From an editorial published in the New York Times on Wednesday:
A common election-season complaint is that candidates spend too much time attacking each other and too little discussing issues. That was not the case last week on the question of how to tax U.S. multinational corporations on their foreign earnings.
President Barack Obama raised the issue at a town-hall meeting in Ohio, discussing his proposals for tax credits for manufacturers in the United States to encourage the creation of new jobs. He said this was greatly preferable to Mitt Romney’s support for a so-called territorial tax system, in which the overseas profits of U.S. corporations would escape United States taxation altogether.
It’s not surpring that large multinational corporations strongly support a territorial tax system, which, they say, would make them more competitive with foreign rivals. What they don’t say, and what Obama stressed, is that eliminating federal taxes on foreign profits would create a powerful incentive for companies to shift even more jobs and investment overseas – the opposite of what the economy needs.
Romney’s response? His campaign accused Obama of “crony capitalism” that uses government resources to reward campaign donors. Republicans pointed out that members of the President’s Council on Jobs and Competitiveness had supported a territorial tax system, which is true, but they failed to note that the council members who endorsed the idea are corporate executives whose multinational firms would benefit from the lower taxes.
They further noted that Obama’s bipartisan deficit reduction commission had supported a shift to a territorial system. That’s partly true. Some members supported the elimination of corporate taxes on U.S. companies’ foreign profits, but the panel never issued an official report.
It seems highly unlikely that the American public would support a system that eliminates taxes on U.S. companies’ foreign earnings. Under the current corporate tax code, taxes on foreign profits of U.S. firms are deferred until the companies bring the money back to the United States. Upon repatriation, the profits are taxed, but with a credit given for any foreign taxes paid on the profits, so there is no double taxation.
If anything, the current code is too generous. A territorial system would be an even bigger giveaway, endangering the budget while rewarding companies for offshoring jobs and investments.
