No Tax Breaks for Outsourcing Act - Leveling the playing field for

No Tax Breaks for Outsourcing Act

Leveling the playing field for companies that invest in America

Senator Sheldon Whitehouse and Rep. Lloyd Doggett

The Trump tax law created new incentives to export jobs and profits offshore by establishing a tax rate for

multinational investments made overseas that is half that for domestic investments. In addition, the law

exempts from tax entirely a portion of the returns on tangible investments made overseas, such as plants and

equipment.

Since its passage, one study found that the companies that benefited most from the tax break on offshore

profits have indeed increased foreign, rather than domestic investment. According to the Treasury Department,

U.S. multinationals reported 61 percent of their foreign income in just seven tax havens, including 10 percent

in Bermuda alone – exceeding the island nation’s GDP many times over. In the words of former Treasury

official Kimberly Clausing, the Republican law amounts to an “America-last” tax policy, providing incentives

to shift profits on paper to tax havens and make job-creating investments in our economic competitors.

The No Tax Breaks for Outsourcing Act would level the playing field for domestic companies by

requiring multinationals to pay the same tax rate on profits earned abroad as they do in the United States.

President Biden’s Made In America Tax Plan draws several key elements from this legislation, including

applying GILTI on a country-by-country basis, eliminating the tax exemption for tangible investments made

overseas, cracking down on inversions, and eliminating the tax break for so-called “Foreign Derived

Intangible Income.”

The legislation would boost U.S. economic competitiveness by encouraging domestic investment, leveling

the playing field for domestic companies, and bringing the U.S. into compliance with the global minimum tax

agreement. The Joint Committee on Taxation (JCT) found that large U.S. multinationals paid an average tax

rate of just 7.8 percent the year after the Trump law passed, lower than their foreign competitors (see Treasury

and JCT). They would still pay less than their competitors with a higher rate on foreign profits. Moreover,

with the European Union, United Kingdom, and Korea already moving to implement the global tax agreement

(agreed to by over 130 countries), U.S. and foreign multinationals alike will be subject to the new minimum

tax whether the U.S. complies or not. Failure to join, however, will mean the revenue fills foreign coffers

instead of the U.S. Treasury.

The No Tax Breaks for Outsourcing Act would:

• Equalize the tax rate on profits earned abroad to the tax rate on profits earned here at home. This

legislation would end the preferential tax rate for offshore profits by eliminating the deductions for “global

intangible low-tax income (GILTI)” and “foreign-derived intangible income” and applying GILTI on a

per-country basis.

• Repeal the 10 percent tax exemption on profits earned from certain investments made overseas. In

addition to the half-off tax rate on profits earned abroad, the new law exempts from tax entirely a 10

percent return on tangible investments made overseas, such as plants and equipment. This legislation

would eliminate the zero-tax rate on certain investments made overseas.

• Treat “foreign” corporations that are managed and controlled in the U.S. as domestic

corporations. Ugland House in the Cayman Islands is the five-story legal home of over 18,000

companies, many of them really American companies in disguise. This section would treat corporations

worth $50 million or more and managed and controlled within the U.S. as the U.S. entities they in fact

are, and subject them to the same tax as other U.S. taxpayers.

• Crack down on inversions by tightening the definition of expatriated entity. This provision would

discourage corporations from renouncing their U.S. citizenship. It would deem certain mergers between

a U.S. company and a smaller foreign firm to be a U.S. taxpayer, no matter where in the world the new

company claims to be headquartered. Specifically, the combined company would continue to be treated

as a domestic corporation if the historic shareholders of the U.S. company own more than 50 percent of

the new entity. If the new entity is managed and controlled in the U.S. and continues to conduct

significant business here, it would continue to be treated as a domestic company regardless of the

percentage ownership.

• Combat earnings stripping by restricting the deduction for interest expense for multinational

enterprises with excess domestic indebtedness. Some multinational groups reduce or eliminate their

U.S. tax bills by concentrating their worldwide debt, and the resulting interest deductions, in its U.S.

subsidiaries. This section would disallow interest deduction for U.S. subsidiaries of a multination

corporation where a disproportionate share of the worldwide group’s debt is located in the U.S. entity, a

tactic commonly known as “earnings stripping.” The limit for each U.S. subsidiary would equal the

sum of the subsidiary’s interest income plus its proportionate share of the corporate group’s net interest

expense. The text of this provision was included in the House Republican version of TCJA. A similar

provision was included in the Senate Republican version, but neither provision made it into the

conference agreement.

• Eliminate tax break for foreign oil and gas extraction income. Oil and gas extraction income earned

abroad gets an even further break on the already half-off rate other industries pay on their offshore

profits. This provision would eliminate this special tax break for big oil companies.

90 Group Endorsements (117

)

Labor: American Federation of Labor & Congress of Industrial Organizations (AFL-CIO); American Federation of

Government Employees (AFGE); American Federation of State, County and Municipal Employees (AFSCME); American

Federation of Teachers; Communication Workers of America (CWA); International Association of Machinists &

Aerospace Workers (IAMAW); International Brotherhood of Teamsters; International Federation of Professional and

Technical Engineers (IFPTE); International Union, United Automobile, Aerospace and Agricultural Implement Workers of

America (UAW); IUE-CWA; National Education Association (NEA); Service Employees International Union (SEIU);

United Steelworkers (USW); UNITE HERE; Union Veterans Council, AFL-CIO; Working America, AFL-CIO.

Public interest: AfricaFocus Bulletin; Alliance for Retired Americans; American Family Voices; Americans for

Democratic Action (ADA); Americans for Tax Fairness; American Sustainable Business Council; Association of

Concerned Africa Scholars – USA; Campaign for America’s Future; Center for International Policy; Center for Popular

Democracy; Coalition on Human Needs; Color of Change; Community Change Action; Congregation of Our Lady of

Charity of the Good Shepherd, U.S. Provinces; Corporate Accountability Lab; Crude Accountability; DailyKos;

Democrats.com; Economic Policy Institute; Fair Share; Faith Action Network; Financial Accountability and Corporate

Transparency (FACT) Coalition; Franciscan Action Network; Friends of the Earth U.S.; Fund for Constitutional

Government; Global Alliance for Tax Justice ; Global Financial Integrity; Greenpeace US; Grey Nuns of the Sacred Heart;

Health Care for America Now; Indivisible; Institute for Policy Studies – Inequality Program; Institute on Taxation and

Economic Policy (ITEP); Interfaith Center on Corporate Responsibility (ICCR); International Rights Advocates; Jobs With

Justice; Jubilee USA; Liberty Shared; Main Street Alliance; Maryknoll Fathers and Brothers; Missionary Oblates;

MomsRising; National Advocacy Center of the Sisters of the Good Shepherd; National Employment Law Project; National

Organization for Women; NETWORK Lobby for Catholic Social Justice; Our Maryland; Our Revolution; Oxfam America;

Patriotic Millionaires; Peace Education Center; Progressive Change Institute; Project Blueprint; Public Citizen; Publish

What You Pay – United States; Responsible Wealth; RESULTS; Rights CoLab; RootsAction.org; Sisters of St. Francis of

Philadelphia; Small Business Majority; South Carolina Small Business Chamber of Commerce; Strong Economy For All

Coalition; Take on Wall Street; Tax Justice Network; Tax Justice Network USA; Tax March; United for a Fair Economy;

United Church of Christ, Justice and Witness Ministries; United Methodist Church – General Board of Church and Society;

US-Africa Bridge Building Project; Voices for Progress; Washington Fair Trade Coalition; Working Partnerships USA.