Ohio's two U.S. senators squared off Tuesday over whether the Republican tax bill would alleviate the problem of companies moving jobs and operations overseas, an issue that has particularly afflicted the Buckeye State over the past two decades.
Sen. Sherrod Brown, a Democrat who has pursued populist policies, charged that the Tax Cuts and Jobs Act would lead to more offshoring, during the second day of the Senate Finance Committee's work on the bill. Rob Portman, a recently re-elected Republican and former George W. Bush budget director, argued that the bill would help prevent jobs being moved overseas.
The threat of companies fleeing the U.S. because of its tax code was originally a major impetus for Congress to try to overhaul the tax code and especially to lower the corporate tax rate. As Republicans have rolled out legislation, though, that concern has been overshadowed by debates about the provisions of the bill that would affect families and determine whether the middle-class sees tax cuts.
On Tuesday morning, Brown brought the conversation back to keeping jobs in the U.S.
"The president won an election talking about that," Brown said of offshored jobs.
"But what this bill does, is it encourages corporations to keep profits overseas, it encourages corporations to send jobs overseas," he said.
Brown's argument centered on the bill's creation of a territorial regime for corporations' foreign earnings. Under that setup, business profits earned overseas, and taxed by foreign governments, would not face additional taxes when brought to the U.S.
Most advanced economies have similar arrangements.
In that system, Brown said, a manufacturing company would face U.S. taxation if it located in Akron, but wouldn't if it placed its operations overseas.
After he was done talking, Portman stepped in and, without mentioning Brown by name, accused him of inaccurately portraying the bill and defending the status quo.
"Right now, there is an incentive to go overseas. The outsourcing is happening," Portman noted.
The bill would lower incentives for companies to move jobs or headquarters to low-tax jurisdictions by lowering the corporate tax rate from 35 percent to 20 percent, Portman said. Also, it would allow companies to immediately deduct the cost of investments in equipment from their taxable income, another inducement to invest in the U.S. rather than overseas.
He then mentioned one other provision meant to keep business in the country: a special 10 percent rate on income earned on foreign sales generated by intellectual property kept in the U.S.
Republicans have long proposed to bring a territorial regime to the U.S. Multinationals currently face a big incentive to move their headquarters to countries that have territorial systems to lower their tax burden on sales over the rest of the world. As a result, there has been an uptick in so-called "inversions," in which companies move their headquarters to low-tax, territorial jurisdictions by merging with businesses there.
A U.S. territorial regime would address the inversions problem. But it also would create new incentives for companies to shift intellectual property to tax havens and then repatriate it tax-free to the U.S.
The Tax Cuts and Jobs Act includes several complicated rules meant to prevent such gaming of the system.