Unchecking the Box

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Matt Yglesias writes about the way a Clinton-era initiative to streamline and update tax rules (commonly called “check the box” for reasons that aren’t very interesting) ended up becoming a gigantic loophole that allows American corporations to avoid paying taxes on profits earned overseas:

What happened is that the Clinton administration promulgated a rule that was designed to simplify the classification of different kinds of subsidiaries. Within months of the rule coming out, the career civil servants in the Treasury Department noted that there was potentially a huge tax loophole here.

….As soon as it was noted, an effort was put in place to change it. But a ferocious lobbying battle opened up, with the apologists for tax havens arguing that, basically, it was [other countries’] ox that was getting gored here so Americans shouldn’t care. Over the years, however, that turns out to be wrong. The availability of this loophole is a significant incentive for companies to invest in their overseas subsidiaries and take advantage of the tax shell game. It’s a loophole that nobody ever intended to create, and that should be done away with forthwith.

Whether this is really a big incentive to invest overseas is probably debatable, but it’s nonetheless true that it was only an unanticipated side effect of check-the-box that allowed companies to use it to avoid taxes on overseas earnings.  So good for Obama for trying to partially get rid of it.

Except for one thing.  It really is true that America is virtually the last country in the world that tries to tax overseas profits earned by multinational companies in the first place. Everyone else, including all those fine social democrats in western Europe, have long since moved to a seemingly more sensible system in which each country simply taxes its own domestic profits regardless of where parent companies are headquartered.  This avoids all sorts of complications related to double taxation and allocation of expenses and seems to be genuinely more efficient as well.  You can find a pretty good discussion of the basic issues here.

So what’s the deal?  Should liberals be in favor of closing this loophole, since it is, after all, a loophole?  Or should we be in favor of not just leaving it alone, but going further and changing our corporate tax law to eliminate taxation of overseas profits entirely?  Or perhaps changing the law, but only as part of a package that makes our corporate tax code more sensible overall?  What’s the party line here?

SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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