Offshore profit shifting and export of jobs

[Guest CTJ]

A major way that business tax subsidies hurt our economy and jobs is that some of the largest

subsidies encourage corporations to shift profits, and sometimes jobs, offshore.

 

Let’s start with some background. The primary goal of our international corporate tax rules shouldbe to assure that profits earned in the United States are subject to U.S. corporate income tax — whether those profits are earned by American-based or foreign-based corporations. A secondary, but still important goal, should be to avoid creating a tax advantage for corporate investments abroad versus domestic investments. To avoid double taxation of corporate overseas profits, our tax rules provide a tax credit for taxes paid to foreign governments on foreign earnings.

 

But our system has a key defect. It allows corporations to indefinitely “defer” reporting on their tax returns profits earned, or ostensibly earned, by their foreign subsidiaries. This means that corporations can avoid paying U.S. taxes, and often any taxes, on profits that they can persuade the IRS are “foreign.” To compound this problem, the rules allow corporations to reduce their U.S. taxable income by some of their costs of earning foreign profits. The Treasury Department estimates that its short list of offshore corporate tax subsidies will cost the government $50 billion in fiscal 2011 alone. Many analysts believe that the real cost is much higher when offshore subsidies not on Treasury’s list are taken into account.

 

http://www.ctj.org

[Guest Ron Paul 2012]

Cracking down on offshore profit-shifting by companies like G.E. was one of the most important achievements of President Reagan’s 1986 Tax Reform Act.