Sold as Boon to Jobs in U.S., Tax Bill May Lead Firms to Open Plants Abroad
What could be more dangerous for American workers, economists said, is actually of which the bill ends up creating a tax break for manufacturers with foreign operations. Under the fresh rules, beyond the lower rate, companies will not have to pay United States taxes on the money they earn by plants or equipment located abroad, if those earnings amount to 10 percent or less of the total investment.
The Republican vision for the tax plan was to make the United States a more competitive place to do business. Supporters contend of which the fresh rules do not encourage companies to locate overseas. Rather, they say, slashing the corporate rate will make of which more attractive to set up shop at home, since many some other advanced economies today have higher taxes.
as well as also manufacturers do not simply follow their accountants’ advice. They consider taxes, yet they also look at an array of some other factors, including the local talent pool as well as also transportation network, when deciding where to build a fresh plant.
Before the tax overhaul, companies had to pay the standard corporate tax on the money they earned abroad, that has a top rate of 35 percent, yet only when they brought of which income back into the United States.
Many corporations responded by keeping their profits abroad indefinitely. A record $2.6 trillion was in offshore accounts as of 2015, according to the Joint Committee on Taxation, a congressional panel. Republicans argued of which the system deprived the American economy of investments of which could have financed fresh ventures as well as also hiring at home.
of which also meant of which many multinationals effectively paid no American tax on their overseas earnings. The fresh bill, supporters point out, will prevent of which by happening on such a large scale inside future.
“of which’s a vast improvement by what was on the books,” said Ray Beeman, a tax lawyer at Ernst & Young who worked on a tax reform proposal of which was a precursor to the current law when he was counsel to the House Ways as well as also Means Committee, under Republican leadership, by 2011 to 2014.
To prevent an exodus of businesses by the United States, the law establishes a minimum tax rate of 10.5 percent every year.
Companies will get credit for up to 80 percent of the taxes they pay to foreign governments. yet if the total still comes to less than 10.5 percent of the income they earn abroad, they have to make up the difference that has a check to the American government.
So while companies will today have to pay some tax in most cases, wherever they operate, they will pay much less on what they make abroad than at home.
“Having such a low rate on foreign income is actually outrageous,” said Stephen E. Shay, a senior lecturer at Harvard Law School as well as also a Treasury Department official during the Reagan as well as also Obama administrations. “of which creates terrible incentives.”
Mr. Shay said the fresh rule could make a big difference for little as well as also medium-size companies, which make up a vast majority of American businesses. When those companies used to ask him whether to open offices abroad, he advised against of which if they needed to bring their cash home.
Such companies, Mr. Shay said, today have no reason to resist the temptation to shift some of their operations abroad, since they could end up paying half the rate they could pay inside United States.
Some companies may not want to leave the comforts of home for a cut in their tax bill. Plants are expensive — they can cost more than $1 billion to buy as well as also to outfit with the necessary industrial machinery. Manufacturers also gravitate toward stable, affordable locales where they can reach their customers easily as well as also hire skilled workers.
“You may prefer to stay inside U.S., with the protections of our legal system, our infrastructure as well as also our labor force,” said Steven M. Rosenthal, an expert at the nonpartisan Tax Policy Center.
On the some other hand, for the biggest makers of cars as well as also machines — the kinds of companies of which Mr. Trump promised to lure back to the United States — a few percentage points in tax savings can be valuable.
“There are lots of great retail markets out there,” Mr. Rosenthal said. “The fresh rules might yet encourage jobs as well as also factories to be shipped offshore.”
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