Joint Tax Reform Framework Includes Foreign Minimum Tax

Published October 2, 2017

After a round of meetings, President Donald Trump and congressional Republicans released a plan detailing their shared goals for federal tax reform, including a new tax on American companies’ overseas profits.

On September 27, the White House, the House Committee on Ways and Means, and the Senate Committee on Finance announced the “Unified Framework for Fixing Our Broken Tax Code,” a nine-page outline of tax reform goals.

The framework includes ending the current “global” taxation system and moving to a “territorial” system, ending the current practice of taxing profits earned by American companies’ overseas subsidiaries, when they are sent to the parent company.

Another part of the Framework proposes a new foreign minimum tax, taxing American companies’ profits earned in other countries even if they are not repatriated to the domestic parent company. The Framework says this new tax will “level the playing field between U.S.-headquartered parent companies and foreign-headquartered parent companies.”

Complicating Reform Efforts

David Burton, a senior fellow in economic policy at The Heritage Foundation, says Congress’ self-imposed restrictions on tax reform leave little room for bold changes.

“The budget resolution reported out of the House Budget Committee basically says that tax reform has to be revenue-neutral,” Burton said. “There’s room in there to cut the Obamacare taxes, and that’s that. That doesn’t really add up, unless you have other revenue sources.”

This false need for revenue neutrality is why Congress is looking at new taxes, Burton says.

“The border adjustment tax was a $1 trillion revenue source, and my guess is that the Better Way plan, even as written, will be scored by the joint committee as a substantial tax cut—probably $2 trillion. So, they’re $3 trillion short.”

Congress needs to get over its preoccupation with maintaining revenue neutrality, Burton says.

“I actually think we need to rethink the budget resolution, so there’s room for a tax cut,” Burton said. “Otherwise, I think tax reform is going to be extraordinarily difficult.”

Tax Reform, Not Tax Shifting

Mary Kate Hopkins, a deputy director of federal affairs with Americans for Prosperity says cutting some taxes does not justify creating new taxes elsewhere.

 “For the same reason that any new burden is a bad idea when it comes to tax reform, cutting one tax should not be an excuse to raise others,” Hopkins said. “Americans are already overtaxed. Tax cuts, not new burdens, are what create jobs, revenue, discretionary income increases, and Gross Domestic Product growth. Adding new tax burdens ignores and actually exacerbates the real problem, which is that the current code is too burdensome and complex.”