On federal tax policy and overseas profits

Published 10:39 am Wednesday, April 5, 2017

This is a continuation of the column that I began last week, focused on how we can improve our economy.

Each American company that has operations internationally must pay taxes on the profit that is derived from that operation in the country in which the profit is earned. 

Under current U.S. tax policy, if those companies return those profits to the United States for reinvestment or to stockholders, they would be required to pay tax on those profits a second time — once where earned and then again here in America. 

There should be little question why these companies seldom return those profits to this country. Currently, there is believed to be about $1 trillion caught in this situation.

Companies are not designed to sit on profit and not use it to its highest and best use.

They either have plans for re-investing or returning profits to stockholders. Corporate directors have a responsibility to protect the assets of the corporation; therefore, should they choose to return that trillion dollars to American soil, they could be sued by stockholders for not looking out for the best interests of the stockholders.

During the weak economy of the past eight years, I and others proposed that then President Barack Obama should offer amnesty to those corporations and not impose tax on any of these offshore dollars that companies would commit to reinvest in our country. That never happened. 

Instead, companies were doing the opposite. Burger King chose to become part of a Canadian company. 

Pfizer Inc., the drug company, was making plans to reorganize in Ireland.

Now is the time for President Donald Trump and Congress to not only take that step to attract that trillion dollars for investment in America but also to take a greater step. That greater step would be to change the federal law to eliminate the double taxation completely. Taking this step would not only rake in the $1 trillion but many more dollars in the future.

Would you rather make decisions based on fear of lawsuits, or would you rather make decisions based on where you can best enhance the company’s profits?

Corporations exist to make a profit. Some of those profits are returned to the stockholders. The balance is held in the corporation to invest in expansion of the business. 

The company does not want nor should they hold money and not invest it. Therefore, the current equation drives corporations to make expansions elsewhere in the world where that will not be double taxed.

Congress and the president must understand the economics involved. 

At any tax rate, the U.S. Treasury will receive little or nothing in taxes if those overseas profits are not returned to this country. 

Therefore, there would be no loss of taxes to change this tax policy to zero.  However, what we would gain is jobs — American jobs — and capital investments, both of which would be taxable.

Changing this policy, as other countries have done, can be a major driving force as we focus on better ways to grow our economy. 

This change, along with the changes I described in last week’s column, can and will return this country to the prosperity needed to create well-paying jobs.


Frank Ruff represents Charlotte County in the Virginia Senate. His email address is Sen.Ruff@verizon.net.