[idan]

You're missing a key aspect here:

Social Security.

While the US does indeed have tax treaties with many countries, it doesn't have treaties with everyone regarding social security.

I live in Israel, which does have an income tax treaty with the US. Still, for many types of employment and contracting scenarios, I must pay social security "twice"—once for each country. That's a hefty amount of double taxation.

Regardless, the cost of compliance is a real burden. I'm still filing my 2010 taxes. I have accountants on both sides. Figuring out how to correctly pay my taxes, how much to pay, and how to operate in order to minimize my tax profile is a gigantic pain in the ass.

FYI.

[onedognight]

Social Security is not taxation. You get money back directly to you correlated with what you paid.

As for as the "double" part, can you not then collect from both countries when you retire?

[DomKM]

That's not accurate. SS returns don't scale directly with payments. The more money you make the less you get back from SS (percentage-wise). There are also some other rules regarding marriage. It's redistribution of wealth and is not simply money back in direct relation to what you pay. (I am not taking any ethical or political stance on wealth redistribution. I am just noting that the previous description of SS is not accurate.)

[onedognight]

Note that I said "correlated with" and not "proportional to".

While technically true, I wouldn't really call it a redistribution of "wealth", when income is capped at ~110k for the SS calculation. Wealthy people are hardly affected.