Mitt Romney wants to adopt a territorial tax system. This is why it would be a disaster for American workers.

Diane 2012/09/08 04:41:54
Beware territorial tax proposals

This article is by Clyde Prestowitz from July 23, 2012

Prestowitz served as counselor to the secretary of commerce in President Ronald Reagan's administration where he headed U.S. negotiations with Japan, Korea, the European Union, Southeast Asia, and Latin America and served as a leader of the first U.S. trade mission to China.

The President's Export Council as well as his Commission on Jobs and Competitiveness and the U.S. Chamber of Commerce are all calling for a major change of the U.S. corporate tax system. In place of the present system of a tax on the worldwide earnings of U.S. corporations, they want U.S. taxes to apply only to earnings in the United States with foreign profits taxed only in the territories where they were earned.

This is one of those ideas that at first sounds a lot better than it looks upon reflection. The president and Congress need to remember that those making these proposals are not making them in their role as American citizens, but in their role as CEOs of profit maximizing global corporations. They should recall the New York Times quote of a high ranking Apple executive to the effect that the company doesn't "have an obligation to solve America’s problems."

Of course, the argument of the business leaders is that a territorial tax system would improve U.S. competitiveness by making it easier for U.S. corporations to operate abroad and that it would create more jobs in America by making it easier for U.S. corporations to repatriate their foreign earnings for investment and job creation at home. The truth is that such a system would be good for the global corporations, but of doubtful value to the United States.

Although the U.S. corporate tax is nominally levied on a worldwide basis, in fact, it is a kind of a hybrid system. U.S taxes on the so called "active earnings" (from actually doing business as opposed to rents, royalities,etc. which are considered passive earnings) of U.S. corporations in foreign countries can be deferred until such time as they are repatriated in the form of dividends from the foreign affiliate to the parent U.S. corporation. This has resulted in a tendency for U.S. corporations to invest and hold earnings abroad in places like Ireland, Singapore, Bermuda, and the Cayman Islands that have zero or very low corporate tax rates. A Fortune estimate (Stephen Gandel, June 6, 2012) puts the amount of deferred U.S. corporate earnings being held in such tax havens abroad at over $2 trillion.

For a long time it was argued that without the necessity to pay U.S. taxes upon repatriation of foreign earnings, U.S. global corporations would rush to move capital back to the United States where they would invest and become a job creation machine. But in 2004, when Washington instituted a one year tax amnesty on repatriation of foreign earnings the results were disappointing. The total amount repatriated was about $360 billion, but the Congressional Research Service subsequently reported that the repatriated funds went primarily to shareholders in the form of dividends rather than to new investment and job creation. Indeed, the CRS calculated that the top ten repatriating U.S. corporations actually reduced employment by 447,000 after repatriating about $99 billion.

A territorial tax system would only be a boon for the already thriving tax avoidance industry. It would encourage further investment in tax havens and complex intra -company transfer pricing schemes to move as much income as possible out of normally taxed countries into the well known low or zero tax havens. At the moment, in order to get the deferral, corporations at least have to certify that they need the funds being held abroad for continuing investment needs. Even that small discipline would be removed under the territorial proposal.

One sign that the territorial system is not the answer is the fact that the European Union is considering proposals to move away from the system.(European Commission, Common Consolidated Corporate Tax Base).

The answer is two-fold. First, the U.S. corporate tax, by far the world's highest with a 35 percent marginal rate, needs to be reduced to a competitive level of say 15-20 percent but with a base broadened by elimination of a variety of deductions. Second, the U.S. tax deferral for un-repatriated foreign earnings should be abolished.

At the same time, the United States should become much more aggressive in responding to and in offering its own new direct investment incentives. As China, France, Singapore, and any others do, it should pro-actively work with the global corporate community to maximize direct investment in new facilities and ventures in the United States.

Read More: http://prestowitz.foreignpolicy.com/posts/2012/07/...

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  • findthelight2000 2012/09/09 23:14:00
    I for one do not agree with those that think the USA has the highest corporate tax in the World when you consider all the deductions that the USA allows for, which often gives the corporates a totally free ride - and some even get a return on their not paying taxes!
  • Diane findthe... 2012/09/10 02:13:14 (edited)
    That's why the corporate loopholes need to be closed. The biggest loophole is the tax deferral for foreign earnings. But eliminating taxes on foreign earnings altogether, as Romney wants to do, is much worse. It would reward companies for moving operations and jobs overseas. Obama wants to instead reward companies opening operations and creating jobs here in the U.S.

    From a CNN article:

    Obama wants to impose a new minimum tax rate on the foreign profits made by U.S. multinationals operating in low-tax countries. And he would require that the minimum tax rate be paid when the profits are earned, rather than let U.S. companies defer paying the tax owed until the money is brought back to the United States.

    If the company pays income tax to the host country on those profits, it would get a foreign tax credit under the Obama proposal.

    Companies that move their operations back to the United States would get a 20% tax credit. Those that move operations abroad would no longer be able to deduct moving expenses.

  • findthe... Diane 2012/09/10 02:18:51
    You are quite right, and I fully support what President Obama is proposing.
  • Diane findthe... 2012/09/10 02:34:34
    So do I.
  • Sissy 2012/09/09 12:29:16 (edited)
    If you want to read an in-depth article about Romney's greed and debt, "Rolling Stone" has a riviting article in the latest publication. Some of the observations of his time at Bain and the acquiring of his nearly billion dollar fortune include but not limited to:

    "Romney is Gordon Gekko, with better PR---and a bigger goal. A takeover artist all his life, he's now tryhing to take over America itself.

    "Dunkin Donuts will have to sell 2,011,834 small coffees every month just to pay off thet $500 million dividend siphoned off by the Firm that Romney built":

    "Romney isn't blue or red, he's the apostle of a revolution in which transactions are manufactured instead of products, wealth is generated without prosperity"

    "Romney worshipped his dad George - but spent his career destroying the America his father helped build."
  • Diane Sissy 2012/09/10 02:32:43
    I think I found it. Was this the article?

  • fcgrif 2012/09/09 05:28:41 (edited)
    Maybe the tax rate here for people and corporations that have of offshore tax havens and loopholes to get out of paying their fair share of taxes should be high enough to take the amount of taxes on what is hidden and loopholed out of any revenue that individual or corporation earns in the states.
  • Diane fcgrif 2012/09/09 05:50:42
    The deferal of taxes for offshore earnings should be abolished.

    And, because of a law passed by the Democrats in March 2010 called the Foreign Account Tax Compliance Act, starting in 2013 there will be more scrutiny of tax havens, and fewer tax havens will be open to Americans wanting to evade paying taxes.

    Specifically, under the law, "certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS. In addition, FATCA will require foreign financial institutions to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest,” according to the Internal Revenue Service.


    I just stumbled across this, and I think it's great. I hope it's not repealed.
  • fcgrif Diane 2012/09/10 04:54:41
    Me too!
  • #Justice4Trayvon 629 BLOCKT... 2012/09/09 00:48:27
    #Justice4Trayvon 629 BLOCKT CONS
    So that's how the Cayman Islands etc. fit into the grand scheme of things. IMHO, if they wanna lower the corporate tax rate then every single loophole needs to be eliminated! END CORPORATE WELFARE!!!
  • Diane #Justic... 2012/09/09 03:48:59
    Absolutely, every loophole that benefits corporations and the rich should be eliminated. I think deductions that benefit the middle class and working poor should be preserved.
  • #Justic... Diane 2012/09/09 04:31:49
    #Justice4Trayvon 629 BLOCKT CONS
    I was speaking in terms of the Corporate tax rate. I do agree deductions for the middle class & working poor should stay.
  • Diane 2012/09/08 20:25:30
    Allowing corporations to defer paying taxes on foreign profits hurts the U.S. economy and increases unemployment in the U.S. The territorial tax system is even worse. Much worse!
  • ehrhornp 2012/09/08 20:19:22
    More welfare for the rich. The middle class gets stuck for paying the bill while the rich makes huge profits screwing America. Pathetic.
  • oldlady 2012/09/08 14:53:22
    Mitt needs to shut up or put up!
  • luvguins 2012/09/08 14:35:05
    Of course the fat cats want this. They would abuse it like they did in 2006. Romney Ryan austerity
  • bob h. luvguins 2012/09/09 15:49:56
    bob h.
    The Bishop & the Alter Boy. How can you have a Mormon Bishop run for President and have separation of Church & State.
  • luvguins bob h. 2012/09/09 16:36:44
    Good point, bob. What kind of theocracy would that be? Schizophrenic I think.
  • twocrows 2012/09/08 12:49:52
    a government program that allows me to opt out of paying my share to keep the nation going? where do I go to sign up?

    OF COURSE corporations want it. and, boy-oh-boy, will they gripe when they can't land their goods here or transport them around the country once they do manage to do so because US ports and highways have all gone to hell.

    every action has it's consequence. a failed US infrastructure would be the result of this one.

    not to mention the fact that it's an open invitation to those corporations that haven't, so far, to ship ALL their jobs to third-world countries. except the jobs of the CEO's, of course. THEY'LL stick around at least until that infrastructure crumbles around them. THEN they'll move to a country that isn't returning to medieval conditions.
    the US in 2150 if all goes according to plan:
  • bob h. twocrows 2012/09/09 15:41:18
    bob h.
    The real problem is that the rich buy, sell and give politicians away like Christmas gifts.
  • rdmatheny 2012/09/08 10:57:39
  • MichaelJ 2012/09/08 04:58:30
    food for thought.
  • Diane MichaelJ 2012/09/08 05:05:43
    It certainly is.

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