1. Currently, the U.S. taxes multinational corporations on their worldwide income with deferral of taxes owed when the earnings of U.S. Companies overseas operations remain overseas. Corporations have, according to some estimates, as much as $2.6 trillion overseas. Under the current corporate income tax rules, if the income earned on overseas operations is repatriated to the U.S., the repatriated earnings will be taxed at a 35% corporate tax rate - with tax credits applied for the corporate taxes paid to overseas governments. This tax practice is generally viewed as discouraging repatriation of overseas earnings to the United States.
The Senate tax bill would allow corporations to repatriate past earnings to the U.S. and subject them to a one-time tax of 7% for foreign earnings and a tax of 14% for cash stored overseas.
The U.S. would then move to a territorial tax base for all future overseas earnings instead of a worldwide tax base for the U.S. corporate income tax.
a) Would moving to a territorial tax system increase or decrease U.S. corporate tax revenues? [Consider whether corporate income is repatriated under the worldwide tax base system.]
b) Previous administrations have proposed moving to a territorial tax system for multinational corporations Critics argued that a territorial tax system lightens the tax burden on corporations and makes the tax system less progressive. Why would the tax system be less progressive?
c) Do you think a territorial tax system reduces or increases incentives for U.S. multinationals to move corporate operations overseas?