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Strategy Summary

The current system is unfair to America as any foreign country can steal our government revenue. Countries that have little to no relation to American consumers help multinational companies reduce American corporate tax revenue. The foreign country reduces its corporate tax rate or gives sweetheart deals denying the US tax revenue. 

Foreign multinational competitors, like the Chinese, get a better effective tax rate. These multinational corporations use this tax advantage against Domestic companies in competition for consumers.

How It Works

A:

Foreign multinational corporations would be taxed the same way on U.S. income, leveling the playing field between domestic firms and foreign and domestic multinational corporations.

Where the company claims it earns its income would be irrelevant. 

  • American Corporation sells $10 billion of its products to customers around the world. 
  • $6 billion of those sales (60% of total sales) are made to U.S. customers. 
  • American’s worldwide profit is $1 billion, therefore, $600 million of that profit would be taxed as U.S. profits.

U.S. taxable income would be determined solely by the percent of that company’s worldwide sales made to U.S. customers.

Why It's Better

A:

The Tax Cut and Jobs Act improved the former international tax rules but created a complex patchwork system. It was particularly unsuccessful at balancing the effective tax rate scales between Domestic corporations and Multinationals, sometimes known as the Corporate Tax Differential. 

Sales Factor Apportionment is the fundamental solution to the Corporate Tax Differential because it would:

  • Simplify the amount of corporate profit the U.S. taxes with a simple formula. 
  • Level the playing field between purely domestic businesses and multinational enterprises. 
  • Create an authentic and valid territorial system. 
  • Eliminates the tax incentives to locate jobs, factories, and corporate headquarters offshore.
  • Boosting employment, exports, and U.S. tax revenue. (Inversions are pointless.)
  • Estimated to increase revenue without raising rates because the revenue comes from multinational companies paying what their domestic competition does.

Sales Factor Apportionment is more straightforward and more effective than our new system which attempts — and fails — to tax all corporations fairly.