Republican presidential candidate Mitt Romney’s plan to overhaul the American corporate tax code would “exacerbate the worst features of our current tax system” by giving corporations more than $1 trillion in tax breaks and providing an incentive to outsource jobs and stash profits overseas, according to Seth Hanlon, the director of fiscal reform at the Center for American Progress Action Fund.
While the United States already provides an incentive for companies to store profits in offshore tax havens instead of investing those profits at home, Romney’s plan to shift the U.S. to a territorial tax system would make the situation even worse, Hanlon wrote in a report published today:
Gov. Romney’s proposed exemption for foreign profits would exacerbate the worst features of our current tax system. It would:
— Enhance the tax code’s rewards for moving jobs and investments overseas
– Provide a gratuitous windfall to some of the very companies that have already shifted jobs and profits overseas
— Further invite the offshore tax haven abuse that deprives the U.S. Treasury of tens of billions of dollars in revenue every year
The current system already encourages investment overseas, since corporations are allowed to defer tax payments on foreign profits until they “repatriate” them to the United States. Romney’s plan would exempt companies even from this tax, which will cost the U.S. $130 billion over the next decade. “When combined with Romney’s proposal to slash the top corporate rate from 35 percent to 25 percent, which would cost more than $900 billion, it pushes the total corporate tax cuts in the Romney plan to over $1 trillion,” Hanlon writes.
Romney’s reforms could also cost America jobs and invite further abuse of offshore tax havens, Hanlon writes. Because corporations would know they are permanently free from paying American taxes if they invest abroad, Romney’s plan would encourage such investments. Those investments would lead to 800,000 jobs in other countries, “potentially displacing U.S. jobs.” Economist Kimberly Clausing, Hanlon notes, “estimates that under a territorial tax system, even more profits of U.S.-based companies would shift to tax haven countries,” a problem that already costs the average American taxpayer $434 a year.
Bain Capital, the company Romney founded, routinely outsourced jobs to low-wage countries like Mexico, China, and Ireland while Romney was its chief executive, and it also utilized offshore tax havens in Bermuda and the Cayman Islands to help investors avoid American taxes. Now, his corporate tax reform plan would make it even easier for companies to do the same under the guise of “competitiveness.”