Baucus Floats Ways to Close Tax Loopholes for Overseas Businesses

Baucus: No deal on tax cuts until after Thanksgiving.
National Journal
Sarah Mimms and Billy House
Add to Briefcase
See more stories about...
Sarah Mimms and Billy House
Nov. 19, 2013, 9:31 a.m.

Sen­ate Fin­ance Com­mit­tee Chair­man Max Baucus on Tues­day un­veiled a sweep­ing pack­age of pro­posed tax-code changes tar­get­ing cor­por­a­tions that do busi­ness over­seas, in­clud­ing call­ing for a min­im­um tax on the in­come they earn world­wide.

The plan is the first of three drafts touch­ing on re­vis­ing as­pects of the tax sys­tem that Baucus is to re­lease this week. It comes after House Re­pub­lic­ans last week in­dic­ated their tax-re­form ef­forts — led by Ways and Means Com­mit­tee Chair­man Dave Camp — have been put on hold, at least for the rest of the year, and the pro­spect of any ac­tu­al move­ment to­ward a tax re­vamp soon is un­likely.

Baucus’s re­lease of his pro­pos­al for “in­ter­na­tion­al tax re­form” also fol­lows a closed-door meet­ing with oth­er sen­at­ors on the Fin­ance Com­mit­tee. It is a re­sponse to the gen­er­al no­tion that cur­rent law cre­ates too many in­cent­ives for mul­tina­tion­al cor­por­a­tions to in­vest and cre­ate jobs over­seas. About $2 bil­lion in U.S. cor­por­ate earn­ings are es­tim­ated to be parked over­seas.

The Baucus draft de­scribes some of the ob­ject­ives of the pro­pos­als, which in­clude re­du­cing in­cent­ives for U.S. and for­eign mul­tina­tion­als to in­vest in or shift profits to low-tax for­eign coun­tries; re­du­cing in­cent­ives for U.S.-based busi­nesses to move abroad; and sim­pli­fy­ing the tax rules so that firms with the most soph­ist­ic­ated tax ad­visers are not ad­vant­aged.

Un­der cur­rent law, U.S. com­pan­ies owe taxes at a full fed­er­al rate of 35 per­cent on all in­come earned world­wide. But they can de­fer U.S. tax­a­tion un­til they re­pat­ri­ate the money. Baucus’s plan to re­struc­ture the in­ter­na­tion­al tax sys­tem would lower the cor­por­ate rate by an un­spe­cified amount.

But the draft in­cludes two op­tions for tax­ing in­come from products and ser­vices sold in­to for­eign mar­kets.

One would be a min­im­um tax that im­me­di­ately taxes all such in­come at 80 per­cent of the U.S. cor­por­ate tax rate with full for­eign tax cred­its, coupled with a full ex­emp­tion for for­eign earn­ings upon re­pat­ri­ation. An­oth­er is a min­im­um tax that im­me­di­ately taxes all such in­come at 60 per­cent of the U.S. cor­por­ate rate if de­rived from act­ive busi­ness op­er­a­tions, but at the full U.S. rate if not, coupled with a full ex­emp­tion for for­eign earn­ings upon re­pat­ri­ation.

Some cor­por­a­tions have been call­ing for a “tax-re­pat­ri­ation hol­i­day” to bring those stock­piled earn­ings parked over­seas back to the coun­try. The pro­pos­als in the draft don’t do that. But they also would make earn­ings of for­eign sub­si­di­ar­ies from peri­ods be­fore the ef­fect­ive date of the pro­pos­al that have not been sub­ject to U.S. tax sub­ject to a one-time tax at a re­duced rate of, “for ex­ample, 20 per­cent pay­able over eight years,” it says. That could pro­duce a one­time rev­en­ue shot for the U.S. Treas­ury of about $200 mil­lion, ac­cord­ing to some es­tim­ates.

The two oth­er draft pro­pos­als Baucus is ex­pec­ted to re­lease this week will touch on tax ad­min­is­tra­tion and cap­it­al-cost re­cov­ery.

Treas­ury Sec­ret­ary Jac­ob Lew said at a Wall Street Journ­al con­fer­ence Tues­day morn­ing that he had dis­cussed the draft with Baucus on Monday, and he praised the chair­man for put­ting for­ward a plan that “shares some sig­ni­fic­ant char­ac­ter­ist­ics with the pres­id­ent’s frame­work,” while in­clud­ing pro­vi­sions that he hopes will find sup­port among both Re­pub­lic­ans and Demo­crats.

Lew said that such a plan to “deal with the dis­par­ity between the U.S. and in­ter­na­tion­al tax rates” could provide a “shot in the arm” to the Amer­ic­an eco­nomy. Lew sug­ges­ted us­ing that one­time rev­en­ue to make crit­ic­al in­vest­ments in in­fra­struc­ture. “It would build a found­a­tion for a strong growth and job-cre­ation eco­nomy,” he said.

What We're Following See More »
TO BE VOTED ON NEXT MONTH
Pai Officially Announces Intent to Scrap Net Neutrality Rules
1 hours ago
THE LATEST
SAYS HE’S UNAWARE OF ACCUSATIONS
Conyers Denies Settling Harassment Claims
1 hours ago
THE LATEST
SPEAKER SAYS IN LETTER
Mugabe Resigns, Ending Impeachment Debate
1 hours ago
THE LATEST
HAITIANS TO BE MOST AFFECTED
White House to End TPS Program
2 hours ago
THE DETAILS

"The Trump administration is ending a humanitarian program that has allowed some 59,000 Haitians to live and work in the United States since an earthquake ravaged their country in 2010, Homeland Security officials said on Monday. Haitians with what is known as Temporary Protected Status will be expected to leave the United States by July 2019 or face deportation. ... About 320,000 people now benefit from the Temporary Protected Status program, which was signed into law by President George Bush in 1990."

Source:
MAKES PERMANENT A PREVIOUS INJUNCTION
Federal Judge Blocks Sanctuary Cities Order
2 hours ago
THE LATEST

"A federal judge on Monday permanently blocked President Donald Trump's executive order to cut funding from cities that limit cooperation with U.S. immigration authorities. U.S. District Court Judge William Orrick rejected the administration's argument that the executive order applies only to a relatively small pot of money and said Trump cannot set new conditions on spending approved by Congress. The judge had previously made the same arguments in a ruling that put a temporary hold on the executive order."

Source:
×
×

Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.

Login