12 Days of Taxes: The McConnell bill is supposed to encourage companies to bring jobs back to the U.S., but it may do the opposite

INDIANAPOLIS – Americans listening to Republican rhetoric might expect that the McConnell tax plan’s corporate overhaul will encourage companies to bring jobs back from overseas. Yet an analysis by former Director of the National Economic Council Gene Sperling makes clear that in their haste to cut taxes for larger corporations, Republicans have created a taxation system that is more likely to have the opposite effect.

Republicans and administration officials are changing the topline corporate tax rates and switching to a “territorial system” of taxation that allows American companies to pay taxes on foreign earnings only to the nation where those profits are claimed instead of owing any to the U.S. Theoretically, this may encourage companies to move jobs and profits back to the United States.

But as Sperling wrote in The Atlantic this month, the system will likely have the opposite effect on keeping jobs in the U.S. Under the territorial system, companies may simply shift all of their production and profits to tax havens, knowing that they could permanently avoid nearly all taxation on their profits there.

A territorial system typically escapes this problem because it is paired with an Alternative Minimum Tax (AMT), which U.S. companies would pay to the federal government on all profits regardless of where those profits are made—if a company pays taxes to the U.S. government at a similar rate no matter where they make their profits, the incentive to move and keep production overseas shrinks. For instance, a corporate tax reform proposal written by the previous administration with similar goals that cut the top corporate rate to 20% had an AMT of 19%.

The bill that passed the House, however, had no corporate AMT, and neither did the final McConnell bill. Under the tax regime in the final bill, then, American companies would have incentive to book as much of their profit overseas in tax havens as they can instead of in America, as profits will be taxed solely at the rates set by the low-tax nations.

The McConnell bill’s rules, Sperling says, are “a worst of all worlds scenario: an even greater corporate focus on international tax minimization through a careful mixture of shifting profits and operations overseas.”

“Republicans have claimed that they want to help the middle class, just like they claimed they want to make it easier to bring jobs back to America, but the McConnell tax bill they passed does neither,” said Will Baskin-Gerwitz, Senior Media Strategist for the Indiana Democratic Party. “There are so many loopholes in the corporate tax code to keep the GOP’s special interest donors happy that the code’s changes are more likely to send more jobs overseas than bring them back. Anyone expecting this tax code to usher in a new day for American workers will be sorely disappointed.”

This release is part of day eleven of the Indiana Democrats’ 12 Days of Taxes, a daily series highlighting the problems the McConnell tax bill would create if passed this holiday season. While the McConnell plan would raise taxes on middle class Americans to fund more tax breaks for the wealthy and major corporations, its consequences stretch across American life.

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