By Bernie Becker - 10/26/11 09:59 PM EDT
That rate reduction and shift to a territorial system, Camp says, would give corporations an incentive to invest in the U.S.
The Ways and Means chairman proposes paying for at least part of the transition to a territorial system by applying a 5.25 percent tax to all U.S. corporate profits held abroad, whether they are repatriated to this country or not.
But some Democrats remain unconvinced.
"While Halloween approaches, no matter how you dress up this proposal, a territorial tax system is about shipping more jobs and profits to another country's territory,” Rep. Lloyd Doggett (D-Texas), a House Ways and Means member who has sharply criticized corporations for their tax practices, said in a statement.
Under the current tax regime, U.S. multinationals are taxed at their full corporate rate on profits made anywhere in the world. The corporations are given credits for taxes paid to foreign governments, and can defer paying the U.S. tax until the funds are brought to this country.
In his proposal, Camp also included three separate ideas for addressing concerns about corporations sending profits to offshore locations, including a proposal previously offered by President Obama that would essentially tax corporations on excess returns associated with goods and services transferred offshore.
Business groups and corporations, especially large multinationals, which have long called for the U.S. to make the switch to a territorial system, applauded Camp’s plan.
The business world has dubbed the U.S. system for taxing foreign corporate profits an outlier, noting that Great Britain and Japan are among the major market economies that have shifted to a territorial system in recent years.
“Done right, tax reform can enhance economic growth and investment in the United States, and we stand ready to work with Chairman Camp and others as the discussion moves forward,” Christopher Padilla, an IBM vice president, said in a statement.
The Camp proposal to make a permanent change in how foreign profits are taxed comes as Cisco, Oracle and other Silicon Valley heavyweights lobby hard for a temporary tax break on offshore profits.
“I don’t view this as being at cross-purposes with that at all,” the congressman said Wednesday. “I do believe we want a long-term fix there, and that’s what this does.”
The WIN America Campaign, a group lobbying for a corporate tax holiday, said Wednesday that it was pleased that Camp included repatriation in his territorial proposal.
But, in a statement, the group also pressed policymakers again to move quickly on the issue, while many veteran tax observers have cautioned that overhauling the tax code can be a drawn-out process.
“There is no time to waste; our economy needs all the help it can get,” said Karen Olick, WIN America’s campaign manager.
Camp is also a member of the supercommittee, which has made tax reform part of its deficit-reduction discussions.
But, like his 11 colleagues on that panel, the Michigan Republican has been tight-lipped about the group’s progress, and it remains to be seen how big a role his territorial proposal will play in its discussions.
The chairman did tell reporters Wednesday that he had been working on dual tracks in recent weeks, with both his Ways and Means work on tax reform and the supercommittee.
The Ways and Means release on the territorial proposal advised that discussion drafts on other aspects of tax reform would probably be released down the line.
“There’s no real calendar prediction here. I just think we need to keep pushing the issue of complete and comprehensive tax reform,” Camp said. “This is a building block. And we’re just going to keep pushing through the committee the building blocks to get to that goal.”