Yes, multinationals should have to pay their taxes

Kevin Drum wonders if he shouldn’t worry that America is one of the last industrialized countries that continues to attempt to tax the overseas income of its multinational corporations. The Drucker/Coy piece I praised earlier has a good section on that, too:

Many multinationals, including companies on both sides of the holiday debate — such as Cisco and United Technologies — want the U.S. to adopt a territorial system similar to that used by most of the rest of the world. Under such a system, the U.S. would largely stop trying to go after companies’ worldwide income and instead would mostly tax profits earned in the U.S., whether by U.S.-based or foreign-based companies. The only other sizable countries that still use a system like the one in the U.S. are Chile, Israel, Mexico, Poland, and South Korea. Supporters of a territorial taxation include the bipartisan National Commission on Fiscal Responsibility and Reform created last year by Obama.

But a pure territorial system has its own disadvantages. Because it doesn’t tax companies’ foreign income, it amps up the gains from shifting income to low-tax jurisdictions. So it works only if accompanied by close supervision and rules against gaming the system. Most developed countries, including Germany and Australia, have regulations to curb this sort of gaming, meaning that their systems, while opposite in concept to that of the U.S., are not all that different in practice.

Which is to say that yes, a better tax code would be a good idea, but no, it doesn’t excuse the efforts multinationals are making to game the current tax code. USC’s Edward Kleinbard put it well. “This is the system they bought into,” he said. “Now they present [paying tax on] the fruits of their success as some kind of a hideous punishment.” I’d also note that corporations are desperate to get a tax break to bring their money home because they want to bring their money home. They should have to pay taxes on that money. And if, while they’re paying those taxes, they also want to work on reforming the corporate tax code, well, Democrats and Republicans alike have made it clear they’re happy to talk about that.

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