The proposed repeal of certain tax exemptions for Americans working overseas has been shelved by US legislators, removing fears in Bermuda of a mass exodus of American expatriates.

Repeal of the so-called Section 911 provision would have ended the current system whereby US expatriates can exclude $80,000 of income and certain housing costs.

The House and Senate are currently attempting to reconcile their differences over a multibillion-dollar tax cut bill whose main objective is to cut dividend tax and create jobs.

According to an Associated Press report yesterday, the Senate proposal to repeal Section 911 has now been dropped under terms of a preliminary compromise between the US House and Senate negotiators.

President Bush is understood to have given a deadline for Congress to pass a tax cut package by the end of this week when lawmakers plan to break for the Memorial Day holiday.

House Ways and Means Committee chairman Bill Thomas was reported as saying that the revenue-raising measures which the Senate had suggested would have to be dropped for any final package to pass the Republican-led House.

News that the proposal had been dropped came as a great relief to many US citizens based in Bermuda, some of whom said they would have considered renouncing their citizenship if the proposal went through.

The controversy arose as the Republican Party was trying to round up support for the tax cut legislation Bush wants. He initially proposed a ten-year, $726 billion tax cut.

But that now is being narrowed by a House-Senate conference committee to something in the range of $350 billion to $550 billion.

Lawmakers favouring substantial tax relief of the sort Bush advocates decided to raise selected taxes over the next decade, and that was when the provision affecting people working abroad then came into play.

In fact, it was the largest single item on the list. In addition to repealing existing law which has allowed Americans working and living abroad to avoid paying federal income taxes on up to $80,000 in wages, there also was talk of getting rid of foreign housing allowances, up to a limit.

According to IRS figures from 2000 provided by Senate officials, roughly 358,000 individuals benefited from the provision excluding taxes on income up to $80,000.

At a cost to the Treasury of $35 billion over the past decade, the average ten-year tax savings would have been more than $97,000.