Some experts are warning that the tax bill expected to be passed this week could make it easier for U.S. companies to move jobs out of the country.
“This bill is potentially more dangerous than our current system. It creates a real incentive to shift real activity offshore,” former Treasury official Stephen Shay told The Washington Post.
The bill creates a minimum 10 percent tax on income earned overseas above a certain level. However, the fine print of the system will make it possible for companies to escape some of the tax, according to experts interviewed by the Post. Here are three of the problematic provisions:
- The more equipment a company has overseas, the lower its taxes. The bill exempts "routine” profits earned overseas from taxation, based on the rate of return on tangible assets held in foreign countries. This creates an incentive for companies to own more factories and equipment overseas, not less.
- The tax rate on routine profits from equipment is unusually high at 10 percent. The assumed rate of return on equipment is more typically just a few points above Treasury yields, currently 2.4 percent. Again, the higher rate provides more incentive to move overseas.
- The tax is based on a global average rather than on the individual countries in which a company operates. Taxes paid in a few high-tax countries such as France could shield income from elsewhere around the world. This leaves the door open to moving profits from the U.S. to tax havens such as the Cayman Islands as long as the global average of taxes paid remains above 10 percent.