hvactec
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House Ways and Means Committee Chairman David Camp (R-MI) today released his long-promised plan to overhaul the countrys corporate tax code. As hes been hinting, the plan not only cuts the corporate income tax rate from 35 percent to 25 percent, but also implements whats known as a territorial system, which exempts U.S. corporations from paying taxes on money they earn overseas.
Currently, U.S. corporations pay to the Treasury the difference between the tax rate of the country in which they earn money and the U.S. rate. (So money earned in a country where the rate is 25 percent would require a corporation to pay 10 percent the difference between 35 percent and 25 percent to the U.S.) However, corporations are allowed to defer paying their U.S. share of taxes until the bring the money back to the U.S., giving them every incentive to shift and keep money (and jobs) offshore.
Instead of fixing this problem, Camps plan to shift to a territorial system, as Citizens for Tax Justice explained, will make it even worse:
First, [under a territorial system] corporations would have a greater incentive to engage in profit-shifting, meaning practices used to disguise U.S. profits as foreign profits. A common example is the manipulation of transfer pricing to shift corporate profits into tax havens (countries that do not tax, or that barely tax, certain types of profits).
Second, corporations would have a greater incentive to shift actual operations and jobs to other countries.
Our current system already encourages these practices because U.S. corporations are allowed to defer their U.S. taxes on their offshore profits. But the incentives would be even greater under a territorial system, in which corporations would NEVER pay U.S. taxes on their offshore profits.
READ MORE House GOP Releases Plan To Cut Corporate Taxes, Make Offshoring Jobs Easier | ThinkProgress
Currently, U.S. corporations pay to the Treasury the difference between the tax rate of the country in which they earn money and the U.S. rate. (So money earned in a country where the rate is 25 percent would require a corporation to pay 10 percent the difference between 35 percent and 25 percent to the U.S.) However, corporations are allowed to defer paying their U.S. share of taxes until the bring the money back to the U.S., giving them every incentive to shift and keep money (and jobs) offshore.
Instead of fixing this problem, Camps plan to shift to a territorial system, as Citizens for Tax Justice explained, will make it even worse:
First, [under a territorial system] corporations would have a greater incentive to engage in profit-shifting, meaning practices used to disguise U.S. profits as foreign profits. A common example is the manipulation of transfer pricing to shift corporate profits into tax havens (countries that do not tax, or that barely tax, certain types of profits).
Second, corporations would have a greater incentive to shift actual operations and jobs to other countries.
Our current system already encourages these practices because U.S. corporations are allowed to defer their U.S. taxes on their offshore profits. But the incentives would be even greater under a territorial system, in which corporations would NEVER pay U.S. taxes on their offshore profits.
READ MORE House GOP Releases Plan To Cut Corporate Taxes, Make Offshoring Jobs Easier | ThinkProgress
