The Hill News

In his recent State of the Union address, President Obama revisited a key proposal from his 2008 campaign: to reform a corporate tax code that he says encourages U.S. firms to invest and expand overseas. Few would disagree that corporate tax reform is needed, but the universal system Obama has proposed is the direct opposite of the territorial system favored by many large U.S. corporations. Not surprisingly, Obama’s calls for reform have failed to gain any traction on Capitol Hill. However, it is possible to achieve the President’s goals while also satisfying big business and both political parties.

A true universal system, such as the President proposes, would tax the worldwide profits of American corporations regardless of where those profits are held. (Currently, corporate offshore income is taxed only when it comes home to the U.S. This lures companies to keep profits overseas, reducing tax revenues and discouraging domestic investment.) A territorial ! system, conversely, would tax only those profits earned in the United States.

Read more...