House Ways and Means Committee Chairman Dave Camp, R-Mich., has released a discussion draft version of proposed legislation to transition the U.S. from a worldwide system of taxation to a territorial system, while lowering the top tax rate for both individuals and businesses to 25 percent.
Camp unveiled the draft legislative language with the unusual request that practitioners, employers, academics, and workers provide their comments on the legislative process.
“Instead of having laws on the books that encourage hiring U.S. workers, our outdated international tax system encourages employers to keep profits and jobs outside of America,”
Camp said in a statement Wednesday. “If we are serious about creating a climate for job creation, now is the time to adopt tax policies that empower American companies to become more competitive and make the United States a more attractive place to invest and create the jobs this country needs.”
The discussion draft would reduce the corporate tax rate to 25 percent to bring it in line with the average of countries in the Organization for Economic Cooperation and Development. The House Ways and Means Committee is also looking at broadening the tax base to make up for the revenue lost by reducing the corporate tax rate, but those proposals are reserved for a future release of the discussion draft.
The draft language also would shift the U.S. corporate tax regime from a worldwide system of taxation to a territorial-based system. The plan would exempt 95 percent of overseas earnings from U.S. taxation when profits are brought back to the U.S. from a foreign subsidiary. It includes anti-abuse rules to prevent companies from avoiding the payment of their share of U.S. taxes.
The discussion draft was released at a time when a joint "supercommittee" in Congress remains divided over whether to include tax reforms in a plan to reduce the federal deficit by at least $1.5 trillion.
Camp’s Democratic counterpart on the tax-writing committee criticized the proposed legislation.
“For individuals, this plan would almost certainly result in another massive tax cut for many of the very wealthy and a shifting of the burden onto working families through the elimination of key middle-class tax benefits such as the mortgage interest deduction and the health care exclusion,” said House Ways and Means ranking member Sander Levin, D-Mich. “Lowering the top corporate tax rate to 25 percent without adding to the deficit would require repealing key provisions that strengthen domestic manufacturing and encourage American innovation and investment. Moving to a different international tax system must guard against policies that lead to further shifting of jobs overseas and further shifting of income into tax havens. Today’s draft acknowledges these challenges but does not solve them.”
An overview of the plan, along with a detailed summary, can be found at www.waysandmeans.house.gov.
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