Corporate Tax Reform Part 2: A Middle-Ground Proposal for Taxing Foreign Earnings

Abstract

As discussed in Part 1 of this paper, the current U.S. tax rules strongly discourage U.S. corporations from repatriating almost $2 trillion in foreign profits. Such profits cannot be used to build U.S. facilities, pay dividends to U.S. shareholders or acquire U.S. firms—unless the U.S. corporation pays a 35% U.S. tax on such profits (minus applicable foreign tax credits). Congress should be able to change the current tax system for foreign corporate profits since it benefits almost no Americans (other than tax lawyers). The U.S. Treasury receives little tax revenues from these foreign profits and corporate executives are prevented from making sensible decisions about how to deploy those foreign profits.