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Your Take: New Tax Rules for Business’s with International Profits?

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The United States’s method of taxing worldwide income is clearly broken. Bloomberg reported that U.S. companies added $187 billion in untaxed overseas profits over the last year, boosting the total profits abroad to around $1.2 trillion. The list of companies doing this is a who’s who of name brands – General Electric, Pfizer, Apple, Google, etc.

If you aren’t familiar with how this works today, it’s actually quite simple and obviously broken. The United States taxed corporate profits at 35% with a credit given for taxes paid to other governments. So if your company earned $100 abroad and you were taxed $10 in that country, the United States would only want $25 ($10 credit for amounts paid abroad). You would only owe taxes on that money if you were to bring it home and that’s where things break. If you keep the money abroad, you owe nothing. What do you think happens? They keep it abroad. If companies need cash, they just borrow it.

One clever way to shelter taxes is coined the “Double Irish With a Dutch Sandwich” and it’s really clever.

You make it worse when you offer amnesty, as they did in 2004, because then corporations will stockpile until the next amnesty. It’s why it’s so important that we take a hard look at this and I’m not sure what we should do. Romney wants to, among other things, move to a territorial system, where we don’t tax on earning abroad and Obama wants to eliminate the deferral provision of the current tax rules. In a territorial system, the government would only tax businesses on income earned from sources within our territory, the United States. We currently have what’s known as a worldwide taxation system, where the United States collects taxes on income earned worldwide.

I’m not sure what we should do because there’s good arguments for both sides. I think that corporations should be taxed like people, so it should be worldwide, but the 35% tax rate seems punitive. When you read stories about how GE or Exxon paid 0% in taxes, it’s because of the strange ways in which international income is treated (and the tax breaks they get for things like oil exploration). I also understand that by taxing worldwide, rather than by territory, American businesses may be at a slight disadvantage… though you wouldn’t be able to notice it with the mega-corporations hoarding $1.2+ trillion. 🙂

What do you think should be done?

{ 13 comments, please add your thoughts now! }

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13 Responses to “Your Take: New Tax Rules for Business’s with International Profits?”

  1. Lei Lani says:

    If you live in Virginia, you should pay income tax on the money earned in Virginia. If you have income from another state, you pay THAT state the income taxes, even of you are spending the money after taxes in Virginia. No credits allowed for income tax paid to another state. ( why should your home state offer credits for money they don’t see?)
    If the money is earned in another country (even a country without income taxes) then the US shouldn’t tax it. If taxes are paid to another country, the US should not offer a credit.
    Am I overlooking something?

  2. Texas Wahoo says:

    “I think that corporations should be taxed like people, so it should be worldwide, but the 35% tax rate seems punitive.”

    I have never thought it makes sense to have individuals pay U.S. taxes on money they receive working in another country.

  3. Courtney says:

    No one pays 35%.

  4. flip says:

    Well I look at it this way. If they claim to be American living under the rights and freedoms of this sovereign nation, shouldnt they contribute a portion of their earnings to that nation which protects their rights overseas?

  5. Mike says:

    I’d rather the corporations spend the money since I probably won’t be hired by the Gov’t and am too young to receive substantial Gov’t benefits.

    • NateUVM says:

      And because you don’t drive on roads…
      You’re not protected by the military/police/fire dept…
      You never went to public school…
      You’ve never travelled by foot/car/bike outside under street lights when it’s been dark…
      You’ve never needed the assistance of traffic lights/signs…
      You’ve never crossed a bridge…
      You’ve never been to a beach protected by a breakwater…
      You’ve never eaten food that’s been imported…
      You’ve never eaten food that’s crossed state lines…
      You’ve never flown in a plane or on a train or a subway or a bus or a car…
      You’ve never owned/bouhgt/sold stocks/bonds/mutual funds/etc…
      You’ve never watched TV…
      You don’t use the internet…(oh, wait)…

      • Mike says:

        I noticed you put a lot of examples of transportation in your tirade. The gov’t spends a miniscule amount of its taxes on transportation.

        Most of my tax dollars goes to the military and medicare/medicaid. I won’t directly benefit from those expenditures.

        Wish I were a gov’t employee though. Nice benefits.

        • NateUVM says:

          5 out of 13 are transportation based.

          Yeah, I kinda lumped most of the big dogs (military, etc…) into one, there, didn’t I…? But I don’t suppose you utilize their services, either?

          Also, and maybe you’re not aware, but our transportation network was one of the key contributors to our growing post-war, 20th century economy. So maybe we should be spending more? Is that what you are saying?

          Also, I was attempting to draw attention to everyday items that some people (ahem) might take for granted. That something like military spending might be a bit too abstract for them to realize how much they might benefit from.

          But again, none of these services has been of any benefit to you, has it?

          • Mike says:

            I’m not particularly averse to spending in engineering services, but I know that politicians on both sides have neglected transportation for the past 50 yrs? I don’t trust them to spend on it adequately.

            I particularly enjoy the space program. Those funds are being decreased.

            I like some of the things that come from the military that can be dual purpose. UAV’s, internet, body armor,nuclear power.

            Then again even in the military there is still too much waste with things spent on unnecessary equipment for political favors.

            Just because the Gov’t spends some of my taxes on a few things I like doesn’t mean I should praise them spending most of it on things that I don’t or don’t benefit me.

          • NateUVM says:

            Part of choosing to live in society such as ours is paying your fair share, even for things that don’t “directly” benefit you. Because we, as a society, can only succeed if we are looking out for each other.

            United we stand, divided we fall. Ain’t nothing more American than that.

          • Mike says:

            I fear for the future of the country when an increasingly disproportionate amount of our fortune goes to the back end of our population instead of the front end (Social Security, Medicare), the poor off (medicaid, security nets), or the debt.

            Seems like all the revenue for all the achievements you listed will not be available for future citizens in this country if an increasing amount of it is taken up by the above.

          • NateUVM says:

            I’d love to hear who you think falls into this “back end” of our population and why you don’t think that they are entitled to benefits that they have paid into their whole lives?

            As a society, we need to follow through on and honor the promises that we make, no matter the cost. Otherwise, who are we? Sometimes you have to pay for things that you do not receive the benefit for…

            “A society grows great when old men plant trees whose shade they know they shall never sit in.” ~Greek Proverb

          • Mike says:

            Of-course the Gov’t needs to pay back its obligations. But the fact remains, that the citizens will only gain that money back at the back end of their lives.

            An age where the citizens should have accumulated their wealth after a lifetimes worth of saving.

            I don’t even think the programs will even survive as it is by the time I reach the age to collect.

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