Here is the latest that is coming out of DC on territorial taxation that was just proposed yesterday. Of course, as to be expected, it is Corporation directed in its focus. They are the ‘super persons’ that get all the attention around Congress these days. However, there is language that is encouraging here. I think we need to be writing Senator Enzi, as he is asking for comments. He is stopping short with his efforts, and these measure should include US citizens residing abroad as well. Regional taxation should be for all, not just super persons! In our letters, we can use many of the excellent arguments Roger has provided us as support. The bills title should be… Bring Back the money and create more export jobs in the US with Territorial taxation for all!
379A Senate Russell Office Building
Washington, DC 20510
Phone: (202) 224-3424
Fax: (202) 228-0359
Toll-Free: (888) 250-1879
Web site reference for Roger Cronklin’s testimony in the Ways and Means Committee.
Bring back the money:
The United States Job Creation and International Tax Reform Act of 2012
On Thursday, February 9, 2012, U.S. Senator Michael B. Enzi (R-WY) introduced S.____, the United States Job Creation and International Tax Reform Act of 2012. It’s legislation that would encourage U.S.-headquartered multinational companies to bring back the money.
While U.S. tax policy sleeps, the countries we compete with have revamped their laws to lure American companies, their capital and their ideas to foreign shores. This bill would level the playing field for U.S. companies, helping them to grow at home and our country’s opportunities to grow with them.
The rest of the developed world has moved forward in modernizing their international tax rules to insure their domestically based companies are competitive in the global market. The United States has fallen behind. We have forced our multinational companies to operate within a set of tax rules that are nearly 50 years old. When platform shoes and American Bandstand were in full swing our country didn’t have to worry as much about competing in foreign markets. Our international tax laws were not designed with an eye for foreign competition and the growth of foreign markets. They need to be now.
Sen. Enzi’s international tax reform legislation recognizes this need and would modernize the tax rules so that U.S.-based companies are competitive with their foreign counterparts. It would give U.S. companies incentives to create jobs in the United States and undertake activities in America in order to win in the global marketplace.
What does the bill do?
• Provides a 95 percent exemption from U.S. tax for foreign earnings that have already been subject to tax in a foreign country. This is similar to the tax systems that the United States’ major trading partners have adopted. It would create a level playing field for U.S.-headquartered companies when they compete in foreign countries by nearly eliminating the additional U.S. tax that is imposed on foreign profits when they are brought back to the United States. This would allow for American-managed capital to be put to its most productive use and help stabilize our economy.
• Allows for foreign earnings currently held overseas to be brought back to America at a reduced tax rate. As part of a transition to the new tax system, U.S. multinationals would have an option during the first year after enactment of this legislation to either distribute cash dividends to the United States or simply include in their U.S. taxable income any or all of their foreign earnings currently being held offshore. These earnings would be taxed at a reduced U.S. tax rate. The tax due on these earnings could be paid over a period of up to 8 years. Doing so would allow companies to quickly transition to the new tax system and unlock in America a significant amount of capital currently being held offshore. That would mean more jobs and a better economy. If a company chose not to distribute foreign earnings to the United States during this one-year period, then it would be subject to the full U.S. tax rate when the earnings are brought back home. The benefits of the new tax system would be put on hold until all of those foreign earnings were subject to full U.S. taxation.
• Imposes a reduced U.S. tax rate on certain income generated by domestic companies from ideas and inventions. People worry the current U.S. tax system encourages U.S.-headquartered companies to transfer rights to certain ideas and inventions to low or no-tax countries. This bill, through a reduced U.S. tax rate on the income from ideas and inventions, would encourage companies to develop and keep rights to the ideas and inventions in the United States.
It is the Senator’s intention that the bill not add to the deficit. A revenue estimate has been requested but has not yet been received. In the interim, the Senator requests that all interested stakeholders be actively engaged in the process and provide comments on the legislation.
Sen. Enzi views this legislation as the first in a series of steps to comprehensively reform the United States tax code. Additional tax reform efforts will focus on the tax rules affecting individuals, corporations, and businesses that operate in flow-through form (i.e., partnerships, S-corporations, and limited liability companies).
This is positive news of course, but how many times have tax reform bills been introduced and gone nowhere?
I think that the US tax code is simply a reflection of the broken politician system in the US, and I don’t mean the political climate. I think that the entire “presidential system” simply does not function well. The division of powers and checks and balances system is a wonderful idea theoretically, but it is based on outdated ideas from the Enlightenment era. The US “Founding Fathers” did not even envision the rise of political parties when they created this system of government.
If the US were a parliamentary democracy and this senator’s party were in power and had promised to reform the tax code in their election campaign, they would then be poised to actually implement the required legislation and not have it bogged down: ie they could actually govern. Sometimes the dictatorship of the majority is preferable to the squabbling of everyone!
Modernising is a good idea in this case!! I think this Senator Enzi is a good start, and very encouraging. After all, my parents and extended family live in America. I would love to see America be able to keep the position is has had for the last 60 years. Even long after I renounce, if the US finally comes to their senses, I will be happy for THEM.
@me to: The Simpson-Bowles Commission on Fiscal Reform, appointed by President Obama issued its recommendations in December 2010. A statement on page 25, paragraph #3 of these recommendations states: “A territorial tax system should be adopted to help put the US in line with other countries, leveling the playing field.”
No action has been taken on any of the recommendations produced by this Commission.
Senator Enzi refers to this recommendation in his bill. The Commission recommendation did not specify that it referred only to business income but from context of the recommendations it seems quite clear that this was the intention. A difference between what is Sen. Enzi’s bill and most other nations is that most others do not subject the foreign income of their corporations to any tax whatsoever, but his bill indicates that it would still be taxed, but not at the high 35% rate as at present.
A good precedent indeed, but whether anything happens on this bill remains to be seen. There are competing bills in hopper that would abolish the current foreign earned income exclusion and fully tax individuals abroad on all income. There is another, supported by the President, that would subject foreign coporate income to a 35% tax, whether remitted back to the US or not.
So don’t hold your breath. It is highly probable that it will not get out of committee and never be voted on. Just my opinion.
For all the cynics, me chief amongst them…a reminder…” Nothing ventured, nothing gained.” I will be writing Enzi.
@Roger, what’s the logic for taxing businesses on overseas earnings at 35%? The business already paid, and most likely much higher than that they would have paid in the US. No wonder so many of these businesses “renounce” and move to Bermuda or the Cayman Islands.
The US seems to have gun taped to its foot. Everytime they pass a law, they pull the trigger.
“….The US seems to have gun taped to its foot. Everytime they pass a law, they pull the trigger.”
Right on! The only thing is that the gun is taped further down than the foot! 😉
Roger said: There are competing bills in hopper that would abolish the current foreign earned income exclusion and fully tax individuals abroad on all income. There is another, supported by the President, that would subject foreign coporate income to a 35% tax, whether remitted back to the US or not.
See this is where the whole world has to stand up to US tax policy and say STOP THE INSANITY. You can’t tax outside your own jurisidiction just because you feel like it and using extortion against foreign banks is a criminal offence that the US should be punished for through international sanctions.
The only thing they’ve managed to do through FATCA is put a spotlight on how corrupt the lawmaking in the United States is. After studying the President’ss position on these issues I’ve realized he’s the most corrupt of them all. He does not listen to the people he appointed to his own Job’s Council. He acts like he is the King and can do whatever he wants no matter how much suffering it causes the American people because of his insane policy positions.
The US will never be trusted by the world not to exploit any and every situation. If another country was doing this the US would be lining up it’s army near their border to get them to start being rational.
Unfortunately for America, the world doesn’t show it’s disgust through armies, they do it by backing away and forming closer ties with other countries. A perfect example is Canada and their ever closer relationship with China. Obama caused that to happen. He has no idea how much damage he’s done to the US Canada relationship which will eventually affect the American people in a negative way.
@Don Pomodoro: I think that the biggest problem is not presidential vs. parliamentary form of government but the over-polarization that occurs under the two party system. There is a lot of haggling: “we won’t do this if you don’t do that” tit-for-tat attitude, riders pushed into bills that have nothing to do with the subject matter of the main bill. Congress should not be voting for things based upon the votes that they think they will get and the individual member’s power base, but on the subject matter and the issues!!
@Jefferson D. Tomas:
They tried to write a law to prohibit that: H.R. 3806: One Subject At A Time Act. It said: “To end the practice of including more than one subject in a single bill by requiring that each bill enacted by Congress be limited to only one subject … and for other purposes“. I think this law makes itself illegal =)