* Corporate taxes paid on offshore profits at issue
* Corporate America aims to mend ties with Obama
By Kim Dixon
WASHINGTON, Dec 18 U.S.-based global companies
may get a boost in their effort to revamp corporate taxation if
the White House and Republican lawmakers can negotiate a deal to
avoid the year-end "fiscal cliff."
With President Barack Obama and Republican John Boehner
narrowing their differences in the budget talks, Republicans
hope a deal could open the door for steps next year to trim
corporate tax rates and to move to a system where companies do
not pay taxes on profits earned overseas, as they do now.
Republicans back a shift to this type of tax regime, known
as "territorial" in tax parlance, which exempts profits earned
outside the United States from U.S. corporate taxes.
The potential for moving to a territorial system is a
turnaround from just a few months ago when Obama made his
opposition to the tax change part of his successful re-election
Corporate America has griped for years that the United
States has among the steepest corporate tax levies, and many
countries have shifted to exempting offshore profits from
Although most companies don't pay the 35 percent top U.S.
corporate tax rate, Democrats and Republicans alike say high
rates make U.S. companies uncompetitive.
They have sparred over taxing overseas profits, but in the
current fiscal cliff talks, a push for a tax overhaul is among
the sweeteners Obama is offering Republicans.
"It would not surprise me at all if the consolation prize
for Republicans would be a commitment to move forward on
comprehensive tax reform," said Jonathan Traub, a former staff
director for Republicans on the tax-writing House Ways and Means
That committee is chaired by Republican Representative Dave
Camp, who will be shepherding any tax reform.
"For Republicans, a key part of that is moving toward a
territorial system," said Traub, now a managing principal at the
accounting giant Deloitte.
Any year-end deal to avoid the $600 billion fiscal cliff of
tax hikes and spending cuts likely will include guidelines for
overhauling the tax code next year.
Obama's re-election has given the White House new leverage,
so he is not likely to acquiesce at year's end to a territorial
system but wait to use it as a chip in a broader tax code
revamp, analysts said.
Camp and his Senate counterpart, Finance Committee chief Max
Baucus, are working on a process to expedite tax reform. Baucus,
a moderate to conservative Democrat, has not ruled out moving to
a territorial tax system.
The two lawmakers, who have been meeting weekly for months
on the project, are waiting for a final deal from the White
House and Republican leadership.
Importantly, the language they are drafting will likely be
neutral on moving to a territorial system, according to
That would be a win for Corporate America after Obama and
Vice President Joe Biden both lambasted big business during the
campaign for shipping jobs overseas and avoiding U.S. taxes.
Moving to a territorial tax system would "create 800,000
jobs," Obama quipped during a campaign debate with Republican
rival Mitt Romney. "The problem is they won't be here. They'll
be in places like China," where taxes are lower.
Critics of exempting foreign profits from U.S. taxes say
such a policy will give U.S. companies incentive to move jobs to
Treasury Secretary Timothy Geithner agreed in concept last
year to move to a territorial-type corporate system in talks
over raising the government's borrowing authority, known as the
debt ceiling, according to aides involved.
But those negotiations broke down and the White House
shelved a separate proposal to overhaul corporate taxes.
Then came the presidential election campaign and heightened
rhetoric about companies shipping jobs overseas. Biden even
mentioned it during his Democratic national convention speech in
September in an attack on Romney's tax plan.
Since Obama's Nov. 6 re-election, the president has made an
effort to mend ties with the business community.
At the same time, corporate leaders have been engaged in the
public debate over taxes, most prominently in the Fix the Debt
campaign, which includes the chief executives of General
Electric, Honeywell and others.
Last week, White House officials held the latest in a series
of meetings with the business community.
Dean Garfield, president of the Information Technology
Industry Council, which represents big companies like Google Inc
and Texas Instruments Inc, was among the business leaders at
"There was an understanding of our perspective," Garfield
said. He said he expected the issue of territoriality to be left
an open question in the Camp-Baucus proposal, which he said
would be a victory after it became an issue in the presidential
Critics of the territorial tax system have blasted groups
like Fix the Debt for using their fiscal cliff lobbying to
promote policies that would boost their own bottom lines.
An analysis by the consumer group Citizens for Tax Justice
of 63 big companies that joined the Fix the Debt campaign found
the companies would reap a $134 billion windfall with such a
"There is a huge effort here on the part of the
multinational corporations to get to zero tax on foreign
earnings," liberal Democratic Senator Carl Levin of Michigan
said last week. He said such an outcome would be grossly unfair.
Corporate taxes as a share of the U.S. economy has been
waning for years, down from about 6 percent of gross domestic
product in the 1950s, to less than 3 percent today, according to
the Tax Policy Center.