Beyond not paying for themselves, President Donald Trump's tax cuts now threaten to undermine one of his key campaign promises. A new report by the Democrats on the Joint Economic Committee in Congress reveals that by reducing the tax liability incurred by corporations, even when they move operations and jobs overseas, Trump's tax cuts could further endanger the jobs of the 15.4 million Americans who are vulnerable to offshoring.
Before the Republican tax law was passed last year, American companies had to pay a 35 percent corporate tax on income that they earned overseas (companies often skirted their tax liability by simply keeping their money in offshore banks). Because the new tax law brings us closer to a system that allows corporate profits to be taxed only in the nation where those profits were created, the report argues that U.S. companies will be motivated to move their profits and investments to other countries with lower tax rates.
The report also describes how two additional provisions of Trump's tax law provide American companies with opportunities to increase their profits by moving jobs overseas. First, the law establishes a new minimum tax on global intangible low-taxed income (GILTI), which means that companies that wish to minimize how much of their income will be classified as GILTI can do so by moving jobs to other countries. Second, because the new law creates a deduction for income tied to exports, known as foreign-derived intangible income (FDII), companies could conclude that having too many tangible assets in the United States reduces the amount of income that could qualify for that deduction -- and then move those tangible assets overseas to qualify for the new deduction.
"The Trump administration has not delivered results to the middle class and communities they promised to be champions for," Sen. Martin Heinrich, D-N.M., ranking member of the Joint Economic Committee, told Salon. "Republicans blew a $2 trillion hole in the deficit with special-interest tax giveaways to the wealthy and big corporations. There are 15.4 million American jobs that are potentially at risk of being offshored, and this tax law may only compound this issue."
Heinrich added that Democrats are not powerless to stop jobs from being moved overseas.
"The international provisions in the Republican tax law were poorly designed," Heinrich said. "The law creates a new incentive for companies to shift operations — and Americans jobs — overseas, and does not adequately protect American workers. Democrats can start by rewriting provisions like these to keep good-paying American jobs at home. We are also prepared to put forward smart, forward-looking policies to raise wages for American workers."
The Joint Committee on Taxation projects that the international provisions excluding the one-time revenue from repatriation of foreign profits in Trump's tax law will decrease revenue by more than $14 billion over the next decade. The nonpartisan Congressional Budget Office has also stated that the provisions in Trump's tax bill would provide companies with an incentive to offshore their jobs and profits.
Shares