Sens. Rob Portman (R-OH) and Chuck Schumer (D-NY) have proposed a bipartisan tax reform plan that will reduce taxation of overseas profits and fund needed highway and infrastructure development, the New York Times reports. The legislation would reduce the tax rates on profits made overseas by U.S. corporations while enabling increased funding of highway and infrastructure projects.
"What's exciting to me is we now have a bipartisan road map on how to do international tax reform to make the American worker more competitive," Sen. Portman said. "This is not about the boardroom. This is about the shop floor."
The plan is not yet supported by Senate Majority Leader Mitch McConnell, who has said he wants to bring up a highway bill separately and consider the changes in the international taxation as part of a larger comprehensive tax reform effort.
The plan appears to have support in Congress, where House Ways and Means Committee Chairman Paul Ryan (R-WI) supports the idea.
"Our tax code is costing us jobs, depressing wages and chasing companies out of the United States," Mr. Ryan said in a statement welcoming the Portman-Schumer proposal. "Unfortunately, comprehensive reform is not possible under a president who wants to raise taxes on families and job creators. That does not mean, however, we cannot work to find common ground as a first step toward tax reform."
"The Portman-Schumer plan is more a framework than a legislative proposal. Some of the toughest details might not be worked out until the fall. But it does represent a convergence of thinking in both parties," the New York Times reported.
Currently, the tax code assesses a 35 percent tax on overseas profits, minus the tax rated of the host country, if the business brings that income back to the United States. This has caused corporations to leave trillions of dollars of the incomes overseas, to avoid the added taxes.
The Portman-Schumer plan would end that added tax, and replace it with a lighter tax on the overseas income, that would be assessed regardless of whether that income is brought back to the United States. This would eliminate the reasons that income is currently being left overseas. Although Barack Obama's plan would tax that income at 14 percent, Sen. Portman believes that rate is too high.
The plan will also provide billions in new funding for highway and infrastructure projects, which is the subject many senators are working to accomplish via long term highway and infrastructure legislation, the Washington Post reports. Sen. Schumer believes this plan will gain more support closer to the deadline for the expiration of the current highway legislation.
"These proposals would right the ship, provide a potential funding source for transportation reauthorization, and allow the United States to compete on a level playing field," Schumer said in a statement.
The plan also includes a "patent box," which is a lower business tax rate for income derived from intellectual property parents. This will help support further innovation by U.S. corporations, leading to the development of new products and services. A key driving force behind the idea is that intellectual property, unlike tangible factories, offices, and inventory, can be effortlessly "moved" from one territory to the next for tax purposes. This has resulted in something of a bidding war between nations to retain IP-heavy companies, one that the U.S. has been losing. Besides a high corporate tax rate, businesses that own the next big idea are looking at substantially reduced rates for profit from their inventions, business processes, and so on in countries all over Europe.
The plan also addresses the threat of the Organisation for for Economic Co-operation and Development's "Base Erosion and Profit Sharing" project, which they note is drawing increasing concern from U.S. firms. In particular, U.S. companies are alarmed at some of the proposed requirements that they disclose proprietary information about themselves to foreign governments that have previously been held privately, generally as a means of allowing those governments to specifically target them for higher tax rates.
[Photo of Sen. Rob Portman by Mark Wilson / Getty Images]