Committee on Ways and Means

LOCKOUT: Flawed U.S. Tax Structure Keeps Trillions Offshore That Could be Invested Here

August 5, 2015

Here’s a helpful illustration. Microsoft, a company that symbolizes American innovation, is now holding $108 billion of its profits overseas. Just sitting there.

And why?

“What’s keeping Microsoft’s cash abroad is the U.S. tax code.” That, according to a Bloomberg News story that describes a serious and growing obstacle for our economy.

It’s well known that the U.S.’s high corporate tax rate makes us less competitive with other nations. But another deep flaw in our system is also weighing down our economy, keeping out trillions of dollars that could boost investment and jobs in the United States, not to mention provide a windfall to the Treasury. It’s our “worldwide” system of taxation, and it creates a big, costly lockout effect.

Let’s explain.

First, Microsoft is hardly alone. More than $2 trillion dollars of U.S. capital—profits earned by American companies doing business overseas—is currently parked outside our borders. Many companies want to bring this money back to the U.S. to invest here. But there’s a problem. Doing so would sock them with a huge U.S. tax bill, so they opt to keep it elsewhere. This isn’t just about tax avoidance. It’s a uniquely American problem stemming from our particular—and screwy—tax treatment of profits earned abroad.

 

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