The US has one of, if not the, highest tax rate on businesses in the world, at 35%. As a result, our internationally operating businesses book their profits in their overseas jurisdictions and leave those profits there. This much is well known.
Republicans want to lower the corporate-tax rate and let companies bring future global profits home without paying US taxes on top of foreign taxes. They are searching for a way to do that without giving companies an incentive to move more operations and profits to countries with far lower taxes.
Or so they say.
Republicans seem to be moving toward gerrymandering our corporate tax law even further, with the claimed goal of encouraging our businesses to repatriate their overseas profits.
As part of that overhaul, Republicans want to exempt foreign corporate income from US taxes to a large extent. … The 35% rate would come down and the minimum rate would be set below the new U.S. corporate tax rate.
The rationale for such a “minimum tax?”
A minimum tax would act as a “safety net” against companies trying to pay little or no tax on some foreign income, said Ed Kleinbard, a tax law professor at the University of Southern California.
On the other hand,
The countries that use tax systems Republicans want to emulate allow their home companies to bring back cash with little or no tax. They use a variety of rules to prevent companies from seeking to pay less tax by moving operations or profits abroad, but generally don’t have minimum taxes on active foreign profits.
But this misses the point.
And
The original House GOP plan to address foreign profits and prevent erosion of the US corporate-tax base was border adjustment….
This misses a separate point.
The first point: lower our corporate tax rate to the lowest in the world. The Trump administration’s proposal of a 15% rate or House Speaker Paul Ryan’s (R, WI) proposal of 20% would come close to that (only Ireland’s 12.5% rate would remain lower). Or eliminate corporate income taxes altogether, say I; a business’ tax bill is paid, in the large main, by the business’ customers anyway in the form of higher prices—and the final customer is the American consumer, who would benefit from lower prices.
Either of these would not only disincentivise our businesses from leaving their profits overseas, they would reverse the flow: foreign businesses would flock to set up shop in the US because of the tax advantages they’d obtain—the same advantages that currently encourage our businesses to set up “over there.”
The second point: it isn’t the government’s money; there is no legitimate “corporate-tax base” to erode. There wouldn’t even be a drop in revenue to the Federal government: the ensuing flourishing economy would generate more revenue for the government than any revenue reduction from lowering or eliminating the corporate income tax.
And: it isn’t gerrymandering to simplify and lower the corporate tax rate, nor is it gerrymandering eliminate the tax rate altogether. There isn’t any need to play games when so simple a solution is, or should be, so easily implemented.