Treasury’s overseas tax plan

By Cate Long
September 12, 2011

The United States has a thing for big business, and we prove it by collecting corporate taxes at about half the rate as the rest of the developed world. According to OECD data from 2010 America collected corporate taxes equal to about 1.8% of GDP, or about half the 3.5% average for developed nations. Many have pointed out that in higher-tax nations governments provide national health care systems, relieving corporations of that major expense. This is an important economic distinction, although many U.S. corporations have signaled that they may abandon offering health coverage when Obamacare is up and running.

Although America is already in the lower tier of corporate tax collectors, the U.S. Treasury is floating a trial balloon about reducing or eliminating taxes that corporations pay on profits earned overseas, reports Damian Paletta and John D. McKinnon in the Wall Street Journal:

The Treasury Department is considering a proposal to eliminate some but not all taxes on the overseas profits of U.S. multinational companies, a central element of the administration’s broader plans to overhaul the corporate-tax code, according to two people familiar with the deliberations.

U.S. businesses have pushed hard to exempt all overseas earnings from U.S. taxes, claiming the current system puts them at a disadvantage to foreign competitors.

When U.S. corporations earn profits overseas, they are taxed by the local government; when the profits are brought back into the U.S. they are taxed domestically, and the corporation is given a credit for the amount paid to the foreign government. The Treasury proposal would eliminate the portion of taxes paid to the U.S. government.

If you dive down into the most recent press release from the Bureau of Economic Analysis, it’s easy to see why U.S. corporations would want overseas profits to escape taxation. From the National Income and Product Accounts GDP, 2Q 2011:

Profits from current production increased $57.3 billion in the second quarter.

The rest-of-the-world component of profits increased $27.1 billion in the second quarter.

About 47% of U.S. corporate profits in the 2nd quarter were earned overseas. It’s the overseas element of corporate profits that the U.S. Treasury Department is proposing to eliminate.

The Treasury proposal, whispered to sympathetic reporters through anonymous attribution, is anathema to liberals and unions who fear it would provide a massive economic incentive for U.S. corporations to move jobs overseas.

It’s easy to see how corporations, under the Treasury proposal, would be encouraged to move jobs and production to countries with lower tax rates. It would allow them to earn bigger profits and then flow those back to shareholders and management in the U.S. tax-free. Unfortunately the revenue collected by the Treasury would be diminished since capital gains and dividends are taxed at a much lower 15% rate.

The fiscal problems of the U.S. are enormous. I’m a little unclear why the government would consider lowering taxes on the overseas earnings of U.S. corporations unless it’s to appease a special-interest group. America needs jobs onshore and fiscal revenue. Giving companies tax breaks to produce offshore seems nonsensical.

Above: Chart displays OECD data of total corporate tax revenues as a percentage of GDP for developed nations

3 comments

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Have we been totally sold out to corporate interest? Why are the citizens up in arms about this?

Posted by weneedchange | Report as abusive

It’s the money, silly!

CEO’s and big money corporate interests have the ear (and rest of the body) of pretty much all the lawmakers in this country. To create jobs in this country, we could simply change some of the laws so that companies 1) who outsource jobs pay more in taxes than those who keep jobs here, 2) update the number of foreign visa workers allowed per US company to 1 (yes, ONE – make them use that visa wisely or sell it to another company – that might help small businesses – selling their 1 visa allotment to some of the big corporations could be a boon), 3) make companies pay taxes and benefits on ‘contractors’ and ‘consultants’ the same as ‘employees’ to reduce the abuse of the 1099 hourly worker concept, and finally 4) TAX products and profits that US based companies build or manufacture in other countries when they come into the US.

If these US based companies don’t like it – they can move completely overseas. Let the corporate headquarters and execs all live in the third world areas in which they manufacture. Stop allowing them to have the ‘perks’ (reliable electricity, phone, clean water, utilities, decent roads, internet access, reliable police & fire departments, modern medical facilities, freight shipping, highway system, modern airports, reliable package/mail delivery, etc) of this country for free. They can operate their business in those cheap labor countries and see how well they fare when they must privately provide for all those things themselves – see what that does to their profitability! Since they don’t want to pay their fair share – honestly, they don’t really want to pay any share – they can move their entire operation to those foreign shores! I would venture to say that would increase the odds of another company filling that void here in the US that was willing to hire employees here and pay taxes here and do business here.

Unfortunately, there are too few with the integrity and common sense of Warren Buffett and too many that have the ethics and greed of Bernie Madoff. Those who are content to exploit every last person and resource in this country for their own gain no matter how much harm they do are, unfortunately, in control of this country and it’s bought and paid-for Congress, WH, and SCOTUS.

Posted by MidwestVoice | Report as abusive

Obama is becoming more and more a Republican in Democratic clothing. To cater to the mega corporations on this tax forgiveness on overseas profits goes right to the heart of what’s wrong with the US economy. Mega corporations have not met a net creator of jobs in the USA since the early 1980s. The vast majority of jobs are created by companies with less than 100 employees – and probably no overseas profits.

However, the Chamber of Commerce, Cato Institute, American Enterprise, Heritage and other conservative think tanks and lobbies are all pushing for lower and lower corporate tax rates. Of course, these same companies are making billions off the US tax payer through defense contracts and government outsourcing.

No one in the Democratic or Republican party is addressing the impoverishment of the US middle class which between cuts in social security, medicare, education along with rising sales taxes, real estate taxes, medical costs and education costs are seeing a very very bleak future.

Posted by Acetracy | Report as abusive