Tax Analysts Blog

Business Overstates Its Case on International Taxation

Posted on Oct 12, 2012
In an op-ed in this morning's Wall Street Journal former Michigan governor and current president of the Business Roundtable John Engler writes that "U.S. companies don't get a tax break for moving plants overseas."

It is true, as Mr. Engler states, that the U.S. corporate rate--currently the world's highest--must be reduced. It is true that most other major economies have "territorial" systems of taxation where most foreign profits are exempt from tax. It is true there is a "lock-out effect" that puts a steep tax penalty on the return of foreign profits to U.S. parent companies.

But it is also plainly true that any company that moves facilities, say, from Indiana to Ireland, can realize enormous tax benefits. The company would not only get deferral of U.S. tax on Irish profits but would also easily be able to shift large chunks of U.S. profits to Ireland (and then from Ireland to Bermuda for even further tax benefits). This, as Mr. Engler is well aware, is Corporate Tax Planning 101.

Is it good policy to allow U.S. corporations large tax advantages for moving offshore? The multinationals make a "trickle sideways" argument: foreign job creation spurs domestic job creation. Whether this is true is a matter of dispute. But if it were, the correct policy would be for us to resurrect the old investment tax credit and, in a complete reverse of previous policy, allow it only for foreign investment and deny it to domestic investment.

Missing from Mr. Engler's advocacy piece is any discussion on how to pay for tax breaks for business. Japanese business is much more responsible and realistic: its business federation has called for increases in value-added tax.

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