(Experts) Trump Tax Bill Likely To Send Jobs Overseas

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According to one expert, the bill does not reduce incentives to shift work overseas and actually "makes things worse."

President Donald Trump campaigned heavily on the notion that he would stop American companies from moving their operations overseas, saving and creating millions of jobs in the United States.

But nonpartisan tax experts say the Republican tax plan will achieve the opposite effect, incentivizing companies to send work outside of the country.

"This bill is potentially more dangerous than our current system," said Stephen Shay, a senior lecturer at Harvard Law School and former Treasury Department international tax expert in the Obama administration. "It creates a real incentive to shift real activity offshore."
[C]orporations would be required to pay a 10 percent minimum tax on overseas income above a certain level. The provision is billed as a way to discourage the movement of jobs and profits overseas. But the fine print of that new global minimum tax would make the problem worse, several tax specialists said.

How does the bill accomplish this?

1. The global minimum tax rate on applies to profits above a "routine" rate of return on tangible assets (i.e., a factory) that it has overseas.

"[T]he more equipment a corporation has in other countries, the more tax-free income it can earn. The legislation thus offers corporations "a perverse incentive" to shift assembly lines abroad, says Steve Rosenthal of the Tax Policy Center." ​

2. The "routine" return is set at 10 percent; generally, such allowances are fixed a couple of points above risk-free Treasury yields, currently in the neighborhood of 2.4 percent.

"As a result, a U.S. corporation that builds a $100 million plant in another country and makes a foreign profit of $2 million would pay roughly $1 million in tax versus $4 million on the same profits if earned i the United States, says Rosenthal, who has been a tax lawyer for 25 years and drafted tax legislation as a staff member for the Joint Committee on Taxation." ​

3. The minimum tax would be calculated based on a global average as opposed to the particular country where a corporation operates.

"So a U.S. multinational could lower its tax bill by shifting profits from U.S. locations to tax havens such as the Cayman Islands."

"The plan does not meaningfully reduce the incentives for companies to move their operations and shift their income overseas," [Brooklyn Law School Professor Rebecca] Kysar said. "You could say it will make things worse."