Eliminate the tax on corporations’ overseas profits

Right now, U.S. corporations pay the U.S. corporate income tax on both domestic and foreign profits, but they can put off paying the tax on their foreign profits by keeping them offshore. This also gives them the incentive to shift profits they earn in the United States offshore. Trump and congressional GOP leaders have proposed moving to a territorial tax system, which would eliminate the tax on foreign profits altogether. That way, U.S. corporations would only owe taxes on profits made in the United States and no tax at all on their foreign profits. And the incentive to shift domestic profits offshore would be even greater.

Absent strong measures to prevent multinationals from shifting profits (and possibly jobs) offshore, a territorial corporate tax would create new tax loopholes that could be used for this purpose. Anti-profit shifting provisions are notoriously difficult to develop and enforce.