The sleeper issue in Donald Trump’s tax-cutting agenda is a potential bombshell called the “territorial tax system.” It doesn’t get the headlines, or even much political discussion, so the public is clueless. The industrial titans of Silicon Valley like it like that. Their proposal would fundamentally alter the taxation of US multinational corporations, and beneficiaries would include celebrated brand names like Google, Microsoft, and Apple.
Those tech giants and other globalized companies have been after Congress for years to make the switch to “territorial.” But corporate execs are not making their campaign noisy, because their so-called “tax reform” would be a dead turkey if citizens understood the threatening implications.
That seems unlikely. The big names of information technology are popular companies and, yes, global trade is complicated stuff, hard to explain in a few sentences. Scores of independent watchdogs—citizen organizations like Tax Analysts and Americans for Fair Taxation—are sounding the alarm and lobbying members of Congress. But it’s an uphill struggle, especially since the Democratic Party has not tried to alert voters and mobilize public opposition.
In my experience, this is how American democracy frequently fails its promise. Politicians privately blame people for indifference; I mostly blame politicians for ducking their obligations. In my decades as a political reporter, I have found that people of ordinary intelligence can usually see through the corporate smoke and understand complex issues if the pols explain things with plainspoken clarity.
Political parties used to be personal teachers, going door to door in neighborhoods, listening to gripes and opinions, plugging the party line and ticket. In modern politics, cynical candidates needn’t bother. They can parrot what the pollsters tell them people want to hear. I prefer politicians who tell people what they need to know.
So here are critical points about the “territorial” tax system people need to understand but corporate advocates won’t mention: If the scheme is passed, American companies with operations dispersed globally would pay US taxes only on the profits earned within the territory of the United States. In the current system, Washington attempts to tax multinationals on their worldwide earnings but fails miserably because the corporations have figured out fiendishly complicated ways to hide their profits in low-tax foreign countries. (That speaks to a separate but related item on the multinationals’ current wish list for tax reform: “forgiveness” for the roughly $600 billion in profits they would owe once they repatriate those profits, an issue I have addressed previously in this column.)