however, live in a style at least somewhat commensurate to what they are accustomed to in the U.S.

A recent communication to the pilots from Jack Lewis states,” companies do ex/Pat packages to send people with unique skills to places they do not want to go. Unfortunately, we are not particularly unique (at least skill-wise) and we do a voluntary bid.” I respectfully disagree. Those companies also give expat packages to people who want to go. Plus, those employees who don’t want to go don't have to. They usually accept or even apply for the position because of the promotion, and subsequent pay increase associated with that promotion. In addition, they get full expatriate packages, just like Cathay and Dragonair. Also, since when is piloting not a unique skill?

In a simplistic explanation, tax equalization is a formula whereby, depending upon which definition your company adheres to, Fedex and other companies can either offset the burden of paying foreign taxes by withholding the employee’s foreign earned income exclusion benefit and the employee’s tax write-off for foreign taxes paid, or increase the employee's pay so he/she is effectively insulated from the financial impact of paying foreign taxes. Hong Kong's tax rate is about 17%. France's is upwards of 40%. On a side note, mainland China's tax rate is roughly 51%, so if the negotiating committee in fact negotiated Hong Kong versus Guangzhou, they certainly didn’t have to use any strong-arm tactics. In addition to the extraordinary taxes, medical care problems, and legal ramifications, the company would have been compelled to provide a car and bilingual driver.

So what does this mean? The foreign earned income exclusion (FEIE) allows U.S. taxpayers who have met certain criteria in establishing a foreign residence to be exempt from paying federal taxes on the first $82,400(not $82,000 as the company states in their explanation of tax equalization) they earn. Depending on the individual employee’s tax bracket, the amount you get to keep of your money is substantial. Do the math based on your own income. The FEIE is the biggest reason I bid Subic. And this is not just a Subic issue. The tax savings is well over $20,000 for me. The amount of the FEIE is the same regardless of whether the ex-pat lives in CDG, HKG, or SFS. Plus, now the ex-pats will have to pay taxes, as though they lived in the U.S. ... but they won’t live in the U.S. That’s an additional $20,000! So, instead of keeping an extra $20,000, they must now pay $20,000, for a net out-of-pocket loss of $40,000! Somebody gets to keep that money they now must pay in tax. And it’s not Uncle Sam, its Fedex, mitigating the company’s tax burden literally at your expense. In effect, we would ourselves be paying the bulk of the $2700 in housing allowance in the form of a higher tax burden.

If I were to pay my own Hong Kong taxes, I would pay roughly $37,800 USD. With the FEIE and the write-off for the above foreign taxes paid, my U.S. federal tax liability would be zero. So, please don’t readily buy into the idea that tax equalization is such a great deal! Obviously, CDG would be different.

This LOA is concessionary in that we lose more than is readily apparent. Besides losing the FEIE, which equates to well over $20,000 USD per year, we would now have to pay about $20,000 in taxes extra, “as though we lived in Memphis.” We also lose the relocation allowance of $10,000 or 79 CH (whichever is greater). This is both to and from the new domicile. For a 15-year captain in HKG, that equates to over $38,000(albeit for the current 3-year commitment). The difference in household goods moved is comical. The language is nebulous, at best. Ground transportation can be increased between HKG and CAN. Since the MD-11 flies to both those cities, will their crews be eligible for the transportation marathon as well?

Finally, a negotiating committee member recently wrote, "The company sees China and Europe with dollar signs. Both are potential gold mines for the company and they will exploit that potential with us or without us." This sounds similar to the infamous red letter a few years back. I agree that both China and Europe are potential gold mines for the company. Likewise, I understand that the company needs this. What I don't understand is our need to accept a substandard LOA in order to facilitate their needs.

Ladies and Gentlemen, we very well could have had a B-scale at Fedex. We could have ignored healthcare for our retirees’ altogether. There are numerous issues we could have snubbed for the minority to appease the majority. We didn’t because that was the right thing to do. Rather than rationalizing, I’m not going to bid it therefore I’ll vote with the MEC; instead, think if I bid this, would it be acceptable. Vote intelligent. Vote informed.

 

My question is: What is considered an equal tax burden and what is it based upon? Say for example a crewmember sells his home and relocates to an FDA. His biggest tax deduction is gone. He now has a fairly high income and no large deductions. Most likely his taxes are now computed using the AMT tables since his AGI is now higher. Since he falls under the AMT he loses additional deductions. This has put him in a very unfavorable personal tax situation with substantially higher taxes. Is this the tax basis that Price Waterhouse will use to calculate his comparable US tax burden? I can't see them going backwards and saying, "Well you used to be a homeowner and you used to have xx thousand in mortgage interest and xx thousand in property taxes so your tax burden is this". I believe it will have to be based on your current tax situation.