Fact Check: The ‘territorial tax’

The president said that Mitt Romney wants to provide more tax breaks for companies that move overseas. He was referring to Romney’s proposal to enact a “territorial tax” system that would allow U.S.-based companies to bring foreign-earned profits back home without paying U.S. taxes. The theory behind that model is that those businesses would otherwise keep foreign-earned profits overseas to avoid paying additional taxes, and the money would provide no domestic benefit.

The bipartisan Simpson-Bowles Commission recommended that the government adopt a territorial tax system “to help put the U.S. system in line with other countries.” Twenty-five out of 34 nations in the Organization for Economic Co-operation and Development, including Japan and the United Kingdom, use the territorial system.

Obama has rejected the system, instead proposing a minimum tax on U.S.-based businesses doing business overseas, which would require those companies to make up the difference between their foreign tax rates and the U.S. rate. The idea behind that plan is to discourage corporations from moving their operations overseas in search of potentially lower taxes.

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