Tax reform would let big companies bring profits home, but would it send jobs abroad?

Dec 7, 2017

The clock is counting down: Now that tax reform bills have made their way through the House and Senate, Republicans in both chambers are working to iron out the differences between the two bills — with a goal of overhauling the US tax system by December 22.

Critics say the plan is riddled with glitches and loopholes, including a provision that would give US corporations a huge tax cut on $3 trillion in profits they have stored outside the country.  

Under current law, multinational companies must pay a 35 percent tax on all foreign profits – unless those profits stay overseas. Some large companies – including Apple, General Electric, and others – stash billions of dollars overseas in tax havens, like Luxembourg and the Cayman Islands, so they can effectively defer payment of their taxes.

The “repatriation provision” proposed by Republicans would change give American companies a tax break – allowing them to pay a minimum of 10 percent tax on some types overseas earnings (in the Senate version of the bill) and a 20 percent tax on domestic profits.

But the bill is being rushed through Congress, says Chye-Ching Huang, a tax policy analyst at the Center for Budget and Policy Priorities. “I think we're going to see a whole lot of loopholes come into the light of day,” he says.

One consequence is that when overseas profits are taxed at a lower rate than domestic profits, companies may be incentivized to shift factories and manufacturing abroad. Under the proposed tax overhaul, Huang says, “you're not even subject to this minimum 10 percent tax on foreign profits if the profits are from manufacturing offshore.”

From PRI's The World ©2017 PRI