An important, but wonky, policy question:
why does the U.S. tax the profits of U.S. corporations earned overseas, outside the U.S.? Because repealing that "global" tax scheme is
a huge priority for Republicans. And as the
chart from Mother Jones above shows, the amount of untaxed corporate profits currently sitting offshore could pay for an awful lot of necessary stuff.
A little background: the U.S. admittedly is one of the few nations that does not have a territorial tax system. (I can't vouch for this but apparently only Chile, Ireland, Israel, South Korea, and Mexico have some form of global tax policy similar to the U.S.) In most other developed countries, a domestic corporation is only taxed on profits earned in the home country, and the corporation pays taxes on foreign profits only in (and to) the foreign jurisdictions where the profit is earned. Most countries do not have a "repatriation" concept.
But the U.S. has a "global" or "world-wide" corporate tax scheme that taxes U.S. corporations on all their income, whether earned here or abroad -- well, at least when such foreign profits "come home" as dividends or other means of distributing wealth to U.S. shareholders. Today many corporations are "parking" their profits off-shore, with some current estimates putting the number at $2 trillion or more. It is an astounding number, and is directly relevant to whether our country can "afford this or that" or is somehow "going bankrupt." (Crucially, much of these supposedly "foreign profits" do not consist of money earned or kept outside the U.S., and instead really are plain-old U.S. profits, but that is the subject of a separate post.)
Republicans want to repeal the U.S. global tax system to allow all or most of the $2 trillion (and future sums) to freely flow back into the U.S. (Unsurprisingly, Democrats are beginning to make similar proposals, although many continue to insist that it would be bad economic policy.) Republicans argue that the present system is unfair because these foreign profits have already been taxed abroad (frequently not true, and U.S. law anyway allows a credit for foreign tax payments), and allowing "foreign profits" to freely return would spur domestic economic growth (to the contrary, most foreign profits go directly to the savings of wealthy folks without any job-creation or "reinvestment" in the U.S.). Indeed, some Republican politicians are beginning to openly argue for the opposite anyway:
Some Republicans have expressed interest in overhauling taxation of foreign profits to fund infrastructure, but balked at levying the tax on accumulated profits regardless of whether the company chooses to bring the money to the U.S.
“We’re in a global market and if profits are being made in Asia and [a company] wants to reinvest there, that should be a company’s prerogative to do so,” said Rep. Marlin Stutzman (R., Ind.), a member of the House Budget Committee.
If nothing else, Republicans argue, the U.S.'s global tax system is uncompetitive and encourages corporations to leave the U.S. and reincorporate overseas. There may be some economic logic to this but, to date, U.S. corporations have not left in large numbers as a result of this existing tax scheme. Of course, that also could change, but maybe
we don't have to idly allow that either.
But, again, all of this begs the original question: why does the U.S. - almost alone among advanced economies - tax its domestic corporations on profits earned abroad?
The answer is imperialism. Well, not exactly, but close. Or, if so inclined, you could say that the answer is "American Exceptionalism." As The Nation explained it:
But they [U.S. corporations] all still expect Uncle Sam to come to their aid with military firepower in case the natives abroad get restless and nationalize their company’s assets. We still have a blockade against Cuba because Fidel Castro more than a half century ago dared seize an American-owned telephone company. During that same period, we have consistently intervened to maintain the lock of US corporations on the world’s resources, continuing to the present task of making Iraq and Libya safe for our oil companies.
America’s multinational corporations still need the Navy to protect shipping lanes and the Commerce Department to safeguard US copyrights. They also expect the Federal Reserve and Treasury Department to intervene to provide bailouts and cheap money when the corporate financial swindlers get into trouble, like GE, which almost went aground when its GE Capital financial wing got caught in the great banking meltdown.
They want a huge US government to finance scientific breakthroughs, educate the future workforce, sustain the infrastructure and provide for law and order on the home front, but they just don’t feel they should have to pay for a system of governance, even though it primarily serves their corporate interests. The US government exists primarily to make the world safe for multinational corporations, but those firms feel no obligation to pay for that protection in return.
That is the simple answer. Bermuda, or the Caymans, or Lichtenstein, or (yes) the U.K., etc. are not even pretending to be the first and last resort to protect the seas, maintain international order, or establish and maintain global trade and financial systems. Until further developments, we are Rome. And we are a decidedly capitalistic Rome. Somebody, somehow, has to pay for all that. Unlike Italy or Denmark, the U.S. taxes the domestic and foreign income of its corporations' income to pay for all of the obligations
that corporate America wants the U.S. to do. If we lose sight of that fact, we could find ourselves absurdly trying to keep the empire, while arguing that such taxes are only needed to
to pave potholes.
But I promised a "modest proposal" . . . Here, it is: if a politician has a better, fairer idea how to finance a global empire, then make it! If a politician thinks that there are taxpayers better suited than international corporations to shoulder the cost of the U.S.'s international burdens, then name that taxpayer. The money in question has to come from some source, right? But don't pretend that we are - or should be - discussing how to be more tax competitive than Bermuda. No one - on either side of the aisle - is arguing that the U.S. is, or should be, a small, subservient, tax-haven country. The current tax-competitiveness debate is, simply, silly.