A toll booth/exit tax for those who would invert

December 7th, 2015 at 12:17 pm

Here’s a smart idea from the TPC’s Steve Rosenthal on a way to make corporate tax inversions more costly to companies engaged in this particular brand of tax avoidance. You put up a toll booth in the form of an exit tax on their deferred earnings, i.e., profits they’ve held overseas (really, “booked” overseas) but never “repatriated” so as to avoid their US corporate tax liability.

And lo and behold, this AMs paper says that candidate Clinton will endorse the idea later this week:

Hillary Clinton on Wednesday will unveil a proposal for a new “exit tax” aimed at cracking down on corporate inversions, a practice that permits U.S. companies to merge with corporations overseas to lower their tax bill.

The new tax would be part of a broader effort to target what experts say is roughly $2 trillion in profits U.S. companies are hoarding abroad to reduce their taxes. The Democratic presidential front-runner will propose spending the revenue raised by the new tax to boost manufacturing jobs in the U.S., campaign aides said. They spoke on condition of anonymity ahead of the official campaign announcement.

It will take Congress to legislate this, and companies may do the math and still decide it’s worth it to invert. But we must move against such tax avoidance, and this would be a useful step in that regard.

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5 comments in reply to "A toll booth/exit tax for those who would invert"

  1. Amateur says:

    This might be a naive question, but why don’t we just outlaw inversions?

    • Richard says:

      I like that idea. Getting Congress to do it, however, as long as the Republicans have a majority reminds me of the old adage: “The chances of that happening are somewhere between slim and none. And slim left town!”

      • Amateur says:

        I agree that the chances of passing this would be small. But why then does Clinton suggest a tax with the same chances of passing? My point (thank you for allowing me to get it across) is that if a ‘progressive’ is going to suggest a solution with a small chance of passing, why not actually suggest one that solves the problem rather than providing an incremental incentive against inversion?

  2. Smith says:

    The exit tax is a truly repugnant measure since it reinforces the idea that overseas profits are safely parked and no one is going after those profits. Not only should there never be a tax holiday which Republicans favor and horrors, so does Obama along with the sell-out Democrats, but the earnings should be taxed retroactively. As my father used to say to me, you don’t like it here, move.
    The companies are not staying here because we are letting them escape taxes on foreign earnings, they won’t all leave if we tax the earnings. You’re letting them get away with something, while they wait for a Republican administration to reward their bad behavior and provide 1000 fold payback on the billions of campaign contributions over the years.

  3. Denis Drew says:

    David McWilliams, Ireland’s most visionary (also most entertaining) international economist writes:

    “Consider the fact that in 2012, American multinationals made $100 billion profit here on which they are supposed to pay 12.5 per cent tax, or $12.5 billion.

    “But in fact they only paid $4 billion. So they ought to pay $8.5 billion more than they do.”