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Clinton Offers New Exit Tax On US Foreign Company Mergers

Clinton Offers New Exit Tax On US Foreign Company Mergers

Presidential-hopeful Hilary Clinton has made it clear that it is time for big companies to stop hiding their assets overseas. As such, it is her hope to pass new legislation that will prevent this form of tax evasion. While the concept is well-received by the middle class, many are wondering if it will actually pass and how it will be enforced.

The Problem

The news is constantly filled with claims that the tax burden on the country’s wealthiest is too high. In theory, big companies should be paying around 35% of their revenue in taxes. According to financial gurus, creative accounting and loopholes leaves most companies paying significantly less – around 20%. In an effort to keep more money in their pockets, these big companies are turning multi-national. The multi-national stance occurs when a company chooses to partner with another smaller company in another country. They shift funds to these smaller companies in the form of intra-business loans. In theory, this is completely legal. However, too many companies have gone above and beyond by shifting large percentages of their money to companies in countries with more favorable tax laws, to prevent the high U.S. tax rates. According to Gabriel Zucman of the University of California at Berkley, the tax revenue loss for the U.S. government due to these practices exceeds $100-billion annually.

Clinton’s Solution

Clinton has proposed a new three part program to combat this growing problem. The first would require any company that has at least 50% of its stock in other countries to be considered “foreign”. Currently, this rate is at 20%. The second, most prominent part of this program is the exit tax. This would be levy that businesses had to pay for leaving the United States. It would function similarly to the tax which is applied to residents who move to other countries and forgo maintaining citizenship in the United States. The goal of the exit tax is to entice more businesses to focus on keeping their boots on U.S. soil, especially since this tax could include an assessment of all assets – foreign and domestic. The third part of this policy is to increase the guidelines under which companies can transfer funds between their subsidiary companies. As in, companies may have to show an actual need/reasoning for transferring the assets to prove that it is not just a ploy to avoid taxes.

Will it Work?

The big question on everyone’s mind is whether or not this policy will even work. According to tax experts, it may work in the short term. Essentially, this new policy would be a band aid on the growing problem and financial deficit facing the United States. Unfortunately, there are always going to be loopholes and that is the concern of every day individuals who feel the financial tax strain as these companies continue to shift assets overseas, leaving the tax burden on them. At this point, both Clinton and her proposal have a long way to go before anything takes place.