Greedy corporations and their means of evading that taxes they own, have become more exposed in the public eye, because Republican efforts to represent them, during the last election. As a result, the 99% have been calling for an end to corporate welfare, which we pay mostly in the form of tax breaks. Here is the latest corporate scheme to avoid paying their taxes.
Amid the tumult over looming tax hikes and spending cuts, a massive change to the corporate tax code is quietly gathering steam.
U.S. multinationals have spent years pushing for a change to the tax code that would eliminate taxes on business profits overseas, just as these firms are banking their futures on growth abroad.
Now, with the debate over the country’s fiscal future in the spotlight, executives, lobbyists and some on Capitol Hill are latching onto the “fiscal cliff” as a potential springboard for their cause.
To the companies, no other tax issue matters more.
They say U.S. multinationals face a disadvantage against overseas competitors because, unlike practices in many other developed countries, the Internal Revenue Service collects taxes on foreign income when it is brought back into the United States. These companies argue that if the tax were eliminated, they would be more likely to bring their overseas earnings back to the United States. It is estimated that U.S. multinationals are holding $1.7 trillion in earnings abroad, largely to avoid being taxed at a 35 percent rate.
“At least it will be here and not circulating in other countries,” said Erskine Bowles, co-chair of a White House commission that was tasked with addressing the country’s debt and a supporter of eliminating taxes on foreign profits.
Some tax experts warn, however, that such a change could radically alter how companies behave and have broad implications for the economy. Without the right safeguards, they say, eliminating taxes on foreign profits and switching to what is known as a “territorial” system would blow a hole in tax revenue, give multinationals more leeway to exploit tax havens and drive jobs overseas… [emphasis added]
Inserted from <Washington Post>
You can be sure that such a move would result in an immediate shift of production from the US to foreign countries, taking millions of jobs in the process, so corporations could take advantage of the new loophole.
A far more sensible solution is to stop deferring tax on overseas income, until the funds are brought back to the US. The argument against this solution is that US corporations would be double taxed on the same profit, first by a foreign government and then by the US. That argument is valid, but there is an easy fix. Give the corporations tax credits for income taxes paid to foreign governments. That makes the total tax the corporations pay the same, regardless of where the profit is made. It would also eliminate the incentive for corporations to offshore jobs in order to defer paying taxes. In addition, we should create an incentive for shifting operations back to the US by providing tax breaks for companies who repatriate jobs they have already relocated overseas.