WASHIINGTON, DC – Ohio Senator Sherrod Brown and two colleagues on the Senate Finance Committee on Monday proposed a bill to encourage domestic investment to ensure mega-corporations pay their fair share of taxes.
Brown said that tax legislation has for decades encouraged companies to stop manufacturing in places like Toledo, Dayton and Youngstown and receive a tax break to relocate jobs to other countries where they can take advantage of low-wage workers and weaker environmental regulations. He said a 2017 Republican-championed tax reform bill made problems worse.
“Republicans in Congress essentially gave companies a 50% discount on their taxes when they move production overseas,” Brown told reporters at a news conference Monday with Ron Wyden of Oregon and Mark Warner of Virginia.
The trio aim to reform three taxes that Republicans introduced in their 2017 bill: Global Low-Taxed Intangible Income (GILTI), Foreign Intangible Income (FDII), and Property Tax on Erosion and Abuse (BEAT).
To overtake GILTI, the Senators are proposing to remove the tax exemption for foreign factories that incentivize shipping jobs overseas, increase the GILTI rate, and move to a country-specific system that prevents multinational corporations from generating income in tax havens outside the U.S. Protect taxes. The Senators’ proposed “Exclusion of High Taxes” would simplify the country-by-country approach by aggregating income from low-tax countries and excluding income from countries where it is already taxed at a higher tax rate than GILTI. Eventually, the treatment of research and development costs would be adjusted so that companies would no longer pay higher GILTI rates when investing in the US.
Also, to revise the FDII, the Senators are proposing to end the built-in incentive for offshore factories and other assets and balance the FDII and GILTI rates. The offshoring incentive will be replaced by a new provision that rewards innovation-promoting activities such as research and development in the US during the current year.
To overtake BEAT, the Senators propose restoring the value of domestic investment tax credits. To finance this change, the proposal creates a higher second tax bracket for income related to ground erosion. This increases the revenues of the largest base erosion companies and uses that revenues to support companies investing in the United States.
“Our plan is simple: businesses should pay their fair share, just like families in Ohio, and they shouldn’t get tax breaks for shipping overseas workers,” Brown said. “We will reward companies that create jobs and invest in America.”
Republicans in the Senate Finance Committee dispute claim the GOP tax changes made job exports easier. Top Republican Senator Mike Crapo of Idaho said the 2017 Tax Cut and Jobs Act (TCJA) stopped a flurry of inversions and made US businesses less of a target for takeovers.
Another Republican on the finance committee, Rob Portman of Ohio, said the 2017 law created a level playing field for US companies with their overseas competitors and returned investments in the US. During a Senate Finance Committee hearing on the matter last month, Portman said the legislation is encouraging companies like Google to return intellectual property jobs to the US.
Portman said that the tax laws that Democrats dislike do not encourage offshoring, and that the overseas operations of companies like Cincinnati’s Procter & Gamble are designed to serve overseas customers because “they cannot profitably ship Ohio diapers overseas.” He said 90 percent of all overseas sales of US companies are to overseas customers and are “not offshoring operations to serve US markets.”
“In order for US companies, companies and workers to compete in foreign markets, they have to be where the customers are,” Portman told the Senate Finance Committee. “As an example, imagine General Electric, the engine plant is in Ohio. They sell a lot of engines overseas. It’s good. We like that. It creates jobs here. However, these engines must be serviced abroad. You cannot return the motors for service. We have Owens Corning in Ohio. They can’t be competitive trying to ship glass halfway around the world, but we’re glad they are an American company and can have overseas markets. “
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