Will Overseas Tax Cut Proposal Become GOP’s New Legislative Darling?
CNBC’s own Dennis Kneale wrote a highly thought provoking piece last Friday about John Chambers’ new proposal to slash tax rates on the revenue U.S. corporations earn overseas.
Under the existing code, overseas corporate income is currently taxed at 35%. Because tax is collected only after profits are repatriated to the U.S., those funds often remain parked offshore, outside of the United States. Chambers overseas rate cut proposal would lower that tax rate from 35% to 5% — which has the potential to bring hundreds of billions of dollars back into the U.S. economy.
The numbers involved are impressively large: It is estimated that there are currently $1.2 trillion in funds parked by U.S. companies overseas, and 1 trillion of those dollars are believed to be concentrated among 75 of the largest corporations in America.
History is also instructive. When a similar tax cut was last implemented in 2004, an estimated $800 billion in corporate revenue returned to the Unites States, according to Chambers numbers. (There are differing estimates on the total return of funds to the U.S. — but more conservative estimates still agree that it was a windfall return in the hundreds of billions of dollars.)
And there are other reasons to believe that the optics might be favorable for GOP support.
Chambers’ citation of an $800 billion historical return to the U.S. following an overseas tax rate cut is larger than the sum of the economic stimulus package enacted by congress. And his proposal comes at no expense to U.S. taxpayers.
(In fact, even at the proposed modest 5% tax rate, the back of the envelope math associated with Chambers’ proposal suggests a receipt of $45 billion in tax revenue for the federal government, assuming only 3/4 of the estimated $1.2 trillion overseas returns to U.S. shores.)
And there are other additional points that could gain traction with pro-business Republicans and Democrats alike.
For example, The United States is the only economically developed country that taxes corporate profits earned beyond its borders. Repealing that tax would bring the United States into line with international taxation norms, and could allow U.S. companies to compete more effectively on a global basis against foreign corporations that aren’t burdened with similar taxes.
Interestingly, the support for such proposals doesn’t divide neatly along traditional pro-business, pro-labor lines: Andy Stern, the former international president of the Service Employees International Union, was recently cited in a Wall Street Journal article as supporting a similar plan.
Republicans may see this proposal as a pro-business alternative to federal stimulus spending. Prominent Republican lawmakers, including House Minority leader John Boehner, have come out publicly against Economic Stimulus Act spending, which some charge has grown government but failed to create private sector jobs.
The overseas tax cut proposal may be precisely the kind of targeted, pro-business policy that GOP lawmakers can embrace.
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