Reducing Corporate Tax Games
Editorial
The Wall Street Journal
November 19, 2017

Liberals are denouncing Republican tax reform as a giveaway to big corporations, as they always do. But the irony is that the Senate and House bills would do far more to stop corporate tax gaming than anything the Obama Administration did in eight years. This includes preventing tax avoidance, levelling the tax field for U.S. multinationals, and stopping corporate inversions.

Start with cutting the corporate rate to 20% from 35%, which in a stroke offers less incentive for companies to move capital, income and intellectual property out of the U.S. to lower tax climes.

Both Senate and House bills move to a territorial system that exempts most foreign income from taxation.

The best tool to prevent base erosion is a low rate.

The House and Senate bills would impose an effective 10% rate on intangible property of U.S. multinationals that is held overseas. In return, U.S. companies like Apple and Google would be able to repatriate their income tax free.

Both bills would also prevent foreign multinationals from abusing “transfer pricing”—that is, inflating the price that their U.S. affiliates pay to license IP in order to shift profits overseas.

Both bills also include measures to prevent companies from loading up on debt in the U.S. (where interest is deductible) to capitalize foreign companies. The Senate establishes a slightly stricter limit on interest deductibility on debt that is issued to foreign affiliates, but both bills would curb the practice of earnings stripping that the Obama Administration sought late last year to stop with regulations.

We report all this because you’d think from the press coverage that corporate tax reform is all about enriching a few CEOs. The truth is that it’s a serious attempt to fix a broken U.S. code that has festered for years and made America increasingly uncompetitive as a destination for mobile global capital. The GOP reforms would help the economy and make it harder for corporations to avoid paying taxes.

Read the full editorial here.

close
White House Logo open-menu