In all, the study says that 63 publicly held companies aligned with the Campaign to Fix the Debt – the group started by Bowles and Simpson, the co-chairmen of President Obama’s fiscal commission – would reap as much as $134 billion with the shift to a territorial tax system.
The executives involved have also expressed their desire for a deficit deal in broad strokes, preferring to leave the details up to policymakers.
Under the current corporate tax system, multinationals are taxed on profits made anywhere in the world. Corporations can defer paying those taxes until they bring the money to the U.S., and also get credits for taxes paid to foreign governments.
But Republicans have long said that the current structure, which also includes a 35 percent top tax rate for corporations, hinders American companies’ ability to compete internationally and discourages them from bringing capital to the U.S. Many industrial countries currently employ a territorial system, with Japan and the United Kingdom both making the switch in recent years.
“The U.S. worldwide system of taxation leaves an American business with less after-tax income than its foreign competitor,” said a recent Senate GOP policy study. “In a highly competitive global economy, this can be the crucial difference between an American company being able to compete or not.”
Rep. Dave Camp (R-Mich.), the chairman of the tax-writing House Ways and Means Committee, released a draft territorial plan last year, and GOP lawmakers would like to move toward such a system in any overhaul of the tax code.
But the White House has been officially cool to the idea of a territorial system, even though the idea was reportedly broached in talks between Obama’s administration and congressional Republicans. Vice President Joe Biden also consistently knocked the proposal on the campaign trail this year, saying it would simply allow companies to shift jobs overseas.
In its study, IPS found that the 63 publicly held companies in the Fix the Debt campaign, out of around 80 overall, had around $418 billion in profits stored offshore, according to public filings.
From that, the study’s authors used public information released by nine corporations on how much income tax they would pay on repatriated funds, and then applied the top corporate rate of 35 percent to the offshore profits of the other companies.
That led to the finding that multinationals aligned with Fix the Debt could reap as much as $134 billion from a territorial system. The number could be much lower if the profits had been banked in Germany or the U.K. instead of countries known as tax havens, like Bermuda or the Cayman Islands.
But Klinger suggested that he thought the estimate was in the right ballpark. “It’s probably something less than that amount,” Klinger told The Hill in a telephone interview. “But I’m not willing to say a lot less than that amount.”
“If it’s money that’s been taxed in England or Germany, the penalty for bringing that money back is small,” Klinger said.
The IPS study, for instance, cites a recent report from a Senate permanent subcommittee on investigations that said that Microsoft, through a strategy called transfer pricing, used subsidiaries in Bermuda, Ireland, Puerto Rico and Singapore to save billions of dollars in taxes.
Under transfer pricing, multinationals can basically shift services or goods to foreign subsidiaries to slash what they owe in taxes.
Klinger also echoed some of the concerns that other liberals have expressed about a potential grand bargain, saying the amount of revenue discussed wasn’t enough to assuage concerns about cuts to the safety net.
“That’s a bad deal,” Klinger said.