WASHINGTON - U.S. Senators Amy Klobuchar (D-MN), Chris Van Hollen (D-MD), and Tammy Duckworth (D-IL) introduced the Removing Incentives for Outsourcing Act to close a loophole that encourages U.S. companies to move jobs and operations overseas in order to minimize their tax liability. The bill, led by Senator Klobuchar, would eliminate an unfair incentive that allows U.S. companies to use excess foreign tax credits (FTCs) to shelter profits in tax havens.
“As we work to bring our economy back from the devastating effects of this pandemic, we must do everything in our power to keep jobs in the U.S. This legislation will ensure our tax laws encourage American companies to keep jobs at home, not send them overseas,” Klobuchar said. “I look forward to continuing to work with the Biden Administration to protect American workers.”
“Rather than focusing on generating new job opportunities here at home, the 2017 Trump Tax Scam created perverse new incentives for corporations to ship American jobs overseas. As millions of Americans face the economic hardships caused by COVID-19, we must reverse these harmful policies and boost good-paying jobs for our workers. I’m proud to join my colleagues in reintroducing this legislation to stop rewarding corporations that offshore Americans jobs and start building back better here at home,” Van Hollen said.
“Our tax laws should encourage companies to keep jobs and investments in the United States, not reward corporations that send jobs overseas and fail to pay their fair share by abusing foreign tax shelters,” Duckworth said. “I’m proud to join Senators Klobuchar and Van Hollen in re-introducing this bill and hope it passes the Senate quickly.”
This legislation will work alongside the efforts of the Biden Administration to protect American manufacturing and jobs. On Monday, President Biden signed the Made in America Executive Order, which will help ensure that when the federal government purchases products, they are American made.
Under current law, a U.S. corporation may use foreign tax credits to reduce U.S. tax liability on offshore profits by whatever amount the company paid in taxes in the country in which it earned the profits. While this makes sense on a per-country basis, the 2017 tax law’s use of a blended or “global rate” provides a perverse incentive for companies to shift jobs and operations overseas in order to preserve the strategic value of tax havens.
The Removing Incentives for Outsourcing Act would fix this problem by:
- Instituting a “per-country” minimum tax instead of a blended or “global rate” under current law and eliminating companies’ ability to deduct 10 percent of their return on tangible assets before the tax rate on foreign income applies. These changes would remove the incentive for companies to shift U.S. jobs and physical operations overseas (to countries with tax rates similar to the U.S.) in order to preserve the value of using tax havens.
- Requiring the Joint Committee on Taxation to conduct a study of various proposals for taxing overseas income and evaluate the options according to whether the proposal minimizes opportunities for avoidance of U.S. taxes and minimizes incentives for outsourcing American jobs.
“This bill takes direct aim at one of the biggest problems with our international tax system,” said Clark Gascoigne, senior policy advisor with the Financial Accountability and Corporate Transparency (FACT) Coalition. “The Removing Incentives for Outsourcing Act would reduce the outrageous tax incentives that reward corporations the more they shift profits to tax havens and real operations offshore. Requiring that tax rates apply to multinationals' offshore profits on a per-country basis is a necessary piece of any effort to end the incentive for offshore tax games."
The Removing Incentives for Outsourcing Act is also supported by the Institute on Taxation and Economic Policy (ITEP).