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U.S. Representative Dave Camp, chairman of the House Ways and Means Committee, said that he is working on legislation that would shift the U.S. to a territorial system of taxing overseas profits and that the bill will be released “hopefully soon.”
Camp, a Michigan Republican, spoke in a brief interview in Washington today as he entered a meeting of the deficit- reduction supercommittee, of which he is a member.
Tax lobbyists in Washington have been talking for several days about the prospects for an imminent bill or a draft proposal from Camp that would describe how the Michigan Republican wants to change the tax code. His comment today is the first official confirmation of the effort.
Camp, who became chairman of the House’s tax-writing panel in January, has been holding hearings this year on the potential for an overhaul of the U.S. tax code. So far, he hasn’t provided many details beyond calling for a broader tax base, a territorial system of taxation, and a reduction in top corporate and individual tax rates to 25 percent from 35 percent.
The release of legislation would mark a shift to a new phase of the corporate tax debate and signal Camp’s interest in tax code changes alongside what the supercommittee might accomplish. The 12-member panel is charged with creating a 10- year plan to cut at least $1.5 trillion from the federal deficit by Nov. 23. Automatic across-the-board spending cuts would take effect if Congress doesn’t pass a plan by Dec. 23.
Supporting Territorial System
Executives from multinational corporations including Caterpillar Inc., United Technologies Corp. and Kimberly-Clark Corp. have been urging Congress to adopt a territorial tax system.
“Do away with the worldwide structure and implement a territorial tax system like those in most other industrialized nations,” Edward Rapp, the group president and chief financial officer of Caterpillar, told the Ways and Means panel on May 12. “This would provide a level playing field for American companies competing in markets at home and abroad.”
Under the current U.S. worldwide tax system, U.S. companies owe taxes on profits they earn outside of the country. They receive tax credits for payments to other governments and can defer the residual U.S. tax until they bring the money home.
Most other countries with major economies have a territorial tax system, under which most or all foreign profits are exempt from taxation. The U.K. and Japan have moved to territorial tax systems in the past few years.
Obama Administration’s Stance
The Obama administration has called for pushing international tax policy in the opposite direction, with proposed limits on the ability of U.S. companies to defer taxation of overseas profits.
U.S. company executives and tax analysts will pay particular attention in any corporate tax legislation to several design features. These include the treatment of domestic expenses, consideration of the more than $1 trillion in untaxed profits that companies currently have outside the U.S., and rules governing taxation of income derived from intellectual property -- a key issue for the technology and pharmaceutical industries.
They will also look to see whether Camp has a revenue estimate from the Joint Committee on Taxation, the official nonpartisan scorekeeper of revenue legislation in Congress. Depending on how a territorial tax system is structured, it could either raise or lose revenue for the U.S. Treasury. Changes that raise money for the government could be used to lower the 35 percent tax rate.