Reality Check: Biden Misleads on Impact of Romney’s Tax Plan

Republican Tax Plan

The Claim: Biden said in his prepared remarks that Republican presidential candidate Mitt Romney “has a new tax proposal -- the territorial tax -- that experts say will create 800,000 jobs, all of them overseas.”

The Background: Romney has proposed changing the basic principles of the U.S. international tax system. Under current law, companies owe U.S. taxes on the profits they earn around the world. They receive tax credits for payments to foreign governments and don’t have to pay U.S. taxes until they bring the money home. U.S.-based companies with substantial overseas operations keep profits overseas to avoid taxation here. Romney wants the U.S. to adopt a territorial tax system under which companies would owe little or no taxes on their overseas income.

The Facts: Biden overstated the case. His 800,000 jobs number is based on a study conducted by one expert, Kimberly Clausing, an economics professor at Reed College in Portland, Oregon. Her July analysis examined the effects of a “pure” territorial system under which U.S. companies would face no domestic taxes on their foreign income.

Romney hasn’t provided details on what his territorial tax system would look like. The clearest Republican proposal on the issue has come from Representative Dave Camp of Michigan, the chairman of the House Ways and Means Committee. It would exempt 95 percent of foreign income and includes provisions opposed by companies that prevent them from shifting profits outside the U.S. That’s not the pure proposal that Clausing analyzed.

U.S. companies maintain that a territorial tax system would make them more competitive in foreign markets, creating more jobs in research and administration that are often located in the U.S.

Clausing’s study doesn’t say that no jobs would be created in the U.S. Instead, it says that a pure territorial tax plan would increase employment by U.S. companies in low-tax countries.