Jordan Weiss in Tax Notes with similar thoughts

March 25, 2013

A Tax Increase Republicans and Democrats Should Embrace

by Jordan P. Weiss

Jordan P. Weiss lauds David Cay Johnston's approach to revising the accumulated earnings tax, calling it a "common-sense approach," and offers a few suggestions of his own for further tax reform.

To the Editor:

I woke up this morning to yet another newspaper article bemoaning the accumulation of offshore earnings of United States corporations. A few weeks past, David Cay Johnston gave readers a common-sense approach to the accumulated earnings tax to, in part, ameliorate the issue. Johnston, "How the Accumulated Earnings Tax Can Stimulate Growth," Tax Notes, Mar. 11, 2013, p. 1265 . An approach he concluded would provide better returns for investors, more jobs for Americans, and encourage entrepreneurial spirit. While common sense is increasingly uncommon in the current tax debates, everyone seems to agree that we need to bring the cash held offshore by American corporations back home. In that spirit, I offer the following suggestions (to be coupled with Mr. Johnston's proposed accumulated earnings proposal):

·         Make the dividend of the offshore foreign earnings tax deductible to the corporation.

·         Impose a 30 percent final withholding tax on the dividend, even to 401(k)s and tax-exempt organizations.

·         Eliminate the foreign tax credit on the dividend.

If the dividends of the foreign earnings held offshore are deductible to corporations, essentially we would have eliminated corporate tax on such earnings. Corporations would be hard-pressed to complain about the high United States tax rate on such earnings.

A 30 percent withholding tax, call it the "Buffett tax," would apply to the dividend, which ought to make even the most hardened Democrat support the tax. It would be fairly easy to draft mechanisms to make sure we are only subjecting the foreign earnings to the withholding tax.

We would have corporate integration (a single level of tax) on such foreign earnings which ought to make even the most hardened Republican support the tax.

The tax-exempts might complain; however, they are getting a larger distribution because of the lack of corporate tax on such earnings.

Shareholders will certainly demand the cash dividends, and corporate boards will hold onto such cash at their peril.

Corporate raiders will eye the cash hoards and merger and acquisition activity would be enhanced.

Capital reallocation to its most productive uses will occur.

The tax would be borne mostly by "millionaires and billionaires" who own most of the stock.

And as concluded by Mr. Johnston, we would provide better returns for investors, more jobs for Americans and encourage entrepreneurial spirit.

It might just bring some of those earnings back home!

Very truly yours,

Jordan P. Weiss
Mar. 19, 2013