In the Tuesday Wall Street Journal, Professor Alan Blinder wrote of his puzzlement at the very slow growth of productivity in the last three years. There is really no mystery. The rate of growth of investment in...
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- A Letter to the Chicago Tribune
A Letter to the Chicago Tribune
Lamenting the fact that Walgreens is considering moving its headquarters to Europe, Dan Smith (“Close Corporate Tax Loopholes” April 20, 2014) makes the claim that corporate profits earned and kept overseas are “not being taxed.”
Mr. Smith demonstrates his lack of understanding of how U.S. corporations are taxed here and abroad.
While it is undoubtedly true that corporations use tax planning techniques to minimize their taxes, they by no means escape taxation on foreign earned income. When a corporation earns income overseas, it has to pay the corporate income tax to the country in which it does business. IRS data shows that corporations earned more than $470 billion in profits overseas and paid more than $120 billion in taxes to foreign countries in 2010. A sum much larger than nothing. Most of these profits were earned and taxed in European countries like the United Kingdom, the Netherlands, and Luxembourg; not what I would call “tax havens.”
Even more, the U.S.’s “worldwide” system of taxation requires that U.S. multinationals pay the U.S. corporate income tax on this income as well. When a corporation brings this income back to the United States, the IRS tacks on an additional charge to make sure all corporate income is taxed at our high 35 percent rate. The U.S. is one of the six countries in the developed world that still charges corporations a toll for wanting to bring investment back to their home country.
These are important facts we need to understand if we are going to have an honest discussion about reforming our corporate tax system.
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