A territorial tax system would essentially codify the deferral regime and enhance its benefits by allowing earnings to be repatriated to the U.S. tax-free. So why on earth would Washington, D.C., adopt a system that continues to reward companies that shift operations and jobs offshore and continues to penalize companies that maintain their U.S. operations and workers?
Instead, Congress should reduce the corporate income tax rate to 20 percent (to attain parity with most foreign countries) and enact stricter anti-deferral rules. A tax rate comparable to foreign countries would greatly eliminate the incentives to move operations and jobs offshore because of rate differentials, and the anti-deferral regime would minimize the benefits to U.S. companies from offshoring operations and jobs.
Clearly the U.S. tax system should encourage companies to retain their valuable stock of highly mobile intellectual property, including high-tech property, drug patents and films, in the United States. Moving to a territorial system would have the opposite effect.
Maintaining the U.S. worldwide tax system and enacting stricter anti-deferral rules would stop rewarding companies such as GE for moving jobs overseas and stop penalizing companies like Disney that keep their income-producing property and their jobs here.
Preston Padden is an adjunct professor of law at the University of Colorado and was previously an executive with the Walt Disney Co.