Politico, April 5, 2012
Guess
who’s pushing for a tax holiday?
by
David Saleh Rauf
David Saleh Rauf is a technology reporter for POLITICO. He opines:
...
Overseas cash and earnings stockpiles for 12 of the United States’ biggest
businesses — from Microsoft to Merck — grew by about 20 percent in 2011, as
most of them lobbied hard in Washington for a “tax holiday†to bring that
money home at a steep discount ... companies have avoided U.S. taxes ... by
keeping the money offshore ... That $455.6 billion, along with hundreds of
billions more dollars in other earnings parked overseas, lies at the center
of a tug of war between lobbyists, Congress and the White House over how to
tax international profits. ... critics point to a 2004-05 tax holiday that
brought some $312 billion back into the U.S. Most of that was spent on
dividends and stock repurchases — not building or hiring.
2-4-8 Response:
Corporate Tax Holiday
Not Needed
The Republican Roadmap for America's Future called for
an 8.5% Business Consumption Tax (similar to a Value Added Tax [VAT]) and
the elimination of all corporate income tax. This would be a radical change
in the tax treatment of C corporations versus pass-through S corporations
which pay tax at the various rates of the individual owners. With no
corporate tax, US companies with cash overseas might not owe any taxes on
the foreign income.
At the other extreme, some reputable economists have
suggested the complete elimination of foreign corporate tax deferrals.
Others, like Mitt Romney, have called for a switch to a territorial tax
system that would impose no US tax on foreign corporations. Some have
suggested that territorial tax treatment (i.e. deferred US tax) be given
only to countries with a genuine corporate tax so that corporations in “tax
haven†countries don’t get any tax benefit. Mr. Obama has recommended a
change to a partial deferral where some of the tax would be deferred.
A better business tax solution would consist of a 4%
VAT and 8% corporate income tax. This would reduce but not entirely
eliminate the tax distinction between pass-through business and C
corporations. Since the corporate 8% corporate income tax rate would be
lower than all developed countries, there would be no US tax owed and no
need to switch to a territorial tax system. Cash in “tax havens†with no
corporate income tax would still likely be brought back to the US because
the 8% rate is so low.
For better individual tax reform see
www.TaxNetWealth.com
Eugene Patrick Devany, JD, MPA
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