The House's top tax writer proposed Wednesday exempting from taxes 95 percent of the profits that American companies earn overseas.
House Ways and Means Committee Chairman David Camp, R-Mich., said he would tax the remaining profits at just 5 percent. That is well below the current top corporate tax rate of 35 percent that applies when companies bring their profits back home, making his proposal a major victory for U.S.-based multinational firms.
Camp's plan is part of his drive to reshape the overall tax code. He also wants to lower the top corporate and personal tax rates to 25 percent, down from the current maximum of 35 percent.
Camp says he wants to make the revisions without changing the total revenue raised from business taxes, which presumably means he would curb some existing tax breaks. The proposal he announced Wednesday was broad and omitted many details, including how he would keep revenue unchanged.
The U.S. is among a dwindling number of major countries that tax the profits their companies earn abroad. Critics say that encourages firms to keep that money overseas at a time when job creation in the U.S. has slowed to a trickle.
"Our outdated international tax system encourages employers to keep profits and jobs outside of America," Camp said.
Democrats complained that Camp's plan offered little protection for American workers.
"Moving to a different international tax system must guard against policies that lead to further shifting of jobs overseas and further shifting of income into tax havens," said the top Democrat on the Ways and Means panel, Rep. Sander Levin of Michigan. "Today's draft acknowledges these challenges, but does not solve them."
Large multinational corporations have been lobbying for a rewrite of laws so offshore profits would not be taxed, and for a "holiday" that would let them bring home their profits at reduced tax rates.
" We urge Congress and the administration to move quickly and give our economy the boost it needs," said Karen Olick, campaign manager for WIN America, a lobbying group representing large multinational firms.
Camp's announcement comes as a bipartisan 12-member supercommittee of Congress _ on which he serves _ struggles to find at least $1.2 trillion in budget savings over the next decade. Unlike Democrats, Republicans have said they oppose including tax increases as part of that deficit-cutting effort.
Many in both parties say would like to see the tax code revamped because of its complexities. It seems unlikely that a major overhaul could occur even as the 2012 presidential and congressional elections begin casting their shadow on Congress' work.
Wiliam McBride, an economist at the conservative Tax Foundation, noted that U.S. companies operating abroad pay taxes to the countries where they operate. They get a tax credit for those foreign levies when they return the profits home.
"It's quite unfair to assume they should also pay taxes at a 35 percent rate in the U.S.," he said.
Chuck Marr, director of federal tax policy at the liberal Center on Budget and Policy Priorities, said Camp's plan would give big multinational companies one of their top priorities.
"At a time when working and middle class living standards are under severe stress, here's a corporate push to eliminate taxes on foreign profits," he said. "That's pretty much what this is."