Ohio Republican Sen. Rob Portman has outlined a series of measures, including a cut in the corporate tax rate, to keep American companies from relocating abroad, according to a Wall Street Journal
The current 39 percent corporate tax rate is driving companies— most recently, medical device maker Medtronic— overseas. In just the past two years, over 20 large American companies have relocated abroad, writes Portman. Competing industrial countries maintain their corporate tax rates closer to 25 percent.
He points to the Ohio firm Eaton as another example. The manufacturing company merged with the smaller Irish corporation Cooper Industries. "The new company established its headquarters in Dublin, substantially reducing its tax liability in the process," writes Portman.
Besides uncompetitive tax rates, U.S. firms also have to pay for profits they make abroad.
Under these circumstances, "Businesses are willing to pay to put a few miles between them and the IRS" buying up foreign companies for more than their market price."
All in all, he says, the system makes American firms "less able to fend off foreign purchasers and less able to grow and become more competitive through acquisitions," writes Portman.
The unintended consequence is to push companies to retain foreign earnings abroad, which stifles U.S. job creation, says Portman. Citing a recent Bloomberg report, Portman notes that some $2 trillion "that could be used to expand jobs and opportunities in the U.S. now sits overseas."
Most of America's economic competitors only tax income earned inside their borders with business revenues earned abroad taxed in the country where it is earned.
To stop businesses from leaving the U.S.,
Portman would have Congress cut the tax rate to 25 percent, simplify the tax code, and stop taxing profits made outside U.S. borders.
"Congress should act immediately to end the flight of U.S. businesses by overhauling the corporate tax code. That would go a long way in making America a magnet for investment again," Portman concluded.
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