Taxing Overseas Profits

As we know, more and more jobs are going overseas.  Most people seem to think it is because of cheap labor and other lower business costs such as less demanding environmental regulations.  Those are factors, but a major factor is the way overseas profits are taxed.  They pay the taxes of the country in which the money is earned rather than US taxes.  Since the rates in certain countries, such as Ireland, are significantly lower, it pays to locate operations there.

The money can’t be brought back to the US without paying US taxes, so it stays overseas.  If a company has money overseas, they need to invest it, and so the companies expand overseas operations, causing additional jobs to go overseas.

The solution for this problem is technically simple but politically daunting.  Require US corporations to pay taxes at the US corporate rate, with a credit for any taxes paid to the country where the money was earned.  This way, there would be no incentive to keep the money overseas, or to expand overseas operations for tax reasons.

I believe this this is how taxes for US residents who work overseas are calculated.  There’s no reason not to handle corporations the same way.

McCain seems to be for keeping the existing policy, while Obama is for ending what he calls “tax breaks for sending jobs overseas”.

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