Friday, October 12, 2012

US Corporate Tax On Foreign Earnings Discourages US Investment By American Companies

From The Wall Street Journal, "Corporate Taxes, the Myths and Facts: U.S. companies don't get a tax break for moving plants overseas.They are, however, socked with an extra bill for bringing home earnings." by " by John Engler:
According to the nonpartisan congressional Joint Committee on Taxation, there are no specific tax credits or deductions for moving plants and jobs overseas.
The [US corporate tax] system has simply not kept up with the demands of today's global marketplace, where 95% of the world's consumers live outside the U.S. All other G-8 countries—and 28 of the 34 member nations of the Organization for Economic Cooperation and Development—use "territorial" tax systems. This means a company's sales in foreign markets are taxed at the rate of that local market—the same rate borne by other competitors.

By contrast, under the current U.S. system, after an American company pays that local tax, it finds the Internal Revenue Service waiting with a big tax bill when the company tries to bring foreign earnings back to the U.S. Why? Because America's tax law requires the payment of an additional tax—generally the difference between the U.S. rate and the tax rate in the foreign market.

According to J.P. Morgan, U.S. companies today control $1.7 trillion in foreign earnings held outside the U.S., earnings they don't plan to repatriate. If the U.S. were to adopt a territorial system, it would eliminate the tax barrier that discourages American companies from bringing their money home where it could be used for capital investment, R&D dividends or other ways to support economic growth. [Emphasis added.]

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