Debate To Change Regarding Corporate Taxes

This November, a number of politicians at the head of key congressional committees are set to step down, and that could lead to changes in the debate regarding corporate tax reform, according to The Wall Street Journal. There is almost $2 trillion in offshore profits held by U.S. multinationals, approximately $650 billion of which is in cash, per International Strategy & Investment research. The cumulative foreign profits of these companies rose 12 percent in 2013 and have grown at a compound annual rate of 20 percent since 2005.

These companies, which include the likes of Apple, Caterpillar, Cisco and many others, argue that the lower rates that they can see overseas effectively trap their earnings there, according to the news source. They say that the U.S. should follow other industrialized countries and adopt a territorial tax system, which would allow them to pay little to no tax on the foreign profits above what they have already paid in tax-havens abroad. This would encourage them to bring their profits home, they argue. Currently, the U.S. requires companies to pay the difference between foreign taxes and the U.S. corporate tax rate of 35 percent when they repatriate their money, even on goods sold internationally.

Is the higher corporate tax rate in the U.S. hurting the economy? It is difficult to tell, according to 24/7 Wall Street. Conventional wisdom says that the corporate tax rate is paid for by shareholders, though there is some research that suggests that some of it is paid for by workers and consumers as well, in the form of lower wages and higher priced goods. However, neither of these arguments is airtight – in competitive economies, management often has little control over pricing and wages if it wishes to remain profitable.

This coming November, Rep. Dave Camp, the Michigan Republican who is chairman of the House Ways and Means Committee, will not be running again, according to the Journal. In his place is expected to be Rep. Paul Ryan, R-Wisconsin, or Rep. Kevin Brady, R-Texas. Sen. Levin, chairman of the Senate subcommittee that called Caterpillar, Apple Inc., Hewlett-Packard Co. and Microsoft Corp. to hearings over their tax practices is also retiring. Where the debate will go next depends on the voters.