Curb the Use of Overseas Tax Havens? Sure, but How?

In Taxes On

Wherever one may land on the applause-o-meter wired to President Trump’s latest outline for a tax makeover, it aims to fix an aspect of the code that pretty much everyone agrees is broken: the way the global profits of American corporations are taxed.

The current system — in which profits earned abroad are not taxed until they are brought home — creates perverse incentives, encouraging American companies to park their money in lower-tax havens outside the United States. That stash now amounts to roughly $2.6 trillion.

Repairing that system will require policy makers to confront two vexing problems. The first is how to get American companies to reel in the enormous sum and pay at least some of the tax that is due. The second is to overhaul how foreign earnings are taxed in the future so that multinationals change their ways.

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