Wednesday, October 22nd, 2014

The Obameter

End tax deductions for companies that offshore


"Ending tax deductions for companies shipping jobs overseas, and using the saving to create a new tax credit for companies that bring jobs home."


Updates

Tax reform efforts fall victim to congressional gridlock

During the 2012 election season, President Obama promised to end tax deductions for companies that ship jobs overseas.

But as we noted when we factchecked another of Obama's campaign statements — one from the 2010 midterm elections claiming then-House Republican leader John Boehner supported these deductions — there are no provisions in the tax code that specifically reward companies for building factories overseas or outsourcing jobs.

There are, however, provisions that allow companies to avoid paying U.S. taxes on income generated by their foreign subsidiaries, at least until they bring those profits back to the United States. Both the president and legislators say these deferrals can encourage U.S.-based multinational companies to keep their foreign profits abroad and reinvest them in infrastructure overseas.

Obama took the first step in addressing this promise with his budget proposal for fiscal year 2014. As part of a larger reform of the corporate tax code, he proposed "to disallow deductions for moving production overseas, while providing a new tax credit for bringing production back to the United States.”

Mirroring Obama's commitment, the Democratic-controlled Senate included a similar promise to close "international tax loopholes and other incentives that move American jobs overseas” in its 2014 budget. The Republican-controlled House of Representatives' budget had different particulars, but it also included provisions for international tax reform.

But for any of the differences between proposals to be reconciled, Congress would first have to begin a budget conference, where a few members from each chamber convene to iron out differences. As long as Congress remains stuck in political gridlock on hot-button issues, a conference in the near future seems improbable.

Separate from the budget process, members of both chambers have also proposed major overhauls of the tax system.

Under the leadership of Rep. Dave Camp, R-Mich., the House Ways & Means Committee released a 2011 proposal for reforming the international tax code. Camp has been a particularly vocal advocate, speaking on the topic and helping launch taxreform.gov, a bipartisan website soliciting public input and support for the issue.

Under the House proposal, companies would be able to exempt 95 percent of their foreign income from U.S. taxes once it had been repatriated. The remaining 5 percent, once brought back to this country, would be taxed at the Committee's proposed new corporate tax rate of 25 percent for an effective 1.25 percent tax rate — effectively eliminating the deterrent to repatriating income the Committee says.

Over in the Senate, Sen. Max Baucus, D-Mont., the Finance Committee chair, and Sen. Orrin Hatch, R-Utah, have also announced their intention to tackle comprehensive tax reform. They said they will be taking a "blank slate” approach to the tax code and will ask senators to defend specific deductions.

But reconciling these proposals to create a viable bipartisan reform seems as unlikely as a budget conference.

Camp's proposal has been released for almost two years and has seen little action besides its mention in the House's 2014 budget. Nor do other difficult pieces of legislation seem to faring well in the House this term. The Republican caucus has splintered, leaving them unable to pass even the usually uncontroversial bipartisan farm bill.

As for the Senate, the same "blank slate” approach was attempted by Obama's fiscal commission three years ago and failed to produce anything meaningful. With Baucus retiring at the end of his term next year, drafting and passing sweeping tax reform in the upper chamber would require significant support from Senate leaders.

But Senate Minority Leader Mitch McConnell, R-Ky., said he saw a "stumbling block” — whether the tax reforms would be revenue neutral or would help increase the government's revenue — before reform efforts even got started. Democrats too seemed less than optimistic. Although Senate Majority Leader Harry Reid, D-Nev., said he supports Baucus' efforts going forward, he added that he thought the Senate is "a long way from getting something on paper.”

Although Obama has regularly discussed international tax reform in previous years of his administration, he's been largely silent on the issue since including it in his budget earlier this year.

With an unproductive Congress — on track to be one of the least productive in recent history — and minimal presidential support, comprehensive international tax reform is unlikely to be passed in the near future. Without that large overhaul, it's difficult to see Congress eliminating the tax deferrals for foreign income kept overseas. We rate this promise Stalled.

Sources:

Obama for America. "A Plan for Jobs & Middle-Class Security.

White House Office of Management and Budget. "Budget of the United States Government, Fiscal Year 2014.” April 10, 2013.

Senate Budget Committee. "Foundation for Growth: Restoring the Promise of American Opportunity.” March 13, 2013.

House Committee on the Budget. "The Path to Prosperity: A Responsible, Balanced Budget.” March 12, 2013.

House Committee on the Budget. "Tax Questions.” Accessed July 9, 2013.

The White House and the Treasury Department. "The President's Framework for Business Tax Reform.” Feb. 2012.

House Committee on Ways & Means. "Camp Releases International Tax Reform Discussion Draft.” Oct. 26, 2011.

House Democratic Leader Nancy Pelosi. "Pelosi Names House Democratic Budget Conferees.” June 27, 2013.

Email interview with Michelle N. Dimarob, senior advisor of Public Affairs and Coalitions. House Committee on Ways & Means

CQ.com. "Senate Majority Leader Harry Reid Holds Media Availability of Party Policy Luncheon.” July 9, 2013. (subscription required).

CQ.com. "Senate Minority Leader McConnell and Sen. Alexander Hold Media Availability After Party Policy Luncheon.” July 9, 2013. (subscription required).

CBIZ.com "President Obama's International Tax Reform Proposals.” Accessed July 8, 2013.

Tax Policy Center. "Tax Reform Bumps into More Political Reality.” June 13, 2013.

Tax Policy Center. "Can the Baucus-Hatch Blank Slate Plan Jump Start Tax Reform?” June 27, 2013.

Washington Post. "Senators Announce Blank Slate Approach to Tax Reform.” June 26, 2013.

Washington Post. "The Fix's complete guide to understanding House Republicans.” July 9, 2013.

Bloomberg News. "Baucus-Camp Plans Fail to Converge on U.S. Multinationals.” June 10, 2013.

New York Times. "2 Parties' Budgets Show Big Rift as GOP Renews 2012 Proposals.” March 12, 2013.

Roll Call. "Reid Trying to Beat GOP at Own Game with Budget.” May 6, 2013.

Huffington Post. "113th Congress on Pace to be Least Productive in Modern History.” July 8, 2013.

PolitiFact. "Obama said Boehner opposes tax rule to keep profits and jobs in the USA.” Sept. 13, 2010.