ICYMI: Tax Expert Confirms GOP Tax Bill will Send Jobs, Profits Overseas

In case you missed it, in an article for Tax Policy Center, an independent, nationally recognized tax policy research organization, tax expert Steven Rosenthal confirmed that the current GOP tax bill would encourage U.S. corporations to move their jobs and profits overseas.

“The Tax Cut and Jobs Act (TCJA) that the Senate is debating this week would fundamentally change the way US-based multinational corporations are taxed on their overseas income. But contrary to the claims of President Trump and congressional supporters, the new approach may still encourage US companies to shift production overseas,” writes Rosenthal.

During a hearing of the Senate Finance Committee, Senator Sherrod Brown (D-OH) highlighted how the GOP tax bill would encourage corporations to outsource jobs. An expert tax witness confirmed to Brown that the tax bill encourages corporations to outsource jobs and the current bill would incentivize companies to keep their profits overseas.

Brown pushed for an amendment to the Senate tax bill to reward employers who keep jobs in the United States and pay workers well – encouraging them to create even more good-paying jobs in the U.S. Senate Republicans voted down Brown’s amendment.

Rosenthal’s article can be found here and below:

Current Tax Reform Bills Could Encourage US Jobs, Factories and Profits to Shift Overseas

Steven Rosenthal, Tax Policy Center

November 28, 2017

The Tax Cut and Jobs Act (TCJA) that the Senate is debating this week would fundamentally change the way US-based multinational corporations are taxed on their overseas income. But contrary to the claims of President Trump and congressional supporters, the new approach may still encourage US companies to shift production overseas.

Under the current worldwide corporate income tax model used by the United States, all profits earned by foreign subsidiaries of US firms are supposed to be taxed in the US at a 35 percent rate.  But the tax is imposed only when the earnings are repatriated, such as when the foreign subsidiary pays its US parent a dividend. Companies can defer the US tax indefinitely by postponing dividends, and they often do. More than $2.6 trillion in such profits are booked abroad by foreign subsidiaries of US firms.

By contrast, both the House version of the TCJA and the bill being debated in the Senate would shift to a territorial system. These bills generally would not tax profits of US firms earned in foreign countries, except for returns on securities and other passive activities, such as investments. Instead, the proposals would allow income to be taxed only in the country where it is earned. Within the OECD, the statutory corporate income tax rates range from more than 30 percent in France and Australia to 12.5 percent in Ireland and 9 percent in Hungary. Tax havens like Bermuda have no corporate income tax at all.

Supporters of the TCJA argue that a territorial approach would allow US companies to compete abroad without the burden of additional US taxes.  But to prevent US multinationals from shifting production and profits to low-tax or zero-tax jurisdictions, both the House and Senate bills establish a guardrail:  a 10 percent minimum US tax that applies to profits that exceed the firm’s “routine” returns on tangible property held abroad. The minimum tax is intended to target, indirectly, profits from intangible property held abroad (such as patents, trademarks, brand names, and software), which can be highly mobile.  Unfortunately, the bills’ approach could still encourage production and profits to be shifted abroad, for three principal reasons. 

Read more here.

 

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