The top tax writer in the House of Representatives spelled out his plan to exempt from most U.S. taxes the profits American corporations earn outside the country.
The proposed territorial tax system outlined by Representative Dave Camp would overhaul the U.S. approach to international taxation, moving it closer to systems of other major economies such as the U.K. and Japan. Business groups including the U.S. Chamber of Commerce and such companies as Procter & Gamble Co. are lobbying Congress for a territorial system.
“This is a public discussion now,” Camp told reporters today as he asked tax lawyers, business executives and the public to weigh in on his plan.
Camp’s proposal marks a noteworthy point in discussions about overhauling the U.S. tax code, which lawmakers and business executives of all political persuasions say is too complicated. The Michigan Republican, who took over chairmanship of the House Ways and Means Committee in January, is shifting from holding hearings to writing legislation.
He described today’s proposals as a first step in a comprehensive rewrite of the tax code. Camp wants to lower the corporate tax rate to 25 percent from 35 percent. Today’s discussion draft doesn’t include details on how he plans to do that without increasing the federal budget deficitg, and he didn’t provide a timeline for his work.
“There’s no real calendar prediction here,” he said.
Ending Worldwide Taxation
Camp’s plan would exempt 95 percent of U.S. profits earned overseas from taxation, ending a system that taxes U.S. companies on their worldwide income. The current system allows companies to claim tax credits for payments to other governments and defer taxation until the profits are brought home.
That approach has encouraged companies to hold more than $1 trillion in profits outside the U.S. Camp’s proposal would require companies to pay a 5.25 percent tax on accumulated profits over eight years as part of a transition to a new system.
Some Democrats said they worried that a territorial system would encourage companies to shift operations out of the U.S.
“While Halloween approaches, no matter how you dress up this proposal, a territorial tax system is about shipping more jobs and profits to someone else’s territory,” said Representative Lloyd Doggett, a Texas Democrat, in a statement. “Multinationals would be asked to contribute even less to paying for our national security and reducing our budget deficit, while shifting even more of the tax burden to small businesses and individual families.”
Camp’s proposal includes three options for preventing such income shifting. One is a 15 percent tax rate for income generated from royalties. Another would limit companies’ ability to earn profits in low-tax jurisdictions. The third would adopt an approach favored by President Barack Obama to tax “excess returns” from intangible property located outside the U.S.
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