Left warns, CEOs laud Gang of Six on overseas tax

WASHINGTON Wed Jul 20, 2011 5:33pm EDT

WASHINGTON (Reuters) - Left-wing activists and politicians on Wednesday sharply criticized a plan to end U.S. taxation of most corporate offshore profits as endorsed by the Senate's so-called "Gang of Six."

In backing the idea of a territorial tax system, a deficit-reduction plan from the Gang of Six would hand multinational corporations a victory in their fight for lower and simpler taxes on profits they post outside the country.

The Business Roundtable, a lobbying group for the CEOs of many of the nation's largest companies, praised the plan for "supporting lower corporate tax rates and moving toward a competitive territorial system of taxation."

The Gang of Six plan is short on specifics and likely to change as Congress and President Barack Obama negotiate an increase in the U.S. debt ceiling. But the backing in the plan of territorial taxation alarmed liberal activists.

Citizens for Tax Justice, a group that advocates for fairer taxes for all, ripped into the plan. "We already have huge problems with corporations moving jobs overseas and shifting their profits to tax havens to reduce their U.S. tax bills," said Robert McIntyre, director of the center.

"Giving corporations a permanent tax exemption for their purported offshore profits will make things much worse."

Independent Senator Bernie Sanders said the plan would "hurt American workers by giving U.S. companies more incentives to avoid U.S. taxes by shipping jobs to low-tax countries."

Unlike many nations, the United States taxes U.S.-based corporations' profits no matter where they are earned, with an important exemption. Taxes on active profits earned overseas do not have to be paid right away. Instead, they can be deferred as long as the profits are not brought home, or repatriated.

At present, an estimated $1 trillion in profits is being held offshore by U.S. companies. They pay taxes on those profits to the countries where the profits are held but not to the United States under the complex deferral system.

A territorial system, backed by many businesses but not all, would end taxation of most overseas profits, aligning U.S. policy with that of Britain, Japan and other major powers.

Such a move would "give tax incentives for corporations to export good jobs overseas," said Richard Trumka, president of the AFL-CIO labor organization in a statement.

Some corporations, such as retailers and others with few overseas operations, have little to gain from a territorial system. As a result, they might be cool to it if adopting it meant making trade-offs in other areas of the tax code.

The Gang of Six plan also endorses slashing and standardizing the corporate income tax rate to a range of 23 percent to 29 percent from the present top rate of 35 percent, while raising the same amount of revenue from it.

That goal could be attained by closing some corporate tax loopholes but the plan is not specific on that issue.

(Editing by Bill Trott)