Among the many issues that are worth following in the upcoming US presidential election is the matter of corporations being allowed to defer taxes on foreign income. To put a fine point upon it, Bloomberg estimates that $187 billion dollars are being kept overseas by a variety of corporations in order to avoid taxes on repatriation. The companies who are taking advantage of this convenient tax haven include Microsoft, HP, Google, and more. (Romney himself also has some of his wealth in offshore accounts.)
Like many issues in the election, Obama and Romney have vastly different approaches to the matter of the overseas cash hoard. In the red corner, the Romney/Ryan platform wants to lower the overall corporate tax rate to 25%, and also create a “territorial tax” system, where foreign earnings are not taxed at all upon repatriation. The aim is to encourage American companies to hire more employees or invest overseas cash stores into production at home.
Wearing the blue trunks in the Democratic corner, Obama/Biden proposes reducing the corporate tax rate to 28%, but this would require companies to pay an annual tax to the IRS on foreign income. There has been no official announcement on what percentage the Obama Administration would prefer; however, sources at the Citizens for Tax Justice whisper that the number may be around 20%.
There are certainly pros and cons to both sides. When given a tax holiday back in 2004 (companies were allowed to repatriate foreign profits at a low rate of 5.25%), the monies were more often used to pay dividends, not create jobs. Critics of the Romney/Ryan plan say that a territorial tax might encourage businesses to move more profit overseas since bringing home the bacon would be tax-free.
On the other hand, proponents of the territorial tax say that most other countries don’t tax foreign earnings at all, which puts the US at a disadvantage.
Does your company have an “overseas cash hoard?” If so, or if not, what are your opinions on the red versus blue foreign tax debate? Would a territorial tax encourage you to bring home the bacon, or would it persuade you to explore more outsourcing for more profit?[via Businessweek]