Introduction: Robert Pozen of the Brookings Institution, a nonprofit, nonpartisan policy group, describes the problems with current laws related to taxing foreign source income of U.S. corporations: they don’t bring in much money and have resulted in $2 trillion of American corporate cash outside our borders.
An excerpt from the article: The current system for taxing foreign source income of U.S. corporations makes no sense. In theory, income earned by controlled foreign subsidiaries of American companies is taxed at the U.S. corporate rate of 35 percent; in practice, the Treasury receives no taxes on that income as long as it is held overseas. U.S. corporations now have overseas cash holdings of almost $2 trillion, which they are encouraged to deploy by acquiring companies and building facilities outside the U.S. … The current tax system for foreign-source income is so poorly designed that reform wouldn’t be a zero-sum game. … Congress could simplify the rules and give companies more flexibility on their business decisions, and still increase the total revenue collected by the U.S. government.
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