The Senate’s top tax writer offered a new plan Tuesday to overhaul how corporations are taxed on offshore income as he sought to revive the flagging reform effort.
Finance Committee Chairman Max BaucusMax BaucusFive reasons why Tillerson is likely to get through Business groups express support for Branstad nomination The mysterious sealed opioid report fuels speculation MORE’s (D-Mont.) proposal aims to fix what he essentially cast as a two-pronged problem. He says it’s too easy for corporations to shift profits to low-tax countries to avoid U.S. taxes, even as the system puts American companies at a disadvantage with foreign competitors.
To combat that, Baucus’s proposal would impose a minimum tax on offshore corporate profits and a one-time tax on the estimated $2 trillion worth of income that is already stored outside the United States.
It would also limit the tax breaks companies can claim for their foreign subsidiaries and roll back a rule that allows corporations to ignore certain subsidiaries when it comes to taxes.
Baucus had vowed to pass a plan through his panel this fall that would rewrite the country’s tax laws, but he recently turned his attention to releasing discussion drafts. Two more drafts — on tax administration and cost recovery — are expected this week.
Asked what he was trying to accomplish with the draft, Baucus said: “Movement.”
“We’ve got to start sometime,” he said. “Let’s start. Let’s get going.”
But the response to the chairman’s proposal underscores how difficult it would be for Baucus and his counterpart, House Ways and Means Committee Chairman Dave Camp (R-Mich.), to get tax reform off the ground.
Republicans on the Finance Committee criticized Baucus’s proposal for both its substance and its timing. And while Democratic tax writers in both chambers largely praised Baucus’s efforts, some of the very corporations that the chairman says he wants to make more competitive insisted the proposal didn’t go far enough.
Sen. Orrin HatchOrrin HatchA guide to the committees: Senate 7 key players in the GOP's border tax fight Public lands dispute costs Utah a major trade show MORE (Utah), the Finance Committee’s top Republican, and other GOP tax writers had hoped to push off the release of discussion drafts until after the current budget conference, which has a Dec. 13 deadline for finishing its work.
Those Republicans are worried that Democrats on the Budget Committee would use the Finance panel’s drafts to find options for raising new government revenue.
Hatch and Sen. Chuck Grassley (R-Iowa), a former Finance Committee chairman, also hinted that the proposal wouldn’t be enough to help U.S. corporations compete globally.
“We respect the chairman for putting something out,” Hatch said. “There are certainly going to be some real significant disagreements.”
Baucus’s plan creates a middle ground between the current U.S. system, which charges the full 35 percent rate on offshore corporate income, and a “territorial system.”
The current system allows corporations to defer paying taxes on offshore income until the cash is brought home and offers credits for taxes paid to foreign governments.
Under a territorial setup, favored by Republicans and corporations, U.S. taxation of offshore income would be limited.
Grassley said Tuesday that he would have liked to see Baucus’s plan move more in that direction, but that there would be more time to make the proposal bipartisan after the budget conference.
“I think that incentive to bring money home is good,” Grassley said. “But I don’t think it goes far enough that it’s going to change the anti-competitiveness of our tax code.”
Powerhouse business groups like the Business Roundtable and the U.S. Chamber of Commerce echoed those concerns and said the plan could actually make American businesses less competitive.
Let’s Invest for Tomorrow America — a corporate coalition pushing for a territorial system — also said the proposal fell short.
“The coalition cannot support policy provisions that are punitive against globally engaged American headquartered companies,” said Claire Buchan Parker, a spokeswoman for the group.
Baucus has had a hard time gaining traction on his tax reform efforts in recent months and not just because of Republicans. Top Democrats, like Senate Majority Leader Harry Reid (D-Nev.), have undercut Baucus’s efforts, saying that raising $1 trillion in new revenue should be the starting point for negotiations.
Camp, who released his own international tax draft more than two years ago, is now hoping to introduce a broad tax reform draft in either December or January. Camp had promised to mark up a bill before the end of the year.
Baucus is giving companies and fellow lawmakers until Jan. 17 to weigh in on his proposal but declined to say whether the next step would be a markup.
The chairman’s proposal to tax existing offshore income at 20 percent is much higher than the 5.25 percent Camp proposed in 2011.
The Finance Committee chairman also laid out two potential plans for a minimum tax, one at 80 percent of the corporate tax rate, and another at 60 percent that only considers active business operations.
Baucus has said he wants to bring the corporate rate below 30 percent and has stressed that he also wants tax reform to raise revenue. But the international draft released Tuesday was meant to be revenue-neutral in the long term.
Treasury Secretary Jack Lew called Baucus’s plan a positive development, and Sen. Sherrod Brown (D-Ohio), a member of the Finance panel, praised Baucus’s call for a minimum tax.
But some groups on the left also complained that the draft didn’t do enough to rein in incentives for corporations to shift profits offshore, and they suggested the plan would pave the way for shifting the tax burden toward the middle-class.
“You’re not going to do tax reform in 15 minutes,” Sen. Ron Wyden (D-Ore.) said. “It’s good that he’s starting with the international aspect because that goes right to the heart of what people ask about at town-hall meetings.”
This article was updated at 8 p.m.