By Daniel Berger, Research Fellow, Americans for Tax Fairness
This week, corporate giants Microsoft, Adobe Systems, Netflix and a host of others from the technology sector came together to form the Tax Innovation Equality Coalition (TIE). The organization was developed to fight a section of a proposal by Rep. David Camp (R-MI) of the House Ways and Means Committee that would increase their taxes on foreign earnings on intellectual property to 15 percent.
But Mr. Camp’s plan also switches the United States’ current tax structure to a territorial taxation system. This is the part of the plan the TIE Coalition actually likes, and corporations have been aggressively lobbying to enact.
A territorial tax system would reward those companies who choose to shift profits and jobs overseas, while putting smaller American businesses at a competitive disadvantage. Under this system, corporations would only pay taxes in the country in which profits are made. It creates an incentive for companies to shift profits to overseas tax havens where they pay little or no taxes – letting them off the hook for paying their fair share of American taxes.
The territorial system essentially encourages tax dodging and bad behavior. The Center on Budget and Policy Priorities has estimated that if we were to switch to the territorial system that it would cause $130 billion in budget deficits over the next 10 years. This system would certainly not create jobs. What it would do is move the tax burden away from corporations and push more of it onto the American people.