US tax reform hopes become mired in foreign cash piles
Republican attempts to make progress on tax reform after the party’s failure on healthcare are being undermined by a lack of consensus on handling US companies’ offshore earnings, an issue set to spark fierce lobbying and discord.
The White House and Republican lawmakers want to scrap the US practice of taxing American companies on their worldwide earnings rather than domestic income alone, which is loathed by multinationals and marks the US as an odd one out globally.
But congressional aides and independent experts agree there is no problem-free way to move the US from worldwide to domestic-only taxation, also known as a territorial system. “I don’t think the thinking is well formed at the moment,” said a Republican aide.
The current system has resulted in companies led by Apple and Microsoft stockpiling hundreds of billions of dollars of “locked out” earnings overseas, because America’s 35 per cent corporate tax rate only becomes payable when the income is repatriated.
At the same time, it has inspired other businesses such as Medtronicand Mylan to escape the US tax net by using so-called “inversion” deals to move their tax addresses overseas, drawing scorn from both Republicans and Democrats.
Bemoaning the system of worldwide taxation, an approach abandoned by most of the US’s biggest trading partners over the past 30 years, the tax chief of one big US manufacturer said: “We would take any other country’s system over the US.”
While the White House, Senate and House of Representatives are yearning to notch up a big legislative achievement — and see tax as their best hope — the most concrete part of a joint tax announcement made last week was a step backwards on ending worldwide taxation.
Policymakers said they were ditching a plan for a border adjusted tax, which would have created a quasi-territorial system by imposing a tax on imports to the US while exempting exports.
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