Scared Monkeys Discussion Forum

America’s current tax system adversely affects the US economy in several ways. The extra tax that US firms pay if they repatriate profits raises their cost of capital, thus reducing their ability to compete in international markets. Foreign firms can also outbid their US counterparts in acquiring new high-tech firms in other countries. And when a foreign firm acquires a US company, it pays US tax on the profits earned in the US but not on the profits earned by that firm’s other foreign subsidiaries, thus lowering its total tax bill.
A shift to a territorial system of taxation would remove the disadvantages faced by American multinational corporations and encourage them to reinvest their overseas profits at home, increasing US employment and profits. Because only a small share of overseas profits is now repatriated, the US government would lose very little tax revenue by shifting to a territorial system. A few years ago, the US Treasury Department estimated that shifting to a territorial system would reduce corporate tax revenue by only $130 billion over ten years.
It would also be desirable to reduce the US corporate tax rate gradually, bringing it closer to the 25% OECD average. That, too, would encourage more repatriation of overseas earnings.


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