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The Hill featured Lubin Tax Professor Philip Cohen's piece "A bold fix for US international taxation of corporations"

04/08/2021

The Hill featured Lubin Tax Professor Philip Cohen's piece "A bold fix for US international taxation of corporations"

Both the Biden administration, through its just announced "The Made in America Tax Plan,"  and several senators, including Senate Finance Committee Chair Ron Wyden (D-OR), Sherrod Brown (D-OH) and Mark Warner (D-VA), are trying to revamp the complicated, and to some extent, flawed changes made to the U.S. international tax system  in 2017 by the so-called Tax Cuts and Jobs Act.

The target of this effort should be to encourage corporations to keep and create new good paying jobs in the United States, to avoid tax barriers to repatriation of offshore profits and to prevent U.S. taxation from making U.S. companies noncompetitive with their foreign rivals. 

While the international tax changes made by the act may have addressed the latter two goals, it has failed at the first and presumably the most important objective, which Senator Wyden stated during a March Senate Finance Committee Hearing "is a need to make sure the best research and manufacturing is done in America." 

To that end, I propose the U.S. should repeal the global intangible low taxed income provision altogether coupled with the removal of the participation exemption, both enacted as part of the Tax Cuts and Jobs Act. Under the participation exemption, most dividends made from foreign subsidiaries to the U.S. parent company are entitled to a 100 percent dividends received deduction, thus permanently avoiding U.S. taxation. 

These two features of the act should be replaced with a worldwide tax system, wherein profits of foreign subsidiaries of U.S. corporations are taxed to the corporate parent when they are earned, but coupled with both a U.S. corporate tax rate a few points lower than that for domestic profits as well as the reenactment of a credit for foreign income taxes paid by a foreign subsidiary. Thus, for example, if the normal U.S. corporate tax rate was increased from the current 21 percent rate to 28 percent (which the Biden administration is proposing) foreign earnings might be subject to a rate of about 22 percent.

The Biden administration has recommended modifying the global intangible low taxed income provision by increasing the tax rate U.S. corporations pay for certain amounts earned by their controlled foreign corporations. It also recommends modifying it to eliminate a taxpayer favorable reduction of what is deemed taxable to the U.S. multinational corporations under the provision. 

Read the full Hill article.

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USA TODAY NETWORK featured Lubin Professor Philip Cohen's piece "America needs respect for tax law and order. Here's why | Opinion"

10/15/2020

USA TODAY NETWORK featured Lubin Professor Philip Cohen's piece "America needs respect for tax law and order. Here's why | Opinion"

Philip G. Cohen is a retired vice president-tax and general tax counsel for Unilever United States, Inc. and is now a professor of Taxation at Pace University's Lubin School of Business. The views expressed herein are his own and don't necessarily represent those of any organization which he is or was associated.

Both President Donald J. Trump and Vice President Joe Biden have signaled federal income tax policy changes are on the table if elected president in November — and each offer markedly different plans.

Their proposals couldn’t be more polar. Trump, for example, has indicated that he would like the corporate tax rate to be even lower than the 21% rate currently in effect, having already been reduced as part of 2017 tax legislation from 35%. He also wants to make permanent taxpayer friendly changes for individuals made by that same 2017 law that are due to expire after 2025. Furthermore, he would like to reduce the tax rate for capital gains for individuals from a top rate of 20% to 15%. 

Given our ballooning budget deficit, these should be non-starters.

Biden’s tax wish list, on the other hand, includes seeking an increase to the corporate tax rate from 21% to 28%, implementing a minimum 15% tax based on global book income of $100 million or more, and enacting a 10% surtax on companies that send jobs overseas in order to sell products back to the U.S. He also aims to increase the federal income tax owed by individuals with taxable income above $400,000, as well as remove the tax rate preference for capital gains and qualified dividends for those taxpayers with taxable income above $1 million.  Some of these proposals merit consideration although Biden should focus attention to trying to repeal some incredibly complex and unsound international tax changes made as part of the 2017 tax legislation and close some egregious loopholes in our tax laws.

Read the full USA TODAY NETWORK article.