First, Turbotax calculates your tax absolutely correctly. The tax calculations have been approved by the IRS and they are absolutely correct.
When you have foreign excluded income, there is both good news and bad news. The good news is that the foreign income does not get taxed. The bad news is that if you have other taxable income, the amount of your foreign excluded income is added to the other taxable income to determine the tax rate that you pay on the other income. So, you will pay a higher rate on the other income than you would if you did not have the foreign exclusion. That is just the way that it is.
