WASHINGTON—U.S. Senators Chris Murphy (D-Conn.), a member of the U.S. Senate Health, Education, Labor, and Pensions Committee, and Richard Blumenthal (D-Conn.) on Thursday joined U.S. Senator Sheldon Whitehouse (D-R.I.) and 15 of their Senate colleagues in reintroducing the No Tax Breaks for Outsourcing Act, legislation that would reverse the Trump tax law’s breaks for offshoring jobs and profits. The announcement comes as President Trump’s 25 percent tariffs on Canada and Mexico remain under negotiation, while Republicans push to expand those offshoring incentives in their reconciliation bill.

The No Tax Breaks for Outsourcing Act would level the playing field for American companies by requiring multinational corporations to pay the same tax rate on profits earned abroad as they do in the United States. The Trump tax law created a special tax rate for offshore profits that is half the domestic rate. Since the law’s passage, studies have found that multinationals have increased foreign, rather than domestic investment. Extending the Trump tax law would mean maintaining this half-off rate, which is otherwise scheduled to slightly increase.

If passed, the senators’ 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 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. They would still pay less than their competitors with a higher rate on foreign profits. Moreover, with over 140 countries moving to implement the global tax agreement, 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.  

U.S. Senators Richard Durbin (D-Ill.), Jack Reed (D-R.I.), Tammy Baldwin (D-Wis.), Elizabeth Warren (D-Mass.), Jeff Merkley (D-Ore.), Ed Markey (D-Mass.), Brian Schatz (D-Hawaii), John Fetterman (D-Pa.), Chris Van Hollen (D-Md.), Ruben Gallego (D-Ariz.), Mazie Hirono (D-Hawaii), Martin Heinrich (D-N.M.), Cory Booker (D-N.J.), Tina Smith (D-Minn.), and Tammy Duckworth (D-Ill.) also cosponsored the legislation.

The No Tax Breaks for Outsourcing Act would repeal offshoring incentives by:

  • Equalizing the tax rate on profits earned abroad to the tax rate on profits earned here at home.  The bill 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.  
  • Repealing 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 Trump tax law exempts from tax a 10 percent return on tangible investments made overseas, like plants and equipment.  The legislation would eliminate the zero-tax rate on certain investments made overseas. 
  • Treating “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 actually American companies in disguise.  The bill would treat corporations worth $50 million or more and managed and controlled within the U.S. as the American entities they in fact are, and subject them to the same tax as other U.S. taxpayers.
  • Cracking 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. 
  • Combating 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 U.S. subsidiaries.  The bill would disallow interest deduction for U.S. subsidiaries of a multinational 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.”  
  • Eliminating 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 offshore profits.  

Full text of the bill is available HERE.

###