Closing a loophole that could cost the U.S. $90 billion this year, however, isn’t popular among Republicans like Rep. Dave Camp (R-MI), the chairman of the House Ways and Means Committee. While Obama’s plan represents “a step forward,” it still double-taxes corporations who have to pay taxes both in the U.S. and in the country where foreign profits were earned, Camp claimed. Camp instead wants the U.S. to switch to a “territorial” tax system, in which companies wouldn’t pay any taxes on profits earned overseas, as he told NPR this morning:
CAMP: They don’t really address the territorial reforms that I think are so essential to make our companies competitive. […] We tax them here and we tax them there. … This double taxation traps money overseas, and we think there’s about a trillion dollars that could be brought back to the U.S. and invested here — private money — that would really help get our economy going again. That’s a piece they didn’t include. … I hope we can develop into something that will do a better job making sure American companies that make profits overseas can bring those back and invest them in jobs for Americans.
Under current law, companies can defer taxation on profits earned overseas until they return the money to the U.S. Under the territorial system Camp wants, however, companies would never pay U.S. taxes on overseas profits. As Citizens for Tax Justice explained, this would obviously increase the incentive to shift profits overseas and to hide money in tax havens. “We should be able to agree that our tax system should not favor investment and job creation offshore over investment and job creation in the U.S,” CTJ noted. “Our current system does exactly that, and a territorial system could actually increase this bias in the tax code.”
The minimum tax on overseas profits, in contrast, would help shut down the tax havens that shield companies from American taxes and end one of the nation’s biggest tax expenditures. As the Center for American Progress’ Seth Hanlon has noted, corporate tax dodging through tax havens increases the tax burden on individuals and domestic businesses, worsens the country’s fiscal situation, and actually spurs overseas job creation. A minimum tax, in contrast, would combat this abuse without harming American economic competitiveness.